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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



FORM 10-K



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



For the fiscal year ended September 30, 2003



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



Commission File Number 000-20835



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, IL 60069; 847-295-5000

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



Securities registered
pursuant to Section 12(b) of the Act:



|Title of each Class                    |  | Name of each exchangeon which registered
|-------------------------------------- |  | ----------------------------------------
|Class A Common Stock - $0.01 par value |  | New York Stock Exchange                 



Securities
registered pursuant to Section 12(g) of the Act:    None



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ̈



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in a definitive proxy statement or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ̈



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



The aggregate market value of the common stock of Hewitt Associates, Inc. outstanding shares estimated to be held by non-affiliates was $2,455,205,450 as of October 31, 2003, based on a closing price of $25.70. While
it is difficult to determine the number of shares owned by affiliates (within the meaning of the term under the applicable regulations of the Securities and Exchange Commission), the registrant believes this estimate is reasonable.



|Class                                |  | Outstanding as of October 31, 2003
|------------------------------------ |  | ----------------------------------
|Class A Common Stock$0.01 par value |  | 30,384,062                        
|Class B Common Stock$0.01 par value |  | 63,420,466                        
|Class C Common Stock$0.01 par value |  | 4,603,915                         
|                                     |  |                                   
|                                     |  | 98,408,443                        



DOCUMENTS
INCORPORATED BY REFERENCE



Certain specified portions of the
registrants Proxy Statement for the Annual Meeting of Stockholders (the Proxy Statement) are incorporated by reference in response to Part III, Items 10-14, of this Form 10-K.



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HEWITT ASSOCIATES, INC.



FORM 10-K

For The Fiscal Year Ended

September 30, 2003



INDEX



|Item     |  | Page                                                                                 
|-------- |  | -------------------------------------------------------------------------------------
|         | 
|PART I   |  |                                                                                      
|         |  |                                                                                      
|1.       |  | Business                                                                             
|2.       |  | Properties                                                                           
|3.       |  | Legal Proceedings                                                                    
|4.       |  | Submission of Matters to a Vote of Security Holders                                  
|         | 
|PART II  |  |                                                                                      
|         |  |                                                                                      
|5.       |  | Market for Registrants Common Equity and Related Stockholder Matters                
|6.       |  | Selected Financial Data                                                              
|7.       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|7A.      |  | Quantitative and Qualitative Disclosures about Market Risk                           
|8.       |  | Financial Statements and Supplementary Data                                          
|9.       |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|9A.      |  | Controls and Procedures                                                              
|         | 
|PART III |  |                                                                                      
|         |  |                                                                                      
|10.      |  | Directors and Executive Officers of the Registrant                                   
|11.      |  | Executive Compensation                                                               
|12.      |  | Security Ownership of Certain Beneficial Owners and Management                       
|13.      |  | Certain Relationships and Related Transactions                                       
|14.      |  | Principal Accountant Fees and Services                                               
|         | 
|PART IV  |  |                                                                                      
|         |  |                                                                                      
|15.      |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                      
|         |  | Signatures                                                                           
|15(a)    |  | Index to Financial Statements                                                        
|         |  | Index to Exhibits                                                                    





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PART I



|Item 1. |  | Business
|------- |  | --------



Overview



Hewitt is a leading global
provider of human resources outsourcing and consulting services. Our mission is to excel, around the world, at helping our clients and their people succeed together. In fiscal 2003, which marked our 42nd consecutive year of revenue growth, we
provided services to more than 2,600 clients. We believe that we are well-positioned to continue our growth in a business environment characterized by a growing recognition of the critical importance of human resources, increasingly complex human
resources challenges and rapid technological change.



Since our founding in
1940, we have continuously extended and expanded our human resources service offerings in response to our clients needs. Early in our history, we specialized in providing actuarial services for sponsors of retirement plans and executive
compensation consulting. These remain core competencies of the firm today. Benefits legislation in the 1970s and the proliferation of flexible benefits and 401(k) programs in the 1980s substantially increased companies needs for
advisory and administrative services related to health and welfare benefits, retirement benefits and compensation programs. In 1991, we introduced the Total Benefit Administration system, which we believe is the first technology platform for outsourcing the
administration of the three major benefit service areas using a single, integrated system and database. Following significant investments in technology, infrastructure, and people, and with over twelve years of experience, outsourcing is now our
largest business segment.



Of our $2.0 billion of net revenues in 2003, 63% was
generated in our outsourcing business and 37% was generated in our consulting business. Our outsourcing business is comprised of three core benefits administration services, our new payroll administration service and our workforce management
solution. Our consulting business is comprised of three service areas, including health management, retirement and financial management, and talent and organization consulting.



We believe that our leadership in outsourcing and consulting and our ability to provide integrated solutions across and within both
businesses are important competitive advantages. With our full range of services, we are able to leverage the data and knowledge we gain through outsourcing to provide more comprehensive and market-based solutions in our consulting business.
Likewise, we utilize the expertise developed through our consulting business to meet the specific objectives of our outsourcing clients through high-value, cost-effective solutions.



Through our outsourcing business, we apply our human resources expertise and employ our integrated technology systems to administer our
clients human resources programs: benefits, payroll and workforce management. We assume and automate the resource-intensive processes required to administer our clients human resources programs, and we provide on-line tools and
information that support decision-making and transactions by our clients and their employees. We enable companies to streamline their human resources administration and processes in order to enhance effectiveness and reduce costs, and to employ
web-based technologies to automate processes and transactions. With the information and tools that we provide, our clients are able to optimize the return on their benefits, payroll, and human resources investments.



Our 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). Our recent acquisition of Northern Trust Retirement Consulting (NTRC) in June 2003 also extends our defined contribution services. Our recent acquisition of
Cyborg Worldwide, Inc., the parent of Cyborg Systems, Inc. (Cyborg), a global provider of human resources management software and payroll services, expands our outsourcing service offering to include payroll administration, allows us to
provide our clients with a stand-alone payroll service and, importantly, enables us to offer a comprehensive range of human resources outsourcing services. Our payroll services include installed payroll software and fully outsourced processing. Our
workforce management outsourcing services include workforce administration, rewards management, recruiting and staffing, performance management, learning and development, and talent management.



To date, we have provided our outsourcing services primarily to companies with complex human
resources programs and over 10,000 employees. As of September 30, 2003, we were providing benefit outsourcing services to approximately 270



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clients (typically through three-to five-year contracts) representing a total of approximately 410 benefit services, including 61 new services relating to
the NTRC acquisition. We define a benefit outsourcing client as a company that has outsourced to us the administration of one or more of the three core benefit services. We define a benefit service as any one of the three benefit administration
services that we provide for a client. As a result, for clients who offer health and welfare, defined contribution and defined benefit programs, we have the opportunity to provide three benefit services. We are focused on developing deep client
relationships and establishing ourselves as the outsourcing provider of choice across all of our outsourcing services. We have grown our outsourcing revenues by both expanding existing client relationships and adding new clients.



We believe that we will continue to deliver significant growth in our outsourcing business by
expanding relationships with existing clients, increasing the penetration of our target outsourcing market, extending our service offerings, addressing the complex and changing needs for health benefit management services, providing outsourcing
services to mid-sized companies, establishing new business alliances, and growing our business outside the United States.



Through our consulting business, 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. Our consulting clients include a diverse base of companies, many of which have been clients for a long time. We have grown our consulting revenues by
both expanding existing client relationships and adding new clients. Looking back over the last five years, of our 100 largest consulting clients in 1998 (ranked by revenues), 88 are consulting clients today and have been in each of the last five
years.



We plan to continue to grow our consulting business by extending
services into our existing client base, targeting companies we currently do not serve, continuing to address the complex and changing needs for health benefit management services and growing our business outside the United States.



Industry Background



Human resources outsourcing and consulting have grown rapidly in an increasingly service and knowledge-based economy as companies view the
effective management of human capital as critical to optimizing business results. As companies strive to improve profitability and productivity, the effectiveness of human resources expenditures is an area of increased focus. Furthermore, the
increasing complexity of human resources processes and programs, the need to develop new or improved programs in response to changing regulations or competitive pressures, and the desire to realize a high return on investments in these programs, all
contribute to the rising premium placed on effective human resources.



International Data Corporation, in its Worldwide and U.S. HR Management Services Forecast for 2003-2007, projects total U.S. human resources services spending to grow at a 12.5% compounded annual growth rate from approximately $30
billion in 2002 to more than $54 billion by 2007. This growth projection consists of: (i) a 20.8% compound annual growth rate for human resources business process outsourcing (e.g., hiring, benefits, management, training and development and
performance management) from approximately $6 billion in 2002 to $15 billion in 2007; (ii) an 8.4% compound annual growth rate for human resources processing services (e.g., benefits administration and payroll) from approximately $11 billion in 2002
to $17 billion in 2007 and (iii) a 11.4% compound annual growth rate for human resources consulting (e.g., human resources strategy, best practices and process re-engineering, process improvement, organizational, compensation and benefit design)
from approximately $13 billion in 2002 to nearly $22 billion in 2007.



Companies are focused on maximizing the return on their human resource investments by structuring human resource programs that meet employee needs and expectations and by delivering those programs efficiently. Companies are recognizing that
in order to attract, motivate and retain talented employees, they must provide human resource programs that are viewed as valuable, as well as tools that enable employees to make choices regarding their benefits and to conduct related transactions.
At the same time, companies are challenged by rising health care costs, the growing complexity of health and welfare and retirement plans, frequent technological changes, the need to comply with changing regulations and the demands of their
employees for choice, information and responsiveness. Consequently, companies are seeking outside assistance with the design, management and administration of their human resource programs.



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Benefits administration outsourcing includes transactional functions such as benefits program administration (including
providing enrollment materials, recordkeeping and COBRA administration), regulatory compliance, claims management and participant call center management, as well as strategic components such as benefits program design and provider selection. The
three primary areas of benefits administration outsourced by companies today are health and welfare, defined contribution and defined benefit programs.



The global business environment is becoming increasingly complex, competitive and technology focused, and employees and employers are demanding more choice and
self-management of benefits. The continued shift from a manufacturing-based economy to a service- and knowledge-based economy places a greater premium on a companys ability to attract, motivate and retain the human capital necessary to
generate value. According to the U.S. Bureau of Labor Statistics the estimated number of 25 to 44- year-old U.S. workers is expected to decline from approximately 70 million in 2000 to 68 million by 2010, while the trend of historically low
unemployment among college educated professionals (2.9% in 2002) will continue. As a result, we believe competition for talent is expected to become more intense and companies will increasingly seek outside consultants for guidance on human
resources issues.



Business Segments



Our two principal business segments are outsourcing and consulting:



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



| |  | Consulting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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Outsourcing



Today, the most significant part of our Outsourcing segment consists of benefits outsourcing services, which includes three principal categories of employee benefit
programs:



| |  | Health and Welfare;
| | - | -------------------



| |  | Defined Contribution; and
| | - | -------------------------



| |  | Defined Benefit.
| | - | ----------------



Building on our experience in benefits outsourcing, we have extended our benefits outsourcing approach and developed a solution for workforce management. Our recent acquisition of Cyborg also expands our service
offering to include payroll administration on a stand-alone basis and enables us to provide our clients with a comprehensive range of workforce management solutions. We believe that our infrastructure, strong brand name and human resources market
leadership, combined with Cyborgs underlying software platform, are competitive advantages which enable us to provide strong payroll, workforce management and human resources management solutions.



Outsourcing represented 63% of our net revenues in fiscal 2003. We deliver outsourcing
services primarily to organizations with more than 10,000 employees which have complex human resources and benefit programs. During



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fiscal 2003, 101 of our outsourcing clients were Fortune 500companies. Our outsourcing clients typically sign three- to five-year contracts and most
of our clients have renewed their contracts with us upon expiration of the initial term.



Through an integrated suite of technologies that span infrastructure, data-warehousing, human resources applications, security, service centers, portals and content management, we provide automated solutions to our
clients human resources and benefits-related processes that is flexible enough to adapt to a broad range of program complexity and to accommodate the needs of clients ranging in size from less than 1,000 to well over 500,000 employees. Our
outsourcing services are designed to help clients eliminate inefficiencies in human resources and benefits delivery to employees, continue to meet business objectives in a changing environment and meet compliance obligations of their human resources
and benefits programs. We relieve human resources managers of the resource-intensive day-to-day processes required in the administration of human resources and benefits programs, including recordkeeping, data management, systems integration, and
transaction and decision support. We follow a comprehensive process to develop an understanding of our clients needs, learn their systems and culture and jointly define their objectives. Our comprehensive approach provides a secure solution to
manage employee data, record and manage transactions directed by employees, managers, and human resources professionals and administer human resources, benefits, and payroll processes. In addition, we transmit and transfer data between our clients
and both their employees and outside parties (such as health plans, trustees and investment managers). We also provide employers with web-based tools that enable them to report on and analyze the effectiveness and the return on investment in their
benefits, compensation, and human resources programs and facilitate project management with us.



Our outsourcing services enable our clients to satisfy their employees and managers needs for information, decision-making tools and support, and ability to take action related to benefits, payroll, and
human resources. We offer our clients employees three ways to communicate with us and manage their benefits and human resources programs: Internet, automated voice response system and call centers. This multiple access approach encourages
employees self-management of their benefits, which in turn helps our clients control and reduce their human resources and benefits costs. Our web-based tools, Your Benefits Resources and HR WorkWays, are fully integrated with the Total Benefit Administration and workforce management platforms and provides
employees, managers, and human resource professionals with personalized content and fast, accurate, and easy-to-use decision support tools that allow real-time management of their human resources and benefits decisions and transactions.
Your Benefits Resources also provides
employees with seamless integrated interfaces to outside providers of services such as investment advice and health care provider directories. Automated voice response provides participants certain transaction capabilities over the phone. These
self-management solutions can be further enhanced through AccessDirect, a personalized directory service that enables employees to connect to their human resources and benefits providers and access services. For employees, managers, and human resources professionals who need more
assistance with human resources, payroll or benefits issues, we staff our call centers with employees who have received extensive training in issues specific to the clients programs.



Health and Welfare.Our health and welfare outsourcing services are a natural
extension of our health management consulting capabilities. Administering health and welfare benefit programs is an important and complex task for employers who must manage both the rising cost of providing health insurance and employees
demands for increased choice of health and welfare benefit options. Every year, each company has a period of time (typically three to four weeks) during which employees are required to make decisions regarding their health and welfare options and
enroll in programs for the following year. Each employer must communicate its benefit offerings by providing employees with information explaining the available options and answering employees questions regarding the various alternatives. Once
employees have submitted their choices, the employer must then accurately communicate these choices to provider organizations. For companies managing benefits administration internally, staffing a human resources department with adequate support to
effectively and efficiently handle this annual surge of activity is extremely challenging. Furthermore, ongoing health and welfare administration requires managing payroll deduction and status data that determine each participants health plan
eligibility and transmitting eligibility data to health plans and providers.



Our technology-based delivery model offers employers a cost-effective and efficient solution to their health and welfare benefits administration needs. We are able to manage the annual enrollment process in a seamless manner for the
employer and have the ability to clearly communicate to employees their available choices. We also are able to



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deliver significant value to our clients outside of the annual enrollment process and in the context of ongoing benefits administration. For example,
Hewitt Associates Connections, our
automated data management and premium payment process, connects us with more than 250 insurance companies and other health plan providers in the United States, Canada and Puerto Rico, facilitating data transfer, resolving quality issues, validating
participant eligibility and paying premiums in order to eliminate overpayment to health plans. Additionally, we offer automatic payment of employees portion of program costs, providing significant efficiencies to the employer and helping to
ensure that contributions to health plans for inactive employees and retirees are appropriately credited. Further, we document and report issues and statistics to assist plan sponsors in driving better plan performance.



Our services are available to employees 24 hours a day, seven days a week. Your Benefits
Resources enables employees to enroll in and
manage their health and welfare benefits via the Internet. In addition to using Your Benefits Resources to obtain information about the various options available and model their health and welfare benefit costs under various assumptions, employees can also use our automated voice response
system or our call centers. Additionally, ProviderDirect, another web-based service, allows employees to identify in-network medical providers by criteria such as specialty, location and gender. Our Participant Advocacyservice
provides assistance directly to employees regarding the resolution of health plan eligibility, access and claim issues. In addition, in January 2004, we expect to begin providing Health Care Spending Accountadministration services through
the Internet that will provide employees with a paperless way to manage their health care spending accounts and file claims for reimbursements.



Based on our knowledge of the marketplace and the number of employees to whom we provide services, we believe Hewitt is the largest provider of outsourced health and
welfare administrative services. As of September 30, 2003, we were providing health and welfare outsourcing services to 143 plan sponsors, of which 2 were related to the recent NTRC acquisition. We believe our experience and expertise in managing
complex health and welfare plan administration issues will be a significant factor in the continued growth of this business, especially as plan sponsors continue to focus on managing the cost of multi-option health and welfare programs.



Defined Contribution.Most companies outsource the administration of their defined
contribution plans. Defined contribution administration requires management of significant volumes of participant, payroll and investment fund data and transactions, and daily transaction data transmissions between companies and their defined
contribution plan trustees and asset managers, as well as daily posting of investment results to employees individual defined contribution accounts.



Unlike many of our competitors who provide defined contribution outsourcing services as a means to accumulate plan assets in their proprietary investment funds, we do not
manage investments. As a result, we are able to maintain an objective, independent position regarding our clients choices of funds to include in their plans. Our focus is on providing reliable, high quality and comprehensive services to both
the plan sponsor and to the employee.



Through our Total Benefit
Administration system, we maintain and manage
defined contribution data for clients, while accommodating clients choices of trustees and investment funds. This allows our clients to provide defined contribution programs that their employees value, transfer the administrative burden for
these programs and control costs. In addition, we work with researchers at leading academic institutions to analyze the considerable amounts of data we accumulate to identify trends in participant investment behavior. This additional intelligence
allows us to help our outsourcing clients refine their strategy for meeting employees investment needs.



We provide web-based access 24 hours a day, seven days a week through our Your Benefits Resources site for employees to make various elections and changes to their defined contribution accounts. Employees can also use our automated voice response
system or our call centers to ask questions and make various elections and changes. This is appealing to employees who increasingly desire the ability to actively manage their investments. Through integrated Your Benefits Resources capabilities, we also provide employees with access to
investment advice from third party vendors and self-directed brokerage account options through our subsidiary, Hewitt Financial Services, and its alliance with Harrisdirect,a leading provider of on-line brokerage services.



According to a survey conducted by Plan Sponsormagazine, we are the third largest
provider of outsourced defined contribution administration services based on number of employees. Based on our knowledge of the marketplace and number of employees to whom we provide services, we believe we are the largest provider of outsourced
defined



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contribution administration services that is not also an asset manager. As of September 30, 2003, we were providing defined contribution outsourcing services
to 159 plan sponsors of which, 46 were related to the recent NTRC acquisition. While the domestic market for defined contribution outsourcing is relatively well-developed, we believe the international markets offer us opportunities for expansion as
employers in many countries outside the United States are beginning to adopt defined contribution plans. We believe our global reach and our strategy to increase our international presence will provide an opportunity to grow this service offering.
We believe industry consolidation will provide other opportunities for expansion in this area. For example, in 2002, we partnered with National City Corporation to provide 401(k) administration services, including recordkeeping and customer service,
to National City Corporation clients.



Defined Benefit.Most mid-sized
and large employers continue to sponsor defined benefit (pension) plans. Pension plans are subject to numerous laws and regulations and the administration of them has historically been extremely complex and paper-intensive, resulting in challenges
for employers. Because inaccurate or improper plan administration can have significant adverse consequences, many employers seek third-party providers to administer their plans.



Our defined benefit outsourcing services were a natural extension of the retirement and financial management consulting services that we
have provided since our inception. Through our Total Benefit Administration system, we have re-engineered, streamlined and shortened the traditional processing of an employees retirement. Our approach relies on a high degree of automation for both calculations and execution of
transactions for each participant. Total Benefit Administration includes a database that captures all historical data for current and past employees, enabling employers to accurately apply plan provisions to appropriate participant populations, and often times, for multiple plans.
Additionally, for employers who are implementing plan changes, Total Benefit Administration offers an Internet channel that provides employers with decision-making support.



Through Your Benefits Resources, we provide employees convenient and easy-to-use web based tools to model their benefits based on various retirement dates, information regarding their
retirement options, and the ability to initiate and process their retirement on-line. Employees can also use our automated voice response system to model their benefits. Through our call centers, we provide access to pension counselors who are
knowledgeable about employees pension programs and options and who can explain the often complex process of how their pension plans work.



Based on our knowledge of the marketplace and the number of employees to whom we provide services, we believe we are the largest provider of outsourced defined benefit
administration services. Further, we believe that only a small percentage of organizations have outsourced their defined benefit administration to date. As of September 30, 2003, we were providing defined benefit outsourcing services to 112 plan
sponsors, of which, 13 were related to the recent NTRC acquisition. We believe there are growth opportunities for us as we continue to leverage our technology, expertise and experience to bring our defined benefit outsourcing services to companies
which have not yet outsourced their defined benefit plans.



Workforce
Management.We have built on our experience in outsourcing and consulting to provide our workforce management solution. This service enables our clients to outsource a wide range of human resources administrative functions, including workforce
administration, rewards management, recruiting and staffing, performance management, learning and development, and talent management. Through our workforce management solution, we enable companies to streamline their human resources administration
and processes in order to enhance effectiveness and reduce costs, and to employ web-based technologies to automate processes and transactions. By outsourcing their human resources functions to us, companies are able to receive improved services and
tools for employees, managers and the human resources function without having to continually invest capital and resources to keep pace with rapidly developing human resources technologies and processes. This service is provided through a combination
of our own capabilities and alliances with other specialized providers.



In
fiscal year 2002, we completed initial implementation work for our first workforce management client, the U.S. operations of Sony Electronics, and successfully launched operations on October 1, 2002. We now have four workforce management clients.
For our second workforce management client, a large pharmacy benefits management company, our health and welfare outsourcing services started in November 2002 and our defined benefit and workforce management services started in April 2003.
Implementation work is also underway for our



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third and fourth workforce management clients. The third client is a healthcare organization and we expect that workforce management services will commence
in early fiscal 2004. The fourth client is a global financial services organization and we expect that workforce management services will commence on a global basis in the second half of fiscal 2004. During 2003, we also expanded services for our
first client. Our new workforce management offering is an important element of our outsourcing growth strategy.



Payroll.Our acquisition of Cyborg gives us the capability to provide payroll services both through licensing and installing software and through a fully
outsourced payroll services model. We believe that the demand for payroll services among large companies is significant and growing, and we expect to provide value to clients by applying the same human resources experience, continuous systems
enhancement and process improvement to payroll that we have to our other outsourcing services.



Through our payroll business, we now provide installed human resources management system and payroll software as well as outsourced payroll processing. The range of payroll processing services we offer includes:
payroll processing, time and attendance management, tax and other regulatory compliance assistance, and year-end tax and other payroll reporting. We expect to build on our experience in human resources outsourcing to extend the core Cyborg system to
offer a fully outsourced payroll model.



As a natural extension of the
workforce management outsourcing work we do for Sony, we will also begin providing outsourced payroll services to Sony in December 2003.



Consulting



Consulting represented 37% of our net revenues in fiscal 2003. We offer consulting services to a diverse range of clients. In todays increasingly service and knowledge-based economy, companies regard the
effective management of human capital as critical to the success of their business. Companies recognize that in order to attract, motivate and retain talented employees, they must provide benefits, compensation and other human resources programs
that employees view as valuable as well as the tools to enable employees to make choices and conduct related transactions.



To meet this need, we provide a wide array of consulting and actuarial services covering the design, implementation and operation of health and welfare, compensation and
retirement plans and broader human resources programs and processes. In addition, we use the information and data we collect and analyze through our outsourcing services to develop consulting approaches that are effective and provide value to our
clients.



Our consulting services consist of three principal categories:



| |  | Health Management;
| | - | ------------------



| |  | Retirement and Financial Management; and
| | - | ----------------------------------------



| |  | Talent and Organization Consulting.
| | - | -----------------------------------



Health Management.Increasing health care costs present a challenge for many companies at a time when employees expect broader and more cost-effective health care
choices and general economic conditions place demands on employers to reduce spending. We believe we have an opportunity to help employers control these escalating costs and take advantage of the transformation of health and welfare benefits from a
managed care to a consumer-driven system in which employees are provided with cost and quality information tools to more effectively manage their use of the health care system. Our health management consultants help clients design comprehensive
health and welfare strategies, from the initial philosophical approach to specific benefit plan content that supports our clients human resources strategies. We assist our clients in the selection of health plans that balance cost and value
and improve employee satisfaction. We also help clients determine which funding approaches (i.e., insured, self-insured, or risk adjusted insured) and employee contribution strategies will best meet their objectives.



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We help our clients achieve these goals through our proprietary technology applications and tools that we have developed,
including:



| |  | The Hewitt Health Value Financial Index.A tool for comparing all employers health care benefits and costs against a database of approximately 14 million participants;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Hewitt Health Value Performance Index.Detailed quality, financial and administrative performance data on over 1,800 health plans across the United States;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Hewitt Health Resources eRFP. We believe this is the highest volume Internet purchasing site in the group health insurance industry, supporting over 5,000 HMO
negotiations and renewals annually; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Consumer Satisfaction Web Site. Feedback on employees satisfaction with individual health care plans as an additional measure of employer performance.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



Our health management consulting business provided services to
approximately 390 clients during fiscal year 2003. We believe we continue to be well-positioned to address the growing, complex and changing needs for health benefit management services through our integrated approach, enabling us to provide
high-value, cost-effective solutions to meet the specific objectives of our clients.



Our health management consulting business is closely integrated with our health and welfare benefits outsourcing business to provide a comprehensive solution from strategy and design to delivery and administration of health and welfare
benefits. We are able to extract detailed design, demographic and health plan cost data from our outsourcing clients and aggregate the data to provide unique insights for our consulting clients into the quality, cost efficiency and rate structure of
nearly every local health plan in the United States. Furthermore, due to our health and welfare outsourcing experience, we are able to design programs that not only meet our clients business objectives, but that also can be administered,
communicated and delivered efficiently and cost effectively. In addition, for our consulting clients that are also outsourcing clients, we are able to leverage the data and knowledge we accumulate through outsourcing to create efficiencies, speed
implementation and execution of strategies and enhance our service offering in providing consulting services to them.



Retirement and Financial Management.Virtually all large companies sponsor retirement plans as part of their overall employee benefit programseither defined
benefit plans, defined contribution plans or a combination of these plans. Many large companies also offer retiree medical and life insurance benefits as part of their overall retirement benefit program. Over the past few decades, the liabilities
and assets which underlie these programs have grown considerably, and the regulatory and accounting standards which govern retirement plans have become increasingly complex. Additional services are often needed with respect to retirement plans in
the case of significant corporate events or changes such as workforce reductions, early retirement programs, mergers or acquisitions. All of this has contributed to a continuing demand for retirement-related consulting.



Our retirement and financial management business, which we refer to as RFM,
assists clients in three primary activities: (i) developing overall retirement program designs that are aligned with the needs of companies and their employees; (ii) providing the actuarial analysis in support of clients plan funding and
expensing obligations; and (iii) consulting on asset allocation, investment policies and investment manager evaluation.



There has been significant activity around retirement program redesign, as companies look to simplify plans, better manage overall program costs and risks, and align
their program design with their business objectives. Our RFM consultants work with clients to understand their business and workforce strategies, to define their philosophy with respect to retirement programs, and to design programs that reinforce
the key messages to their workforce, while also helping to ensure that the programs comply with applicable governmental regulations. To assist in the design process, we have developed a variety of interactive, real-time modeling and analytical tools
to help employers understand the effect of program changes on individual employees and to highlight the issues inherent in making an effective transition from one program to another. We measure the competitive position of our clients
retirement programs using our proprietary Benefit Index® tool, which calculates the relative value of a companys benefit program compared to a group of selected companies in the same industry, of similar size or in the same geographic region. We believe Benefit
Index® is the industry benchmark for measuring
the relative value of an organizations retirement program. We also help employers develop individual websites, often with modeling capabilities, to



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communicate the details of new retirement programs and often to allow employees to project their own benefits under different assumptions or program choices.



When employers sponsor defined benefit plans or retiree welfare plans, they
typically require the services of a qualified actuary. Actuarial relationships tend to be long-standing, ongoing engagements, and actuarial services represent a significant portion of our RFM business. As actuaries for a plan, we calculate the
plans funded status, the annual cash contribution requirements under applicable governmental requirements, the annual expense impact under applicable accounting standards and other benefit related information for the companys annual
financial statements. In addition to these services, our RFM actuarial consultants provide additional benefit plan services by assisting with the annual budgeting and planning process, preparing financial projections for asset and liability trends
(a joint effort with our RFM investment consultants) and providing cost analyses during union negotiations. Our RFM actuarial consultants also assist clients in due diligence investigations and analyses of proposed mergers, asset sales, acquisitions
and other corporate restructurings to help our clients understand the implications of such transactions on the liabilities and funded status of the plan, as well as on the future cash contribution and expense trends.



Our RFM investment consultants work with fiduciaries of both defined contribution and defined
benefit plans to help them set investment philosophies, determine asset allocations and select asset managers. We also monitor the performance of a large number of asset managers and, since we do not manage assets, we are able to provide clients
with objective and independent analysis of investment policies and procedures.



Our RFM consulting business is closely aligned with our defined benefit and defined contribution outsourcing business. With our full range of services, we are able to provide comprehensive retirement program solutions for clients, from
strategy and design of retirement plans to actuarial and investment services and administration, communication and implementation of retirement plans. For consulting clients that are also outsourcing clients, we are able to leverage the data and
knowledge we accumulate through outsourcing to assist them in developing plan design features and actuarial services better suited to their specific needs.



Our RFM consulting business provided services to approximately 1,680 clients during fiscal year 2003. We expect that our RFM services will continue to contribute to our
overall growth, especially as clients have begun to adopt a global outlook and focus on selecting consultants with international capabilities. Over the past several years, we have expanded our global RFM capabilities significantly, through both
internal growth and a series of acquisitions and alliances in Canada, France, Germany, Hong Kong, Ireland, Mexico, The Netherlands, Norway, Portugal, Sweden, Switzerland and the United Kingdom.



On June 5, 2002, we acquired the benefits consulting business of Bacon & Woodrow, a
leading actuarial and benefits consulting firm in the United Kingdom. We refer you to Note 6 to the consolidated and combined financial statements for additional information on this acquisition. Our increased presence in the United Kingdom, where
many of our clients also have significant operations, has enhanced our ability to offer global design, communication, actuarial and investment consulting services.



Talent and Organization Consulting.Our talent and organization consulting business is focused on four primary activities: (i)
devising strategies for attracting, developing, motivating, rewarding and retaining the leadership and other talent our clients need to succeed; (ii) providing solutions to the people-related issues arising from organizational change (such as
mergers and acquisitions); (iii) helping create and implement customized reward and performance management programs, including annual incentives, stock options and other performance-based plans; and (iv) reducing costs and enhancing our
clients productivity through more effective human resource functions and processes.



Our services continue to focus on helping our clients address the challenges of finding, managing, engaging and rewarding talented employees and leaders. Meeting these challenges successfully is expected to become
even more important as the competition for talent becomes more intense. The U.S. Bureau of Labor Statistics has estimated that the number of 25 to 44-year-old workers is expected to drop from approximately 70 million in 2000 to 68 million by 2010,
while the trend of low unemployment among college educated professionals (2.9% in 2002) continues. There are similar trends in other countries globally. We expect competition for qualified people to intensify as the pool for



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talent decreases but the need for that talent increases. We believe this trend makes our services that much more valuable and attractive to clients.



Through our numerous talent and rewards tools, data and services, we help
companies align their human resources investments with their business objectives, identifying critical human resources practices based on a given business environment, geography and labor force situation. For example, our Total Compensation
Measurement and Variable Compensation
Measurement tools enable clients to analyze
and assess compensation effectiveness and to compare their compensation programs with over 590 companies in the U.S. alone, including approximately 75 of the Fortune 100.We also help clients use focus groups, interviews, surveys and other
methods to better understand their workforce, enhance their relationships with their employees and encourage the types of behavior that ensure business success.



Our talent and organization consultants also assist clients with significant human resources issues arising out of events such as mergers and acquisitions,
divestitures, initial public offerings, spin-offs, joint ventures and other restructurings. In each of these organizational changes, people play a critical role in determining the ultimate success or failure of the transactions. Our Hewitt
Mergers & Acquisitions Management Center,
a website supporting project management and providing access to technical expertise needs ranging from due diligence to integration, enables seamless collaboration between our clients, consultants and external service providers. Since January 2000,
we have provided organizational change services in connection with over 550 transactions, giving us important gateways into companies with whom we have not historically had firm-wide consulting relationships. We expect this number will grow even
larger as we target and increase our investment in building new business with large multinationals headquartered outside North America.



Our human resources effectiveness consulting service helps clients reduce human resources operating costs, generate more productivity in the workforce, and drive more
effective people-related decisions. Our consultants employ technologies and tools to analyze the activities and costs of the human resources function in order to improve efficiencies, reduce costs and enhance effectiveness of the function.



Our talent and organization consulting business provided services to
approximately 900 clients during fiscal year 2003. As companies continue to expand globally and seek assistance in developing and implementing successful organizational change, we anticipate that our services will be in increasing demand. As
demographic projections indicate an increasing shortage of talent globally, we also expect that clients will require assistance in creating effective strategies for attracting and retaining talent and for compensating them in a way that is aligned
and consistent with broader business objectives.



Our talent and organization
consulting business is closely aligned with our workforce management outsourcing services to help clients transform their human resources processes and improve the efficiency and effectiveness of the human resources function. We also provide
communication, training and change management services to support this transformation. We believe we will be able to leverage our deep human resources knowledge and consulting experience in this transformation process to benefit additional
outsourcing clients in the future.



Client Development



We have an integrated, strategic approach to client development that
helps us establish deep, long-term client relationships based on trust and partnership. Unlike many firms, we have had a dedicated group managing this process for more than 30 years.



We view our clients human capital management challenges as an integrated whole, and offer solutions to those challenges that bring
together our best thinking on health care management, retirement management, talent and organization change, and human resources services delivery. We believe this differentiates us from other providers of either consulting or outsourcing
services.



Our client development employees play an important role in
helping us understand and assess our clients human resources challenges in the context of their overall business. They also help to formulate comprehensive solutions that account for and incorporate the complete range of human resources
strategy, design, implementation,



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communication, administration, and customer services in an integrated fashion across and within our outsourcing and consulting businesses.



Our client development employees are responsible for expanding our client base, developing
additional business with existing clients and overall client satisfaction. In addition, they are responsible for ensuring that our work is delivered to both our and our clients standards and expectations.



The acquisition and management of our client relationships is supplemented and supported by
teams of employees from the various disciplines within our business. These employees help us ensure that we have both the proper coverage and appropriate expertise to demonstrate to clients that we have the capabilities required to address the most
complex human resources challenges these organizations face.



We serve a
diverse client base and do not experience significant industry concentration among our clients. Also, no client represented more than 10% of net revenues in fiscal 2003, 2002 or 2001.



Intellectual Property



We recognize the value of intellectual property in the marketplace and vigorously create, harvest and protect our intellectual property. Our success has resulted in part
from our proprietary methodologies, processes, databases and other intellectual property, such as our Total Benefit Administration system, Benefit Index® and other measurement tools.



To protect our proprietary rights, we rely primarily on a combination of:



| |  | copyright, trade secret and trademark laws;
| | - | -------------------------------------------



| |  | confidentiality agreements with employees and third parties; and
| | - | ----------------------------------------------------------------



| |  | protective contractual provisions such as those contained in license and other agreements with consultants, suppliers, strategic partners and clients.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------



We hold no patents and our licenses are ordinary course licenses of software and data. While
we have a number of trademarks, including some obtained in the Bacon & Woodrow acquisition, none of our trademarks are material to the operation of our business.



Competition



We operate in a highly competitive and rapidly changing global market and compete with a variety of organizations. In addition, a client may choose to use its own
resources rather than engage an outside firm for human resources solutions.



Outsourcing.The principal competitors in our benefits outsourcing business are outsourcing divisions of large financial institutions, such as CitiStreet (a partnership between subsidiaries of State Street and Citigroup), Fidelity
Investments, Mellon Financial (through its subsidiary, Mellon HRSolutions), Merrill Lynch, Putnam Investments, T. Rowe Price and the Vanguard Group, and other firms that provide benefits outsourcing services such as Towers Perrin. Some of our
payroll competitors include Automatic Data Processing, Ceridian and Paychex while our principal workforce management competitors include some of our benefits outsourcing competitors and companies such as Accenture, Electronic Data Systems and Exult.



Consulting.The principal competitors in our consulting business are
consulting firms focused on broader human resources, such as Mercer Human Resource Consulting, Towers Perrin and Watson Wyatt Worldwide. We also face competition from smaller benefits and compensation firms, as well as from public accounting,
consulting and insurance firms offering human resources services.



We believe
that the principal competitive factors affecting both our outsourcing and consulting businesses are the ability to commit resources and successfully complete projects on a timely and cost-effective basis, our perceived



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ability to add value in a cost-effective manner, our employees technical and industry expertise, and our professional reputation.



Technology Innovation



We believe that our technological capabilities are an essential component of our strategy to grow our benefits outsourcing business and
create new service offerings. As of September 30, 2003, we had approximately 1,600 employees engaged in technology functions including research and development, application development and integration and operations. Technology and telecommunication
expenses, excluding related employee compensation, were $193 million in 2003, $180 million in 2002 and $171 million in 2001.



We have a long history of technological innovation. Our strategy is to develop custom solutions through open industry standards when we believe we can develop a better
solution than is available in the market, and to integrate existing best-in-class systems when we believe these solutions meet our clients needs. We were early adopters of XML-based web services for interaction with our clients, and we develop
systems that are adaptable across multiple delivery channels (Internet, automated voice response and call center). We have relationships with a number of our suppliers that allow us to routinely test and evaluate their products while they are still
in their development stages and before they are generally available, keeping us on the leading edge of technology-based solutions.



In 1991, we introduced the Total Benefit Administration system, which we believe is the first technology platform for outsourcing the administration of the three major benefit service areas in an integrated
fashion. Examples of recent technology-based service enhancements include:



| |  | HR WorkWays, a comprehensive human resources portal presenting policies, resources and data personalized by role and by each individuals eligibility and participation in applicable compensation, benefits and other
human resources programs;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | AccessDirect, a personalized navigation system for the web or telephone that connects employees to benefits providers;
| | - | -----------------------------------------------------------------------------------------------------------------------



| |  | Your Benefits Resources, a web platform which uses dynamic personalization to provide employees with customized content and decision support tools and allows real-time management of health and welfare, defined
contribution and defined benefit decisions and transactions; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Hewitt Plan Sponsor Sight, utilizing best-in-class portal, collaboration and data warehousing technologies, to offer an on-line center allowing clients to collaborate and
manage work with us, analyze and report on their benefits programs and interact with a community of their peers.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Your Total Rewards and Your Total Rewards Executive, web platforms that present to employees or executives comprehensive information on the full value of the employment relationship, including base salary and bonuses, stock compensation,
retirement plans, health care coverage, life and accident insurance, training and development opportunities, work/life benefits, and other rewards.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Organizational Structure



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



We completed our transition to a corporate structure on May 31, 2002. Prior to that time, we
operated as a series of related limited liability companies under the control of Hewitt Holdings. In connection with our transition to a corporate structure, Hewitt Associates, Inc. was formed as a subsidiary of Hewitt Holdings and Hewitt Holdings
transferred all of its ownership interests in Hewitt Associates LLC to Hewitt Associates, Inc. in exchange for shares of our Class B common stock. Each owner retained an interest in Hewitt Holdings following the transition.



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On July 1, 2003, Hewitt Holdings distributed the shares of Class B common stock of Hewitt Associates it held in
beneficial ownership on behalf of its owners, with the exception of certain owners resident outside the United States who will continue to hold their shares through Hewitt Holdings. The distribution reduced Hewitt Holdings majority interest in
Hewitt Associates of approximately 71% at June 30, 2003, to a minority interest of approximately 2% at September 30, 2003. The shares continue to be subject to the same restrictions with respect to transfer and book to market phase-in as they were
when the shares were held by Hewitt Holdings. Also, with respect to voting, all Class B and Class C shares continue to be voted in accordance with the majority vote of those Class B and Class C stockholders participating in a preliminary vote of
such holders. At September 30, 2003, the number of Class B and Class C shares outstanding totaled 68,024,381 or approximately 69% of common stock outstanding.



For additional information on our organizational structure, please see information in Managements Discussion and Analysis of Financial Condition and
Results of Operations and Notes 1, 3 and 4 of the notes to the consolidated and combined financial statements.



Contracts and Insurance



We have contracts with many of our clients that define our responsibilities and limit our liability. In addition, we maintain professional liability insurance that covers the services we provide, subject to applicable
deductibles and policy limits.



Employees



As of September 30, 2003, we had approximately 15,000 employees serving our clients through
82 offices in 30 countries, including joint ventures and minority investments. Of these employees, approximately 8,600 employees were in the Outsourcing segment, approximately 3,500 employees were in the Consulting segment and approximately 2,900
employees were in information systems, human resources, client development, overall corporate management, finance and legal services, general office support and space management.



Website Access to Company Reports and Other Information



We make available free of charge through our website, www.hewitt.com, our Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Our internet website and the information contained therein or
incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.



We have adopted a Code of Conduct that applies to all employees as well as our Board of Directors and corporate governance guidelines for our Board of Directors. The Code of Conduct and corporate governance
guidelines, as well as the Charters for the two committees of our Board of Directors, the Audit Committee and the Compensation and Leadership Committee, are posted on our website www.hewitt.com. Copies of these documents will be provided free of
charge upon written request directed to Investor Relations, Hewitt Associates, Inc. 100 Half Day Road, Lincolnshire, IL 60069.



|Item 2. |  | Properties
|------- |  | ----------



Our principal executive offices are located in Lincolnshire, Illinois with a mailing address of 100 Half Day Road, Lincolnshire, Illinois 60069. Our Lincolnshire complex comprises 13 buildings on three campuses and
approximately 2.4 million square feet. As of September 30, 2003, we had a total of 82 offices in 30 countries and operated 9 additional offices in 8 countries and territories through joint ventures and minority investments. We do not own any
significant real property. Substantially all of our office space is leased under long-term leases. We lease most of our office space, including a portion of our principal executive offices in Lincolnshire, Illinois from Hewitt Holdings LLC (and/or
subsidiaries thereof). We refer you to Note 15, Related Party Transactions, in the notes to the consolidated and combined financial statements for information on these arrangements. We believe that our existing facilities are adequate for our
current needs and that additional space will be available as needed.



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|Item 3. |  | Legal Proceedings
|------- |  | -----------------



We are not engaged in any legal proceeding that we expect to have a material adverse effect on our business, financial condition or results of operations. In the ordinary course of our business, we are routinely
audited and subject to inquiries by government and regulatory agencies.



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



No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2003.



PART II



|Item 5. |  | Market for Registrants Common Equity and Related Stockholder Matters.
|------- |  | ----------------------------------------------------------------------



Common Stock Market Information



Our Class A common stock is traded on the New York Stock Exchange (NYSE) under the symbol HEW. The following table sets forth the range of high and low sales prices for
each quarter since our initial public offering on June 27, 2002.



|                                                       |  | Fiscal 2003
|------------------------------------------------------ |  | -----------
|                                                       |  | High       
|1stQuarter (October 1, 2002 through December 31, 2002) |  | $          
|2ndQuarter (January 1, 2003 through March 31, 2003)    |  | $          
|3rdQuarter (April 1, 2003 through June 30, 2003)       |  | $          
|4thQuarter (July 1, 2003 through September 30, 2003)   |  | $          



|                                                     |  | Fiscal 2002
|---------------------------------------------------- |  | -----------
|                                                     |  | High       
|3rdQuarter (June 27, 2002 through June 30, 2002)     |  | $          
|4thQuarter (July 1, 2002 through September 30, 2002) |  | $          



There is no established public trading
market for Hewitts Class B or Class C common stock.



Holders Of Record



As of October 31, 2003, there were 789 shareholders of record of our
Class A common stock, 38 shareholders of record of our Class B common stock, and 51 shareholders of record of our Class C common stock, as furnished by our Stock Transfer Agent and Registrar, EquiServe. Several brokerage firms, banks and other
institutions (nominees) are listed once on the shareholders of record listing. However, in most cases, the nominees holdings represent blocks of our stock held in brokerage accounts for a number of individual shareholders. As such,
our actual number of shareholders is difficult to estimate with precision, but would be higher than the number of registered shareholders of record.



Dividend Policy



We have not paid cash dividends on our common stock. Our board of directors re-evaluates this policy periodically. Any determination to pay cash dividends will be at the discretion of the board of directors and will
be dependent upon our financial condition, results of operations, capital requirements, terms of our financing arrangements and such other factors as the board of directors deems relevant.



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|Item 6. |  | Selected Financial Data
|------- |  | -----------------------



The selected financial data set forth below should be read in conjunction with the section entitled Managements Discussion and Analysis of Financial Condition
and Results of Operations and the consolidated and combined financial statements, notes thereto and other financial information included elsewhere herein.



|                                               |  | 2003(1)(2)                                   |       | 2002(2) |   |        | 2001(5) |  | 2000(5) |       | 1999
|---------------------------------------------- |  | -------------------------------------------- | ----- | ------- | - | ------ | ------- |  | ------- | ----- | ----
|                                               |  | (amounts in millions, except per share data)
|Fiscal Year Ended September 30:                |  |                                              |       |         |   |        |         |  |         |       |     
|Total revenues                                 |  | $                                            | 2,031 |         | $ | 1,750  |         |  | $       | 1,502 |     
|Income before taxes and owner distributions(3) |  |                                              |      |         |   |       |         |  |         | 183   |     
|Net income(3)                                  |  |                                              | 94    |         |   | 190    |         |  |         |      |     
|Income (loss) per share-(4)                    |  |                                              |       |         |   |        |         |  |         |       |     
|Basic-                                         |  | $                                            | 0.99  |         |   | ($0.27 | )       |  |         |      |     
|Diluted-                                       |  | $                                            | 0.97  |         |   | ($0.27 | )       |  |         |      |     
|                                               |  |                                              |       |         |  
|                                               |  | 2003(1)(2)                                   |       | 2002(2) |   |        | 2001(5) |  | 2000(5) |       | 1999
|As of September 30:                            |  |                                              |       |         |   |        |         |  |         |       |     
|Total assets                                   |  | $                                            | 1,598 |         | $ | 1,348  |         |  | $       | 833   |     
|Long-term obligations                          |  |                                              | 219   |         |   | 236    |         |  |         | 172   |     
|Working capital                                |  |                                              | 290   |         |   | 199    |         |  |         | 207   |     



|(1) | On June 5, 2003, we acquired Cyborg and on June 15, 2003, we acquired substantially all of
the assets of NTRC. As such, their results are included in our results from the respective acquisition dates.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On June 5, 2002, we acquired the benefits consulting business of Bacon & Woodrow and
their results are included in our results from the acquisition date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Prior to our transition to a corporate structure, Hewitt operated as a limited liability
company. In such form, Hewitt Holdings owners were compensated through distributions of income and Hewitt did not incur firm-level income tax. Accordingly, results prior to May 31, 2002 do not include (i) compensation for services rendered by
Hewitt Holdings owners or (ii) firm-level income tax expense. As a result, income before taxes and owner distributions is not comparable to net income of a corporation. In connection with our transition to a corporate structure on May 31,
2002, Hewitt Holdings owners who worked in the business became employees and we began to record their compensation and related expenses and became subject to corporate income taxes.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Loss per share in fiscal 2002 is calculated based on earnings during the four month period
from May 31, 2002, the date on which our transition to a corporate structure was completed, through September 30, 2002. The loss was generated primarily from several one-time charges incurred in connection with the transition to a corporate
structure totaling $48 million and compensation expense related to the initial public offering restricted stock awards totaling $28 million through September 30, 2002. We refer you to Note 3 of the notes to the consolidated and combined financial
statements. Similarly, common stock is weighted from May 31, 2002 and not from the beginning of the periods presented.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes the results of Sageo. In the quarter ended September 30, 2001, the decision was made
to transition Sageo clients from Sageos website to the Total Benefit Administration web interface. Stand-alone company expenses were eliminated and Sageo website development spending ceased. At that time, since we had decided to discontinue the use of the Sageo website,
we wrote off our remaining investment in the Sageo software (resulting in a $26 million non-recurring charge), and terminated or redeployed the Sageo employees who worked within the stand-alone Sageo operation. We refer you to
Managements Discussion and Analysis of Financial Condition and Results of OperationsSageo.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|Item 7. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- |  | -------------------------------------------------------------------------------------



The following information should be read in conjunction with our consolidated and combined financial statements and related notes,
included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis 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 additional 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 and, with respect to the period prior to May 31, 2002, the date of our transition to a corporate structure, the businesses of Hewitt
Associates LLC, its subsidiaries and its then affiliates, Hewitt Financial Services LLC and Sageo LLC (Hewitt Associates and Affiliates).



We use the term Hewitt Holdings owner in this Annual Report on Form 10-K to refer to the individuals who are members of Hewitt Holdings LLC, most of
whom are our employees.



All references to years, unless otherwise
noted, refer to our fiscal years, which end on September 30. For example, a reference to 2003 or fiscal 2003 means the twelve-month period that ended September 30, 2003. 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 and combined financial statements, included elsewhere in this Annual Report on Form
10-K. Prior period amounts have been reclassified to conform with the current year presentation.



Overview



Hewitt Associates, Inc., a
Delaware corporation, and its subsidiaries provide human resources outsourcing and consulting services.



In connection with our transition to a corporate structure, which was completed on May 31, 2002, Hewitt Associates, Inc. was formed as a subsidiary of Hewitt Holdings and Hewitt Holdings transferred all of its
ownership interests in Hewitt Associates LLC and Affiliates to Hewitt Associates, Inc. In our limited liability company form, Hewitt Holdings owners were compensated through distributions of income rather than through salaries, benefits and
performance-based bonuses, and we did not incur any corporate income tax. Upon our transition to a corporate structure, (i) Hewitt Holdings owners who worked in the business became our employees and we began to include their compensation in
our compensation and related expenses, (ii) we became subject to corporate income taxes and (iii) we began to report net income and earnings per share.



On June 5, 2002, we acquired the actuarial and benefits consulting business of Bacon & Woodrow in the United Kingdom. The purchase price totaled $259 million and
consisted of 9.4 million shares of Hewitt Associates common stock valued at $219 million, $39 million of assumed net liabilities and approximately $1 million of acquisition-related costs. For additional information on the Bacon & Woodrow
acquisition, we refer you to Note 6 to our consolidated and combined financial statements for fiscal 2003. The results of operations for Bacon & Woodrow are included in our historical results from the date of the acquisition, June 5, 2002.



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



For a pro forma
presentation of results had these events occurred at the beginning of fiscal 2002, we refer you to Pro Forma Results of Operations.



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



On June 15, 2003, the Company acquired substantially all of the
assets of Northern Trust Retirement Consulting, Northern Trust Corporations retirement consulting and administration business (NTRC), which provides retirement consulting and actuarial services and defined benefit, defined
contribution and retiree health and welfare administration services. The results of NTRC are included in the results of the Outsourcing and Consulting segments from the acquisition date (see Note 6 to our consolidated and combined financial
statements).



On July 1, 2003, Hewitt Holdings distributed the shares of Class
B common stock of Hewitt Associates it held in beneficial ownership on behalf of its owners, with the exception of certain owners resident outside the United States who will continue to hold their shares through Hewitt Holdings. The distribution
reduced Hewitt Holdings majority interest in Hewitt Associates of approximately 71% at June 30, 2003, to a minority interest of approximately 2% at September 30, 2003. The shares continue to be subject to the same restrictions with respect to
transfer and book to market phase-in as they were when the shares were held by Hewitt Holdings. Also, with respect to voting, all Class B and Class C shares continue to be voted in accordance with the majority vote of those Class B and Class C
stockholders participating in a preliminary vote of such holders. At September 30, 2003, the number of Class B and Class C shares outstanding totaled 68,024,381 or approximately 69% of common stock outstanding.



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



Segments



We have two reportable segments:



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



| |  | Consulting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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Outsourcing



Since we first began providing outsourcing services in 1991, we have made significant investments in technology, personnel and office space to build our capabilities and
address market opportunity. To maintain our outsourcing leadership position, we remain committed to making significant ongoing investments in technology, infrastructure, and people, in expanding our business and driving greater efficiencies.
With the investments that we have made in



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the benefits administration business to date, our recent acquisitions of Cyborg and NTRC and investments in workforce management, we expect to be able to
continue to improve our capabilities and attract new clients.



Consulting



In our consulting business, we are engaged by our clients to provide a
wide range of human resources services. 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 consultation 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 difficult for us to predict.



Sageo



In January 2000, Hewitt Holdings owners launched a new business, Sageo, with the intention of creating a stand-alone, Internet-based
company that would provide a standardized set of health and welfare offerings to companies seeking less complex benefit solutions. By the second half of fiscal 2001, Sageo had achieved reasonable sales success, however, Hewitt Holdings owners
determined that it was not cost-effective to operate Sageo as a separate company since its stand-alone costs would likely exceed revenues for an extended period of time and because Sageos services had become a logical extension of the Hewitt
offering.



In the quarter ended September 30, 2001, the decision was made to
transition Sageos clients from Sageos website to the Total Benefit Administration web interface. Stand-alone company expenses were eliminated, Sageo website development spending ceased and the Sageo employees who worked within the stand-alone Sageo operation were
terminated or redeployed. At that time, since we had decided to discontinue the use of the Sageo website, we wrote off our remaining investment in the Sageo software (resulting in a $26 million non-recurring charge). Sageos clients continue to
be served as a fully integrated element of the Outsourcing segment.



We believe
that in order to analyze the historical results of our business, it is important to understand the effect that Sageo as a stand-alone operation (which it was during fiscal 2000 and fiscal 2001) had on our financial results.



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In fiscal years 2001 and 2000, Sageos operating losses were $73 million and $21 million, respectively. In fiscal
2002, during which time Sageo first operated with a significantly reduced cost structure as a part of Hewitt, Sageo contributed $2 million (which includes a $1 million reduction in an accrued liability established during fiscal 2001) to our
operating income. In fiscal 2003, incremental operating costs for Sageo were not significant in relation to our Outsourcing segment or total consolidated results. The annual results of Sageo for the years ended September 30, 2002, 2001 and 2000, are
included in the following table:



Sageo Historical Financial
Results



(in thousands)



|                                                   |  | Year Ended September 30, |       
|-------------------------------------------------- |  | ------------------------ | ------
|                                                   |  | 2002(2)                  |       
|Revenue before reimbursements (net revenues)       |  | $                        | 14,552
|Operating expenses(3):                             |  |                          |       
|Compensation and related expenses                  |  |                          | 8,551 
|Other operating expenses                           |  |                          | 3,527 
|Selling, general and administrative expenses       |  |                          | 174   
|Non-recurring software charge                      |  |                          |      
|                                                   |  |                          |       
|Total operating expenses                           |  |                          | 12,252
|                                                   |  |                          |       
|Operating income (loss)                            |  |                          | 2,300 
|Other expenses, net                                |  |                          |      
|                                                   |  |                          |       
|Income (loss) before taxes and owner distributions |  | $                        | 2,300 
|                                                   |  |                          |       



|(1) | In the quarter ended September 30, 2001, the decision was made to transition Sageo clients
from Sageos website to the Total Benefit Administration web interface. Stand-alone company expenses were eliminated and Sageo website development spending ceased. At that time, since we had decided to discontinue the use of the Sageo website, we wrote off our remaining
investment in the Sageo software (resulting in a $26 million non-recurring charge), and terminated or redeployed the Sageo employees who worked within the stand-alone Sageo operation.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Sageo operated as part of Hewitt during the year ended September 30, 2002. Sageos
income before income taxes in 2002 includes a $1 million reduction in an accrued expense upon settlement of an obligation. The accrued expense was established in fiscal 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Excludes reimbursable expenses.
|--- | -------------------------------



Critical Accounting Policies and Estimates



Revenues



Revenues include fees generated from outsourcing contracts and from consulting services provided to our clients. Of our $2.0 billion of net
revenues for fiscal 2003, 63% was generated in our Outsourcing segment and 37% was generated in our Consulting segment.



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



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



Revenues related to ongoing service fees and to services provided outside the scope of outsourcing contracts are recognized when persuasive
evidence of an arrangement exists, services have been rendered, our fee is determinable



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and collectibility of our fee is reasonably assured. Ongoing service fees are generally billed and recognized on a monthly basis, typically based on the
number of plan participants and services and often with a minimum monthly fee. Therefore, a weakening of general economic conditions or the financial condition of our clients, which could lead to workforce reductions (and potentially participant
reductions), could have a negative effect on our outsourcing revenues. Services provided outside the scope of our outsourcing contracts are typically billed and recognized on a time-and-materials or fixed fee basis.



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 continuously 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.



Our outsourcing contracts typically have three- to five-year terms. However, a substantial
portion of our outsourcing contracts may be terminated by our clients, generally upon 90 to 180 days notice, with the payment of an early-termination charge. Normally, if a client terminates a contract or project, the client remains obligated to pay
for services performed (including any unreimbursed implementation charges).



Our clients pay for our consulting services either on a time-and-materials basis or, to a lesser degree, on a fixed-fee basis. We recognize revenues under time-and-materials based arrangements as services are provided. On fixed-fee
engagements, we recognize revenues as the services are performed, which is measured by hours incurred in proportion to total hours estimated to complete a project. Each project has different terms based on the scope, deliverables and complexity of
the engagement, the terms of which frequently require us to make judgments and estimates about overall profitability and stage of project completion which impacts how we recognize revenue. Estimates are continuously monitored during the term of the
engagement and any changes to estimates are recorded in the current period and can result in either increases or decreases to income.



Deferred Contract Costs and Deferred Contract Revenues



For new outsourcing services, upfront implementation efforts are required to set up a client and their human resource or benefit programs on our systems. The direct
implementation or set up costs and any upfront 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 between the initiation of ongoing services through the end of the contract term. Implementation fees may be received either upfront or over the ongoing services period in the fee per
participant. By deferring the upfront 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.



As of September 30, 2003 and 2002, net deferred contract costs in excess of deferred contract
revenues totaled $22 million and $1 million, respectively. We have reclassified deferred contract costs and deferred contract revenues to show the gross amounts separately on the consolidated balance sheets. In prior periods, both short-term and
long-term portions of deferred costs and revenues were recorded in prepaid expenses and other current assets, non-current other assets, advanced billings to clients and other long-term liabilities. As a result of the reclassification, total net
assets and liabilities did not change, however, total assets and total liabilities and shareholders equity increased by equal amounts, or approximately $117 million and $128 million as of September 30, 2003 and 2002, respectively.
Additionally, at September 30, 2003, a small portion of the deferred contract revenues includes deferred revenue on payroll software maintenance agreements.



Deferred contract costs and deferred contract revenues were the following at interim reporting dates (in thousands):



|                           |  | June 30,2003 |         | March 31,2003 |   | December 31,2002 |  | June 30,2002
|-------------------------- |  | ------------ | ------- | ------------- | - | ---------------- |  | ------------
|Deferred contract costs    |  | $            | 121,588 |               | $ | 125,285          |  | $           
|Deferred contract revenues |  | $            | 116,750 |               | $ | 117,997          |  | $           



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Performance-Based Compensation



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



Goodwill and Other Intangible Assets



On October 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. We evaluate our goodwill for impairment whenever indicators of impairment exist with reviews
at least annually. The evaluation is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities for that reporting unit. The fair
values used in this evaluation are estimated based upon discounted future cash flow projections for the reporting unit.



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



Client Receivables and Unbilled Work In Process



We
periodically evaluate the collectibility of our client receivables and unbilled work in process based on a combination of factors. In circumstances where we are aware of a specific clients difficulty in meeting its financial obligations to us
(e.g., bankruptcy filings, failure to pay amounts due to us or to others), we record an allowance for doubtful accounts to reduce the client receivable to what we reasonably believe will be collected. For all other clients, we recognize an allowance
for doubtful accounts based on past write-off history and the length of time the receivables are past due. Facts and circumstances may change that would require us to alter our estimates of the collectibility of client receivables and unbilled work
in progress. Factors mitigating this risk include our servicing a diverse client base such that we do not have significant industry concentrations among our clients. Also, for the years ended September 30, 2003, 2002 and 2001, no single client
accounted for more than 10% of our total revenues.



Long-Lived Assets Held
and Used



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



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



Stock-Based Compensation



Our stock-based compensation program is a long-term retention and incentive program that is
intended to attract, retain and motivate talented employees and align stockholder and employee interests. The program allows for the granting of restricted stock, restricted stock units, and nonqualified stock options as well as other forms of
stock-based compensation. For additional information on stock-based compensation, we refer you to Note 17 to the consolidated and combined financial statements.



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



As of September 30, 2003, nonqualified stock options to acquire a total of 7,791,989 shares of Class A common stock were outstanding. Had we determined compensation cost for the stock options granted using the fair
value method as set forth under SFAS No. 123, during fiscal 2003 and 2002, we would have recorded approximately $5.4 million and $1.1 million, respectively, in additional expense, and reported net income of $89 million and $189 million,
respectively. The net earnings per basic and diluted share for the year ended September 30, 2003 would have been $0.94 and $0.92, respectively. The difference between the net diluted earnings per share as reported and the net earnings per share
under the provisions of SFAS No. 123 would have been ($0.05) for the year ended September 30, 2003. For fiscal 2002, the net loss applicable to common stockholders for the period from May 31, 2002 through September 30, 2002, would have been $24
million and the net loss per basic and diluted share would have been ($0.28). The difference between the net loss per share as reported and the net loss per share under the provisions of SFAS No. 123 would have been ($0.01) in 2002.



In December 2002, approximately 2,059,301 shares, constituting 36% of our outstanding
restricted stock awards, vested, which included 91,458 restricted stock units that converted to Class A common stock and additional paid-in capital. In June 2003, 881,918 shares, constituting 25% of our then outstanding unvested restricted stock
awards, vested, which included 48,827 restricted stock units that converted to Class A common stock and cash. As of September 30, 2003, 2,437,611 shares of restricted stock and 173,998 restricted stock units remain unvested. The related deferred
compensation expense of $46 million will be recognized as compensation expense evenly over the remaining vesting periods through June 27, 2006, and will be adjusted for payroll taxes and forfeitures.



Estimates



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



Basis of Presentation



Revenues



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



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



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



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Compensation and Related Expenses



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



Other Operating Expenses



Other
operating expenses include equipment, occupancy, and non-compensation related direct client service costs. Equipment costs include computer servers, data storage and retrieval, data center operation and benefit center telecommunication expenses, and
depreciation and amortization of capitalized computer technology and proprietary software. Occupancy costs primarily include rent and related occupancy expenses for our offices. Non-compensation-related direct client service costs include costs
associated with the provision of client services such as printing, duplication, fulfillment, and delivery.



Selling, General and Administrative Expenses



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



Other Expenses, Net



Other expenses, net primarily includes
interest expense, interest income, gains and losses from investments, and gains and losses on asset disposals, shown on a net basis.



Provision for Income Taxes



Prior to May 31, 2002, taxes on income earned by the combined predecessor limited liability companies were the responsibility of the individual Hewitt Holdings
owners. Therefore, for periods ended on or prior to May 31, 2002, the historical financial statements do not reflect the income taxes that we would have incurred as a corporation. As a result of our transition to a corporate structure on May 31,
2002, we became subject to corporate income taxes and began applying the provisions of the asset and liability method outlined in SFAS No. 109, Accounting for Income Taxes.



Income Before Taxes and Owner Distributions and Net Income



Prior to May 31, 2002, we operated as a group of affiliated limited liability companies and recorded income before taxes and owner
distributions in accordance with accounting principles generally accepted in the United States. As a result of our transition to a corporate structure on May 31, 2002, Hewitt Holdings owners who worked in the business became our employees and
we began to include their compensation in our compensation and related expenses, we became subject to corporate income taxes and we started to report net income and earnings per share. As such, the historical results of operations after May 31, 2002
reflect a corporate basis of presentation and are not directly comparable to the results from prior periods, which reflect a partnership basis of presentation.



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##### Table of Contents

Historical Results of Operations



The following table sets forth our historical results of operations as a percentage of net revenues. Operating results for any period are
not necessarily indicative of results for any future periods.



|                                                                                                |  | Year Ended September 30, |  
|----------------------------------------------------------------------------------------------- |  | ------------------------ | -
|                                                                                                |  | 2003(1)(2)               |  
|Revenues:                                                                                       |  |                          |  
|Revenues before reimbursements (net revenues)                                                   |  | 100.0                    | %
|Reimbursements                                                                                  |  | 2.5                      |  
|                                                                                                |  |                          |  
|Total revenues                                                                                  |  | 102.5                    |  
|Operating expenses:                                                                             |  |                          |  
|Compensation and related expenses, excluding initial public offering restricted stock awards(3) |  | 64.0                     |  
|Initial public offering restricted stock awards(4)                                              |  | 2.0                      |  
|Reimbursable expenses                                                                           |  | 2.5                      |  
|Other operating expenses                                                                        |  | 20.0                     |  
|Selling, general and administrative expenses                                                    |  | 5.0                      |  
|Non-recurring software charge(5)                                                                |  |                         |  
|                                                                                                |  |                          |  
|Total operating expenses                                                                        |  | 93.5                     |  
|Operating income(6)                                                                             |  | 9.0                      |  
|Other expenses, net                                                                             |  | (0.9                     | )
|                                                                                                |  |                          |  
|Income before taxes and owner distributions(7)                                                  |  |                          |  
|                                                                                                |  |                          |  
|Pretax income                                                                                   |  | 8.1                      |  
|Provision for income taxes                                                                      |  | 3.3                      |  
|                                                                                                |  |                          |  
|Net income                                                                                      |  | 4.8                      | %
|                                                                                                |  |                          |  



|(1) | On June 5, 2003, we acquired Cyborg and on June 15, 2003, we acquired substantially all of the assets of NTRC. As such, their results are included in our results
from the respective acquisition dates.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On June 5, 2002, we acquired the benefits consulting business of Bacon & Woodrow and their results are included in our results from the acquisition date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Compensation and related expenses did not include compensation related to our owners prior to our transition to a corporate structure on May 31, 2002.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Compensation expense of $39 million and $28 million for the years ended September 30, 2003 and 2002, respectively, related to the amortization of initial public
offering restricted stock awards.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Non-recurring software charge related to the discontinuation of the Sageo website. We refer you to Sageo above.
|--- | -----------------------------------------------------------------------------------------------------------------



|(6) | These results include the results of Sageo shown in the table on page 21. Sageo reduced operating income as a percentage of net revenues by 5.0% for the year ended
September 30, 2001.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Income before taxes and owner distributions is not comparable to net income of a corporation because, due to our limited liability company form in these periods, (i)
compensation and related expenses did not include compensation expense related to our owners since these individuals received distributions of income rather than compensation, and (ii) the Company incurred no income tax.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Fiscal Years Ended September 30, 2003, 2002 and 2001



Revenues



Net revenues were $1,982 million in 2003, $1,716 million in 2002 and $1,476 million in 2001. Net revenues increased by 15% in 2003 and by
16% in 2002. Adjusting for the effects of acquisitions and the favorable effects of foreign currency translation, net revenues grew 5% in 2003 and 13% in 2002. Outsourcing net revenues increased by 12% to $1,247 million in 2003, by 17% to $1,115
million in 2002, and by 19% to $952 million in 2001. Excluding the effects of the acquisitions of Cyborg and NTRC in 2003, Outsourcing net revenues increased 9% in 2003. Revenue growth in our outsourcing business in 2002 and 2003, was from increased
participant volume through the expansion of services with existing and new clients. Growth in 2003 was offset in part by lower pricing on new client services and renewals. In 2003, we saw continued softness in the U.S. economy and a more competitive
environment for outsourcing services. Consulting net revenues increased by 22% to $734 million in 2003, by 15% to $601 million in 2002, and by 10% to $524 million in 2001. Consulting net revenues in 2003 increased primarily as a result of the June
2002 acquisition of the benefits consulting business of Bacon & Woodrow. A portion of this growth was also due to favorable foreign currency translation from the strengthening of European currencies relative to the U.S. dollar year over year and
consolidation of our Dutch affiliate upon purchase of the remaining interest in that affiliate in the first quarter of 2003. Adjusted for the effects of these acquisitions and favorable foreign currency translation, Consulting net revenues were flat
in 2003 and increased 6% in 2002. Growth in retirement plan and health benefit management consulting in 2002 and 2003 was offset by declines in demand for our more discretionary consulting services in 2002 and to a greater extent in 2003. In 2001,
we experienced growth across the entire spectrum of our consulting services, including significant growth in international operations.



Compensation and Related Expenses



Compensation and related expenses were $1,269 million in 2003, $1,015 million in 2002 and $838 million in 2001. These expenses increased by 25% in 2003, by 21% in 2002
and by 17% in 2001. Please note that prior to May 31, 2002, compensation and related expenses did not include owners compensation as Hewitt Holdings owners were compensated through distributions of income. In connection with our
transition to a corporate structure in June 2002, we incurred a non-recurring, non-cash $18 million compensation expense resulting from certain owners receiving more than their proportional share of total capital, without offset for those owners who
received less than their proportional share in the conversion of owners capital into common stock, and a non-recurring $8 million compensation expense related to our establishing an owner vacation liability. Additionally, the acquisitions of
Bacon & Woodrow, Cyborg and NTRC increased compensation expense in 2002 and 2003 and the Sageo business contributed $34 million of compensation expense in 2001. The net increase in overall compensation and related expenses in 2003 over 2002
after the inclusion of estimated owner compensation and the exclusion of the non-recurring charges in 2002, was primarily due to the inclusion of Bacon & Woodrows compensation and related expenses, cost of living increases, increases in
employee headcount from 2003 acquisitions, and increases in Outsourcing personnel to support the growth of benefit administration outsourcing and workforce management. Adjusting for the effects the acquisitions, Sageo, the incorporation one-time
charges, and including estimated owner compensation of $108 million and $147 million in 2002 and 2001, respectively, compensation and related expenses as a percentage of net revenues was 64% for 2003 and 2002 and 65% in 2001.



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 $67 million were recorded as initial public offering restricted stock award expense from June
27, 2002 through September 30, 2003, of which $39 million was recorded in 2003 and $28 million in 2002. The increase in the initial public offering restricted stock award expense in 2003 related to the timing of the vesting of the awards. The
remaining $46 million of unearned compensation will be recognized evenly through June 27, 2006, and adjusted for payroll taxes and forfeitures as they arise.



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Other Operating Expenses



Other operating expenses were $396 million in 2003, $358 million in 2002, and $337 million in 2001. These expenses increased by 11% in 2003, by 6% in 2002, and by 10%
in 2001. Other operating expenses included increased costs from acquisitions in 2002 and 2003 and Sageo expenses of $9 million in 2001. The $38 million increase in other operating expenses in 2003 primarily reflects the inclusion of Bacon &
Woodrow since the date of acquisition as well as the inclusion of acquisitions made by the Company in 2003, increased depreciation and amortization expenses on buildings, computer equipment and software and increased computer maintenance expenses.
These increases were partially offset by lower telecommunications expenses in our Outsourcing segment as compared to fiscal 2002. There was a $20 million increase in other operating expenses in 2002 from 2001, which primarily reflects the inclusion
of Bacon & Woodrow since the acquisition on June 5, 2002, along with increased spending in technology and maintenance expense in Outsourcing, offset in part by lower depreciation expenses on computer equipment and lower software maintenance
expenses. Adjusting for the effects of the acquisitions in 2002 and 2003 and Sageo in 2001, other operating expenses as a percentage of net revenues was 20% in 2003 and 2002 and 22% in 2001. The decrease as a percentage of net revenues in 2002 was
primarily the result of revenue growing at a faster rate than other operating expenses and our leveraging prior technology and occupancy costs to support expanded and new business.



Selling, General and Administrative Expenses



SG&A expenses were $100 million in 2003, $76 million in 2002, and $88 million in 2001. These expenses increased by 31% in 2003,
decreased by 14% in 2002 and increased by 16% in 2001. SG&A expenses included increased costs and amortization of intangible assets from acquisitions in 2002 and 2003 and Sageo expenses of $14 million in 2001. SG&A expenses increased $24
million in 2003 from 2002, which primarily reflects the inclusion of Bacon & Woodrow since the acquisition as well as the inclusion of the 2003 acquisitions from their respective acquisition dates, and increased travel and insurance expense in
2003. There was a $2 million increase in SG&A expenses in 2002, after excluding the effects of Sageo in 2001, which primarily reflects the operations of Bacon & Woodrow since the acquisition on June 5, 2002, offset in part by lower
client-related and internal travel-related expenses. Travel expenses were lower in 2002 following the events of September 11, 2001. Adjusting for the effects of the acquisitions in 2002 and 2003 and Sageo in 2001, SG&A expenses as a percentage
of net revenues was 5% in 2003 and 2002 and 6% 2001.



Non-Recurring Software
Charge



In the three months ended September 30, 2001, the decision was
made to transition Sageos clients from Sageos website to the Total Benefit Administration web interface. Stand-alone company expenses were eliminated and Sageo website development spending ceased. At that time, since we had decided to discontinue the use of the Sageo website,
we wrote off our remaining investment in the Sageo software, resulting in a $26 million non-recurring charge, and terminated or redeployed the Sageo employees who worked within the stand-alone Sageo operation.



Other Expenses, Net



Other expenses, net were $17 million in 2003, $17 million in 2002, and $3 million in 2001. As a percentage of net revenues, other expenses,
net was 1% or less in all three years. Interest expense was $20 million in 2003, $16 million in 2002, and $16 million in 2001. The increase in interest expense in 2003 over 2002 is primarily due to the addition of a full year of interest expense on
our two new capital leases for office space, which we executed in the third quarter of 2002. Interest expense remained flat in 2002 from 2001 despite a portion of our short-term debt being repaid with proceeds from the initial public offering
because of the two new office capital leases and their related interest expense. In 2002, other expenses, net also included a loss from a foreign currency option contract purchased in connection with our acquisition of the benefits consulting
business of Bacon & Woodrow which expired in 2002. In 2001, other expenses, net included a $5 million gain on an investment related to stock that we received in connection with the demutualization of an insurance company and sold in 2001.



28



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##### Table of Contents

Provision for Income Taxes



The provision for income taxes was $66 million for the year ended September 30, 2003, compared to $33 million in 2002. The increase in the
provision for income taxes in 2003, is primarily due to earnings being taxed for the full year in 2003 as compared to only four months in 2002, as a result of the timing of the Companys transition to a corporate structure on May 31, 2002 and
related one-time charges in June 2002. Approximately $22 million of the $33 million tax expense for fiscal 2002 related to tax liabilities arising both from a mandatory change in the Companys tax accounting method and from the initial
recording of deferred tax assets and liabilities related to temporary differences which resulted from the transition to a corporate structure. The remaining $11 million represents income tax expense arising from earnings between May 31, 2002, and
September 30, 2002, while the Company operated as a corporation. The non-recurring, non-cash $18 million compensation expense resulting from owners receiving more than their proportional share of total capital, without offset for those owners who
received less than their proportional share in conversion of owners capital into common stock, was not deductible.



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 and devotes its resources to maintaining existing client relationships. The compensation and related expenses, other operating expenses, and selling, general and administrative
expenses of the administrative and marketing functions are not allocated to the business segments; rather, they are included in unallocated shared costs. The costs of information services, human resources and the direct client delivery 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.



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Reconciliation of Segment Results to Total Company Results

(in thousands)



|Business Segments                                      |  | Year Ended September 30,
|------------------------------------------------------ |  | ------------------------
|                                                       |  | 2003                    
|                                                       |  |                         
|Outsourcing(1) (2)                                     |  |                         
|Revenues before reimbursements (net revenues)          |  | $                       
|Segment income before non-recurring software charge(3) |  |                         
|Segment income(3)                                      |  |                         
|                                                       |  |                         
|Consulting(4)                                          |  |                         
|Revenues before reimbursements (net revenues)          |  | $                       
|Segment income(3)                                      |  |                         
|                                                       |  |                         
|Total Company                                          |  |                         
|Revenues before reimbursements (net revenues)          |  | $                       
|Reimbursements                                         |  |                         
|                                                       |  |                         
|Total revenues                                         |  | $                       
|                                                       |  |                         
|                                                       |  |                         
|Segment income before non-recurring software charge    |  | $                       
|Non-recurring software charge                          |  |                         
|                                                       |  |                         
|Segment income(3)                                      |  | $                       
|Charges not recorded at the Segment level:             |  |                         
|One-time charges(5)                                    |  |                         
|Initial public offering restricted stock awards(6)     |  |                         
|Unallocated shared costs(3)                            |  |                         
|                                                       |  |                         
|Operating income(3)                                    |  | $                       
|                                                       |  |                         



|(1) | On June 5, 2003, we acquired Cyborg and on June 15, 2003, we acquired substantially all of the assets of NTRC. Their results are included in our results from the
respective acquisition dates.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | In the quarter ended September 30, 2001, the decision was made to transition Sageo clients from Sageos website to the Total Benefit Administration web interface. Stand-alone company expenses were
eliminated and Sageo website development spending ceased. At that time, since we had decided to discontinue the use of the Sageo website, we wrote off our remaining investment in the Sageo software (resulting in a $26 million non-recurring charge),
and terminated or redeployed the Sageo employees who worked within the stand-alone Sageo operation. Sageo contributed $10 million of Outsourcing net revenues and reduced Outsourcing segment income by $73 million for the year ended September 30,
2001.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Prior to May 31, 2002, Hewitt Holdings owners were compensated through distributions of income. In connection with our transition to a corporate structure on
May 31, 2002, Hewitt Holdings owners who worked in the business became employees and we began to record their compensation as compensation and related expenses in arriving at segment income.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On June 5, 2002, we acquired the benefits consulting business of Bacon & Woodrow. As such, the results of Bacon & Woodrow have been included in our
Consulting segment results from the acquisition date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | In connection with our transition to a corporate structure, the following one-time charges were incurred: a) $8 million of non-recurring compensation expense related
to the establishment of a vacation liability for Hewitt Holdings owners and b) $18 million of non-recurring compensation expense resulting from certain Hewitt Holdings owners receiving more common stock than their proportional share of
total capital, without offset for those Hewitt Holdings owners who received less than their proportional share.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Compensation expense of $39 and $28 million for the years ended September 30, 2003 and 2002, respectively, related to the amortization of initial public offering
restricted stock awards.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30



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##### Table of Contents

Outsourcing



Fiscal Years Ended September 30, 2003, 2002 and 2001



Outsourcing net revenues were $1,247 million in 2003, $1,115 million in 2002, and $952 million in 2000. Net revenues increased by 12% in 2003, by 17% in 2002, and by 19%
in 2001. Revenue growth in 2003 was due, in part, to the addition of revenues from the newly acquired Cyborg and NTRC. Excluding the effects of the acquisitions, Outsourcing net revenues increased 9% in 2003. In 2003, approximately one-half of our
organic Outsourcing net revenue growth was from the addition of new clients and the other half from expanding services with existing clients. Increased participant volume was offset in part by lower pricing on new client services and renewals as we
saw continued softness in the U.S. economy and a more competitive environment for outsourcing services. Approximately one-quarter of our net revenue growth in 2002 was a result of adding new clients with the remainder of the growth from expanding
servicing with existing clients.



Outsourcing segment income, before the
non-recurring software charge in 2001, as a percentage of outsourcing net revenues was 20% in 2003, 24% in 2002, and 17% in 2001. Excluding the effects of the acquisitions in 2003 and Sageos $73 million of operating losses in 2001 and
including estimated owner compensation of $22 million and $32 million in 2002 and 2001, respectively, segment income as a percentage of Outsourcing net revenues was 20%, 22% and 19% in 2003, 2002 and 2001, respectively. The decrease in margin in
2003 from 2002 primarily relates to our continued investment in the development of our workforce management service offering. The margin improvement in 2002 over 2001 reflects the leveraging of our technology and occupancy costs, as well as efforts
to improve efficiencies with current clients.



Consulting



Fiscal Years Ended September 30, 2003, 2002 and 2001



Consulting net revenues were $734 million in 2003, $601 million in 2002, and $524 million
in 2001. Net revenues increased by 22% in 2003, by 15% in 2002, and 10% in 2001. Consulting net revenues increased primarily as a result of the June 2002 acquisition of the benefits consulting business of Bacon & Woodrow. A portion of this
growth was also due to favorable foreign currency translation from the strengthening of European currencies relative to the U.S. dollar year over year and consolidation of our Dutch affiliate upon purchase of the remaining interest in that affiliate
in the first quarter of 2003. Adjusting for the effects of these acquisitions and favorable foreign currency translation, Consulting net revenues remained flat in 2003 and increased 6% in 2002. Growth in retirement plan and health benefit management
consulting in 2002 and 2003 was offset by declines in demand for our more discretionary consulting services in 2002 and to a greater extent in 2003. In 2001, we did experience growth across the entire spectrum of our consulting services, including
significant growth in international operations.



Consulting segment income as a
percentage of consulting net revenues was 19% in 2003, 27% in 2002 and 32% in 2001. Adjusting for effects of the acquisitions in 2003 and 2002 and including estimated owner compensation of $57 million and $79 million in 2002 and 2001, respectively,
segment income as a percentage of Consulting net revenues was 19%, 16% and 15% in 2003, 2002 and 2001, respectively. The increase in margins between 2003 and 2002 is primarily due to an increase in retirement plan and health benefit consulting
services over our more discretionary consulting services which were down due to continued soft demand for those services in 2002 and 2003.



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##### Table of Contents

Quarterly Results



The following tables set forth the unaudited quarterly financial data for the periods indicated. The information for each of these periods has been prepared on the same
basis as the audited consolidated and combined financial statements and, in our opinion, reflects all adjustments consisting only of normal recurring adjustments necessary to present fairly our financial results. Operating results for previous
periods do not necessarily indicate results that may be achieved in any future period. Amounts are in millions, except per share information.



|                                                                               |  | Fiscal 2003 (1) |      |   | Fiscal 2002 |  
|------------------------------------------------------------------------------ |  | --------------- | ---- | - | ----------- | -
|                                                                               |  | 1stQtr          |      |   | 2ndQtr      |  
|Revenues:                                                                      |  |                 |      |   |             |  
|Net revenue                                                                    |  | $               | 480  |   |             | $
|Reimbursements                                                                 |  |                 | 14   |   |             |  
|                                                                               |  |                 |      |   |             |  
|Total revenues                                                                 |  |                 | 494  |   |             |  
|Operating expenses:                                                            |  |                 |      |   |             |  
|Compensation and related expenses, excluding initial public offering awards(4) |  |                 | 312  |   |             |  
|Initial public offering awards(5)                                              |  |                 | 25   |   |             |  
|Reimbursable expenses                                                          |  |                 | 14   |   |             |  
|Other operating expenses                                                       |  |                 | 94   |   |             |  
|Selling, general and administrative expenses                                   |  |                 | 19   |   |             |  
|                                                                               |  |                 |      |   |             |  
|Total operating expenses                                                       |  |                 | 464  |   |             |  
|                                                                               |  |                 |      |   |             |  
|Operating income                                                               |  |                 | 30   |   |             |  
|Other expenses, net                                                            |  |                 | (5   | ) |             |  
|                                                                               |  |                 |      |   |             |  
|Income before taxes and owner distributions(6)                                 |  |                 |      |   |             |  
|                                                                               |  |                 |      |   |             |  
|Income before income taxes                                                     |  |                 | 25   |   |             |  
|Provision for income taxes(4)                                                  |  |                 | 10   |   |             |  
|                                                                               |  |                 |      |   |             |  
|Net income                                                                     |  | $               | 15   |   |             | $
|                                                                               |  |                 |      |   |             |  
|                                                                               |  |                 |      |   |             |  
|Earnings per share Basic*                                                     |  | $               | 0.16 |   |             | $
|Diluted*                                                                      |  | $               | 0.15 |   |             | $



|* | Earnings per share for the quarter ended June 30, 2002 reflects our operations for the month of June 2002, the one month we were a corporation.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------



|(1) | On June 5, 2002, we acquired the benefits consulting business of Bacon & Woodrow and their results are included in our results from the acquisition date. (See
Note 6 to our consolidated and combined financial statements for fiscal 2003).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On June 5, 2003, we acquired Cyborg and on June 15, 2003, we acquired substantially all of the assets of NTRC. As such, their results are included in our results
from the respective acquisition dates.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | During the month of June 2002, the portion of the third quarter of 2002 during which we operated as a corporation, we also incurred several one-time charges totaling
$48 million (see Note 3 to our consolidated and combined financial statements for fiscal 2003) related to our transition to a corporate structure, which resulted in a net loss. Additionally, common stock has been weighted from the dates of issuance
and not from the beginning of the periods presented.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | In connection with our transition to a corporate structure on May 31, 2002, Hewitt Holdings owners who worked in the business became our
employees and we began to record their compensation in compensation and related expenses. We also became subject to corporate income taxes. Compensation for services rendered by Hewitt Holdings owners has not been reflected in the consolidated
and combined financial statements for periods prior to our transition to corporate structure on May 31, 2002. Prior to our transition to a corporate structure, we operated as a limited liability
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | company and Hewitt Holdings owners were compensated through distributions of income rather than through salaries, benefits and performance-based
bonuses.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Compensation expense of $39 million and $28 million for the years ended September 30, 2003 and 2002, respectively, related to the amortization of initial public
offering restricted stock awards.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Income before taxes and owner distributions as a limited liability company is not comparable to net income of a corporation because (i) compensation and related
expenses does not include compensation expenses related to Hewitt Holdings owners since these individuals received distributions of income rather than compensation and (ii) we incurred no firm-level income tax.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Seasonality and Inflation



Revenues and income vary over the fiscal year. Within our Outsourcing segment, we generally
experience a seasonal increase in our fiscal fourth and first quarter revenues because our clients benefit enrollment processes typically occur during the fall. In contrast, within our Consulting segment, we typically experience a seasonal
peak in the third and fourth fiscal quarters which reflects our clients business needs for these services. We believe inflation has had little effect on our results of operations during the past three years.



Pro Forma Results of Operations



During fiscal 2002, we completed several significant transactions. We completed our
transition to a corporate structure in May 2002, and completed our initial public offering and the acquisition of Bacon & Woodrow in June 2002. The following pro forma results give effect to all three of these transactions as if they had
occurred on October 1, 2001, the beginning of fiscal 2002, and exclude any non-recurring adjustments, to allow for comparability. Fiscal year 2001 pro forma results have not been presented as supplemental information as we believe those results are
not comparable to the current year results primarily because of the Sageo operating losses incurred in 2001 and because the consulting business of Bacon & Woodrow that we acquired in June 2002 did not operate as a stand alone business for the
majority of fiscal year 2001 (see Note 6 to the consolidated and combined financial statements for pro forma Bacon & Woodrow results). We believe that pro forma fiscal 2002 results provide more meaningful information for comparison with fiscal
2003 results. Current year results, as shown in the consolidated and combined statement of operations for the year ended September 30, 2003, include the effects of all three transactions and, as such, are not shown on a pro forma basis.



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



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



33



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##### Table of Contents

Hewitt Associates, Inc.

Pro Forma Combined and Consolidated Income Statements

(unaudited)



|                                                                                             |  | Year Ended September 30, 2002                          |      
|-------------------------------------------------------------------------------------------- |  | ------------------------------------------------------ | -----
|                                                                                             |  | HewittHistorical                                       |      
|                                                                                             |  | (Dollars in millions, except share and per share data) |      
|Revenues:                                                                                    |  |                                                        |      
|Revenue before reimbursements (net revenues)                                                 |  | $                                                      | 1,716
|Reimbursements                                                                               |  |                                                        | 34   
|                                                                                             |  |                                                        |      
|Total revenues                                                                               |  |                                                        | 1,750
|                                                                                             |  |                                                        |      
|Operating expenses:                                                                          |  |                                                        |      
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                                                        | 1,014
|Initial public offering restricted stock awards                                              |  |                                                        | 28   
|Reimbursable expenses                                                                        |  |                                                        | 34   
|Other operating expenses                                                                     |  |                                                        | 358  
|Selling, general and administrative expenses                                                 |  |                                                        | 76   
|                                                                                             |  |                                                        |      
|Total operating expenses                                                                     |  |                                                        | 1,510
|                                                                                             |  |                                                        |      
|Operating income                                                                             |  |                                                        | 240  
|                                                                                             |  |                                                        |      
|Other expenses, net                                                                          |  |                                                        | (17  
|                                                                                             |  |                                                        |      
|                                                                                             |  |                                                        |      
|Income before taxes and owner distributions                                                  |  |                                                        | 223  
|                                                                                             |  |                                                        |      
|Provision for income taxes                                                                   |  |                                                        | 33   
|                                                                                             |  |                                                        |      
|                                                                                             |  |                                                        |      
|Income before owner distributions                                                            |  |                                                        |      
|                                                                                             |  |                                                        |      
|                                                                                             |  |                                                        |      
|Net income                                                                                   |  | $                                                      | 190  
|                                                                                             |  |                                                        |      
|                                                                                             |  |                                                        |      
|Earnings per share:                                                                          |  |                                                        |      
|basic                                                                                       |  |                                                        |      
|diluted                                                                                     |  |                                                        |      
|                                                                                             |  |                                                        |      
|Weighted average shares:                                                                     |  |                                                        |      
|basic                                                                                       |  |                                                        |      
|diluted                                                                                     |  |                                                        |      



|(1) | Acquisition and incorporation adjustments include the following one-time items that are excluded for pro forma purposes: an $8 million compensation
expense for a vacation liability arising from the Companys former owners becoming employees of the Company; an $18 million compensation expense resulting from the requirement to recognize the extent to which certain owners stock
allocation was greater than their proportional share of the capital accounts, without offset for the extent to which certain owners stock allocation is less than their proportional share of the capital accounts; a $22 million non-recurring
income tax expense resulting from the mandatory change in our tax accounting method and the establishment of deferred tax assets and liabilities; a $1 million compensation expense reflecting our assumption of annuity liabilities in connection with
the Bacon & Woodrow acquisition; a $6 million expense related to the former Bacon & Woodrow partners purchase of indemnity insurance prior to the acquisition; $2 million of acquisition-related professional service expenses incurred by
Bacon & Woodrow; and $4 million of losses incurred on a foreign currency purchase option related to the acquisition. Other adjustments include expenses
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | that the Company would have incurred had it been a corporation for the entire period presented: $120 million of owner compensation expense for both the
Companys owners and Bacon & Woodrow partners; $54 million of additional income tax expense as if the Company had been a taxable entity for the entire period; $2 million of amortization of intangible assets created as part of the
acquisition; and $1 million of interest expense on borrowings to fund distributions of accumulated earnings to Bacon & Woodrows partners.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Offering adjustments include compensation expense of $35 million reflecting the amortization of the one-time grant of initial public offering restricted stock awards
and the related income tax benefit of $14 million.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On a pro
forma basis, the Companys net revenues were $1,807 million compared to its actual net revenues of $1,716 million for the year ended September 30, 2002. The difference in the net revenues is attributable to the inclusion of a full twelve months
of the Bacon & Woodrow net revenues on a pro forma basis as compared to the inclusion of the Bacon & Woodrow net revenues from the June 5, 2002, acquisition date forward on an actual basis.



On a pro forma basis, the Companys net income was $68 million compared to its actual
net income of $190 million for the year ended September 30, 2002. The difference is attributable to: (1) the inclusion of owner salaries, benefits, bonuses, and payroll taxes for all periods; (2) the inclusion of an estimated tax expense as if the
Company had been subject to income tax for the entire period; (3) the exclusion of non-recurring charges for owner vacation accrual, the disproportionate share compensation charge, and the $22 million non-recurring income tax expense; (4) the
inclusion of compensation expense for all periods, reflecting the amortization of the one-time grant of initial public offering awards to employees and the estimated tax benefit related to these awards; (5) the inclusion of the Bacon & Woodrow
operations for all periods, adjusted for non-recurring items, on a pro forma basis; (6) the exclusion of losses incurred on a foreign currency purchase option; (7) the inclusion of amortization expense for the amortization of intangible assets
acquired as part of the Bacon & Woodrow business in pro forma net income; (8) the inclusion of estimated interest expense for borrowings to fund the payment of distributions to the former partners of Bacon & Woodrow; and (9) the inclusion of
estimated compensation expense for the assumption of annuity liabilities in connection with the Bacon & Woodrow acquisition.



Liquidity and Capital Resources



We have historically funded our growth and working capital requirements with internally generated funds, credit facilities 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)             |      | Year ended September 30, |         
|------------------------------------------------ | ---- | ------------------------ | --------
|                                                 | 2003 |                          |         
|Cash provided by:                                |      |                          |         
|Operating activities                             |      | $                        | 278,554 
|Cash used in:                                    |      |                          |         
|Investing activities                             |      |                          | (138,068
|Financing activities                             |      |                          | (51,641 
|Effect of exchange rates on cash                 |      |                          | 2,210   
|                                                 |      |                          |         
|Net increase in cash and cash equivalents        |      |                          | 91,055  
|Cash and cash equivalents at beginning of period |      |                          | 136,450 
|                                                 |      |                          |         
|Cash and cash equivalents at end of period       |      | $                        | 227,505 
|                                                 |      |                          |         



For the years ended September 30,
2003, 2002 and 2001, cash provided by operating activities was $279 million, $251 million and $345 million, respectively. The increase in cash flows provided by operating activities in 2003 over 2002 was due in part to increases in collections on
client receivables. In 2002, cash collections on client receivables were lower as a result of the distribution of $153 million of client receivables to Hewitt Holdings in fiscal 2002 as part of our transition to a corporate structure, which reduced
our fiscal 2002 cash flows from operating activities. This increase was offset by the inclusion of a full year of compensation expenses related to former owners and a provision for corporate income taxes, stemming from our transition to a corporate
structure on May 31, 2002. Prior to May 31, 2002, the distributions to Hewitt Holdings owners were paid out of cash flows from financing activities



35



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##### Table of Contents

as capital distributions, and we did not pay corporate income taxes when we operated as a limited liability company. The decrease in cash flows from
operating activities in 2002 from 2001 was also primarily due to the distribution of $153 million of client receivables to Hewitt Holdings in fiscal 2002, partially offset by an increase in net income and higher accrued expenses.



For the years ended September 30, 2003, 2002 and 2001, cash used in investing activities was
$138 million, $96 million and $90 million, respectively. The increase in cash used in investing activities in 2003 over 2002 was primarily due to cash paid for acquisitions (see Note 6 to the consolidated and combined financial statements), offset
by decreased spending on computer hardware and software development. The increase in cash used in investing activities in 2002 over 2001 was primarily due to increased spending on software development at that time.



For the year ended September 30, 2003, 2002 and 2001, cash used in financing activities was
$52 million, $82 million and $210 million, respectively. In fiscal 2001, capital distributions from Hewitt Holdings had been a function of the timing of discretionary withdrawals by Hewitt Holdings owners and the needs of Hewitt Holdings for
the construction of facilities for use by Hewitt Associates and Affiliates. Subsequent to May 31, 2002, the date of our transition to a corporate structure, distributions to Hewitt Holdings owners were replaced by compensation and related
expenses, which affected the net cash provided by operating activities. The decrease in cash used in financing activities in 2003 from 2002 was primarily due to the elimination of capital distributions, which was offset by the receipt of the initial
public offering proceeds in 2002. In fiscal 2003, repayments exceeded borrowings by $45 million primarily due to the repayment of borrowings from cash generated from operations. The decrease in cash used in financing activities in 2002 from 2001 was
primarily due to the receipt of the initial public offering proceeds, offset by increased capital distributions. In fiscal 2002, capital distributions to Hewitt Holdings accounted for the majority of the cash used in financing activities including
$55 million in cash distributed to Hewitt Holdings to fund a distribution to Hewitt Holdings owners of accumulated earnings in preparation for our transition to a corporate structure. In fiscal 2002, repayments exceeded borrowings by $37
million primarily due to the repayment of borrowings with proceeds from the initial public offering, offset by borrowings related to two new building capital leases and the addition of Bacon & Woodrow debt.



Cash and cash equivalents were $228 million, $136 million, and $61 million at September 30,
2003, 2002, and 2001, respectively. Cash and cash equivalents increased by $91 million or 67% in 2003 and $76 million or 125% in 2002. Cash and cash equivalents increased in 2003 primarily due to the collection of receivables generated from
operations, offset by payments for acquisitions and the repayment of borrowings. Cash and cash equivalents increased in 2002 primarily due to the receipt of proceeds from our initial public offering, partly offset by the payment of owner
distributions to Hewitt Holdings owners before incorporation and the reduction of debt after the offering.



Capital expenditures for property, plant and equipment and software were approximately $70 million, $94 million and $91 million for the years ended September 30, 2003,
2002 and 2001, respectively. The Companys significant investments were related to developing and improving its services and technologies in the Outsourcing segment, including benefits administration, payroll administration and workforce
management.



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##### Table of Contents

Commitments



Significant ongoing commitments consist primarily of leases and debt. The following table shows the minimum future debt or non-cancelable rental payments required under
existing debt agreements or lease agreements which have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2003.



Contractual Obligations



|                              |  | Payments Due in Fiscal Year
|----------------------------- |  | ---------------------------
|                              |  | Total                      
|                              |  | (in millions)              
|Operating leases:             |  |                            
|Related party                 |  | $                          
|Third party                   |  |                            
|                              |  |                            
|                              |  |                            
|Capital leases:               |  |                            
|Related party                 |  |                            
|Third party                   |  |                            
|                              |  |                            
|                              |  |                            
|Debt                          |  |                            
|                              |  |                            
|Total Contractual Obligations |  | $                          
|                              |  |                            



Operating Leases



We have entered into related party operating
leases with Hewitt 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 Hewitt Holdings). The minimum aggregate
lease payments on these leases totaled $465 million as of September 30, 2003. The following are real estate lease commitments with Hewitt Holdings Property Entities which were outstanding as of September 30, 2003:



|Holdings Property Entity |  | Location               |  | Commencement Date |  | Expiration Date
|------------------------ |  | ---------------------- |  | ----------------- |  | ---------------
|Hewitt Properties I      |  | Lincolnshire, Illinois |  | November 1998     |  | November 2018  
|Hewitt Properties II     |  | Lincolnshire, Illinois |  | December 1999     |  | December 2019  
|Hewitt Properties III    |  | Lincolnshire, Illinois |  | May 1999          |  | May 2014       
|Hewitt Properties IV     |  | Orlando, Florida       |  | March 2000        |  | March 2020     
|Hewitt Properties IV     |  | The Woodlands, Texas   |  | March 2000        |  | March 2020     
|Overlook Associates      |  | Lincolnshire, Illinois |  | *                 |  | *              



|* | We have several leases of various terms with Overlook Associates. The first began in 1989 and the last will expire in 2017.
|- | ---------------------------------------------------------------------------------------------------------------------------



Total lease payments to Hewitt Holdings and subsidiaries were $34 million in 2003, $40
million in 2002 and $39 million in 2001. The leases were entered into on terms comparable to those which would have been obtained in an arms length transaction. The underlying real property value owned by Hewitt Holdings property
entities aggregated $357 million and $394 million in 2003 and 2002. The investments in the properties owned by these related parties were funded through capital contributions by Hewitt Holdings and third-party debt. Total outstanding debt owed to
third parties by these related parties totaled $274 million and $285 million in 2003 and 2002. The debt is payable over periods that range from 2 to 17 years, and bears fixed interest rates that range from 5.58% to 7.93%. This debt is not reflected
on our balance sheet as the obligation represented by the debt is an obligation of Hewitt Holdings and its related parties and is not an obligation of the Company. Substantially all of the activities of Hewitt Holdings property entities
involve assets that are leased to us. We refer you to Note 15 of our consolidated and combined financial statements for more information regarding these related party leases.



We also have various third-party operating leases for office space, furniture and equipment with terms ranging from one to twenty years. As
of September 30, 2003, the minimum aggregate lease payments on these leases totaled $316



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million. We lease office space in approximately 82 locations in 30 countries. As of September 30, 2003, the minimum annual base rent under such office leases
totaled $38 million (non-U.S. lease rental rates converted into U.S. dollars at exchange rates as of September 30, 2003) and aggregate lease payments on the office leases totaled $291 million. We also have several leases for office furniture used in
Hewitt-owned buildings in Lincolnshire, Illinois, The Woodlands, Texas and Orlando, Florida. The oldest of these leases has a commencement date of January 1, 1997 and expires on June 30, 2004. The most recent of these leases has a commencement date
of December 1, 1999 and expires on May 31, 2007. As of September 30, 2003, combined annual lease payments under these leases were $4 million and the minimum aggregate lease payments on these leases totaled $13 million. We also lease office equipment
such as copiers, servers and disk drives under numerous leases. Annual aggregate lease obligations under these leases as of September 30, 2003 were $8 million and the minimum aggregate lease payments on these leases totaled $12 million.



Total rental expenses for operating leases was $104 million in 2003, $104 million in 2002
and $87 million in 2001.



Capital
Leases



During the third quarter of fiscal 2002, we entered into two
15-year capital leases to lease office space. At inception of the leases, we recorded $89 million in buildings and long-term debt to reflect the long-term lease obligations. Lease payments are made in monthly installments at 7.33% interest. As of
September 30, 2003, the outstanding debt related to these leases was $86 million. One of the leases, totaling approximately $24 million at September 30, 2003, was with a related party, The Bayview Trust. However, on March 7, 2003, The Bayview Trust
sold the building where we leased premises 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 at various interest rates ranging from 5.8%-to-8.0%. At September 30, 2003, the outstanding balance on the equipment financing agreements was $4 million.



Debt



Our debt consists primarily of lines of credit, term notes, and equipment financing
arrangements. We currently have one domestic unsecured line of credit facility. The three-year facility was amended to provide for borrowings up to $75 million and to replace the tangible net worth covenant with a debt to capital covenant.
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 average daily commitment under the facility. If the utilization under the facility exceeds 50% of the commitment, an additional utilization fee, based on the utilization, is assessed at a rate of 0.125% per
annum. At September 30, 2003, there was no outstanding balance on the facility.



On September 26, 2003, a 364-day facility, which provided for borrowings of up to $70 million, expired. There was no outstanding balance on the 364-day facility at expiration.



We had an unsecured multi-currency line of credit that permitted borrowings of up to $10 million through February 28, 2003, at an interbank
multi-currency interest rate plus 75 basis points. All outstanding balances on the unsecured multi-currency line of credit were repaid in full at the expiration of the facility on February 28, 2003. In addition, Hewitt Bacon & Woodrow Ltd., our
U.K. subsidiary, has an unsecured British Pound Sterling line of credit permitting borrowings up to £20 million until July 30, 2003, and £17 million thereafter until expiration of the facility on January 31, 2004, at a current rate of
4.53%. As of September 30, 2003, the outstanding balance was £10 million, equivalent to approximately $16 million, and is repayable upon demand or at expiration of the facility. There was other foreign debt outstanding at September 30, 2003
totaling approximately $6 million, pursuant to local banking relationships in over a half-dozen countries. In total, the outstanding balance on the line of credit and other foreign debt was $22 million as of September 30, 2003.



On March 7, 2003, we entered into a contract with a lender to guarantee borrowings of our
subsidiaries up to $13 million in multiple currency loans and letters of credit to replace our unsecured multi-currency line of credit, which we repaid in February 2003. On August 1, 2003, the contract was amended to increase the guarantee amount to
$20 million. There is no fixed termination date on this contract. This contract allows Hewitt subsidiaries to secure financing at rates based on Hewitts credit-worthiness; however, the terms and conditions of the financing for each of



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our foreign offices have not yet been finalized with the lender. On March 17, 2003, our subsidiary, the Lincolnshire Insurance Company, obtained a $6 million
letter of credit under this contract. There were no borrowings under the contract or draws against the letter of credit as of September 30, 2003.



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



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 Hewitt Holdings owners which would result in a default. Our debt agreements also contain covenants requiring Hewitt Associates LLC and its affiliates to maintain a minimum level of net
worth ($225 million as of September 30, 2003), 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
September 30, 2003, 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. To date, the captive has
not issued any policies to cover any of our insurance risks, however, we have contributed $5 million in cash and secured $6 million of additional regulatory capital in the form of a letter of credit. We plan to self-insure the deductible portion of
various insured exposures with the captive, as well as other company exposures, subject to market conditions.



Initial Public Offering



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



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.



New Accounting Pronouncements



In November 2002, the Financial Accounting Standards Boards (FASB) Emerging Issues Task Force reached a consensus on EITF Issue No. 00-21, Accounting
for Revenue Arrangements with Multiple Deliverables.EITF Issue No. 00-21 provides guidance on how to account for revenue arrangements which include multiple products or services to ensure that all standalone deliverables are tracked, valued and
accounted for on an individual basis and in the proper periods. The guidance in EITF Issue No. 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. Accordingly, in the quarter ended September 30,
2003, the Company began to apply the provisions of EITF Issue No. 00-21. The Company has contracts with multiple services primarily in the Outsourcing segment. In these contracts, standalone deliverables include core services, such as Defined
Benefit Plan Administration, Health & Welfare Plan Administration or Defined Contribution Benefit Plan Administration, and ancillary services, such as Your Total Rewards. Outsourcing standalone deliverables generally have both upfront
implementation fees and ongoing service fees. Upfront, non-refundable implementation fees are deferred and recognized over the life of the contract and ongoing services are generally recognized monthly as services are provided. Consulting services
provided in connection with outsourcing engagements historically have been accounted for at the time services are provided and are valued based on prevailing market rates. The adoption of



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EITF Issue No. 00-21 did not have a material impact on the Companys financial position, results of operations, or cash flows.



On July 30, 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or a disposal plan. Examples of costs covered by
the statement include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. The adoption did not have a material impact on the Companys current financial position or results of operations.



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



Note Regarding Forward-Looking
Statements



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



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



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



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



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



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



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



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



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



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



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



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



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



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| |  | Our transition to a corporate structure may adversely affect our ability to recruit, retain and motivate certain of our former owners and other employees, which in turn, could
adversely affect our ability to compete effectively and to grow our business.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We will continue to be controlled by our initial stockholders, many of whom are our employees, and their interests may differ from those of our 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 Registration
Statements on Form S-3 (File No. 333-105560) filed with the Securities Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or for any
other reason.



|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk
|-------- |  | ----------------------------------------------------------



We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates. Historically, we have not entered into hedging transactions,
such as foreign currency forward contracts or interest rate swaps, to manage this risk due to our low percentage of foreign debt and restrictions on our fixed rate debt. However, in August 2001, we purchased a £150 million foreign currency
option to offset the foreign currency risk associated with the planned purchase of the benefits consulting business of Bacon & Woodrow. This instrument expired in May 2002. We do not hold or issue derivative financial instruments for trading
purposes. At September 30, 2003, 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, which is designed for safety of principal and liquidity. We maintain a portfolio of cash equivalents in the highest
rated money market investments and continuously monitor the investment ratings. The investments are subject to inherent interest rate risk as investments mature and are reinvested at current market interest rates.



At September 30, 2003, 100% of our long-term debt was at a fixed rate. Our short-term debt
with a variable rate consisted of our unsecured line of credit, which has an interest rate of LIBOR plus 52.5- to-72.5 basis points or the prime rate, at our option. As of September 30, 2003, there was no outstanding balance on our unsecured line of
credit. In addition, Hewitt Bacon & Woodrow Ltd., our U.K. subsidiary, has an unsecured British Pound Sterling line of credit permitting borrowings of up to £20 million until July 30, 2003 and £17 million thereafter until expiration
of the facility on January 31, 2004, at a current rate of 4.53%. As of September 30, 2003, the outstanding balance was £10 million, equivalent to approximately $16 million, and is repayable upon demand or at expiration of the facility. There
was other foreign debt outstanding at September 30, 2003, totaling approximately $6 million, pursuant to local banking relationships in over a half-dozen countries. In total, the outstanding balance on the line of credit and other foreign debt was
$22 million as of September 30, 2003.



Our foreign subsidiaries maintained debt
with an effective interest rate of 4.67% during the year ended September 30, 2003. A one percentage point increase would have increased our interest expense by approximately $0.3 million for the year ended September 30, 2003. We also maintain an
invested cash portfolio which earned interest at an effective rate of 1.48% during the year ended September 30, 2003. A one percentage point increase would have increased our interest income by approximately $1.5 million for the year ended September
30, 2003. Therefore, the net effect of a one percentage point increase in interest rates would have been approximately $1.2 million in net additional income (or net additional expense from a one percentage point decrease in the rate) for the year
ended September 30, 2003.



Our fixed rate debt consists of our unsecured senior
term notes. At September 30, 2003, a 10 percent decrease in the levels of interest rates with all other variables held constant would result in an increase in the fair market value of our fixed rate debt of $2.7 million. At September 30, 2003, a 10
percent increase in the levels of interest rates with all other variables held constant would result in a decrease in the fair market value of our fixed rate debt of $2.6 million.



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Foreign exchange risk



For the year ended September 30, 2003, revenues from U.S. operations as a percent of total revenues was 83%. Foreign currency net translation income was $23 million for
the year ended September 30, 2003. We do not enter into any foreign currency forward contracts for speculative or trading purposes.



Operating in international markets means that we are exposed to movements in these foreign exchange rates, primarily the British pound sterling and the Euro.
Approximately 10% of our net revenues for the year ended September 30, 2003 were from the United Kingdom. Approximately 2% of our net revenues for the year ended September 30, 2003 were from countries whose currency is the Euro. Changes in these
foreign exchange rates would have the largest impact on our translating our international operations results into U.S. dollars. A 10% change in the average exchange rate for the British pound sterling for the year ended September 30, 2003, would
have impacted our pre-tax net operating income by approximately $0.1 million. A 10% change in the average exchange rate for the Euro for the year ended September 30, 2003, would have impacted our pre-tax net operating income by approximately $0.1
million.



|Item 8. |  | Financial Statements and Supplementary Data
|------- |  | -------------------------------------------



The financial information required by Item 8 is contained in Item 15 of Part IV beginning on page 44.



|Item 9. |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- |  | ------------------------------------------------------------------------------------



There have been no changes in or disagreements with independent auditors on accounting and financial disclosure.



|Item 9A. |  | Controls and Procedures
|-------- |  | -----------------------



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



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PART III



|Item 10. |  | Directors and Executive Officers of the Registrant.
|-------- |  | ---------------------------------------------------



Reference is made to the Proxy Statement under the headings Election of Directors and Directors and Officers (hereby incorporated by reference)
for this information.



We have adopted a Code of Ethics that applies to our
principal executive officer and principal financial and accounting officer. The Code of Ethics is posted on our website at www.hewitt.com and is filed as an exhibit to this Annual Report on Form 10-K. We intend to satisfy the requirements
under Item 10 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of our Code of Ethics that apply to our principal executive officer and principal financial and accounting officer by posting such information on our
website. Copies of the Code of Ethics will be provided free of charge upon written request directed to Investor Relations, Hewitt Associates, Inc., 100 Half Day Road, Lincolnshire, IL 60069.



|Item 11. |  | Executive Compensation.
|-------- |  | -----------------------



Reference is made to the Proxy Statement under the heading Executive Compensation (hereby incorporated by reference) for this information.



|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
|-------- |  | -----------------------------------------------------------------------------------------------



Reference is made to the Proxy Statement under the heading Security Ownership of Management and Certain Beneficial Owners and
Securities Authorized for Issuance under Equity Compensation Plans (hereby incorporated by reference) for this information.



|Item 13. |  | Certain Relationships and Related Transactions.
|-------- |  | -----------------------------------------------



Reference is made to the Proxy Statement under the heading Certain Relationships and Related Transactions (hereby incorporated by reference) for this
information.



|Item 14. |  | Principal Accountant Fees and Services.
|-------- |  | ---------------------------------------



Reference is made to the Proxy Statement under the heading Audit Fees (hereby incorporated by reference) for this information.



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PART IV



|Item 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K.
|-------- |  | ----------------------------------------------------------------



|(a) | 1. Financial Statements
|--- | ------------------------



The financial statements listed on the Index to the Financial Statements (page 46) are filed as part of this Annual Report.



2. Financial Statement Schedules



These schedules have been omitted because the required information is
included in the consolidated financial statements or notes thereto or because they are not applicable or not required.



3. Exhibits



The exhibits listed on the Index to Exhibits (pages 80 through 83) are filed as part of this Annual Report.



|(b) | Reports on Form 8-K:
|--- | --------------------



Current Report on Form 8-K dated July 22, 2003 (date of earliest event reported), furnished on July 23, 2003, with respect to the Companys earnings
release for the three and nine months ended June 30, 2003.



Current Report on Form 8-K dated August 6, 2003 (date of earliest event reported), filed on August 6, 2003, with respect to the Companys response to an announcement by Millennium Chemicals.



|(c) | Exhibits
|--- | --------



The exhibits listed on the Index to Exhibits (pages 80 through 83) are filed as part of this Annual Report.



|(d) | Financial Statement Schedules:
|--- | ------------------------------



These schedules have been omitted because the required information is included in the consolidated financial statements or notes thereto or because they
are not applicable or required.



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of
Section 13 or 15(d) 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.By:

/s/    DAN A. DECANNIEREDan A. DeCanniere Chief Financial Officer(Principal financial and accounting officer)Date: November 18, 2003




Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 18th day of November, 2003:



|                                                                                                         |  | 
|-------------------------------------------------------------------------------------------------------- |  | 
|/s/    DALE L. GIFFORD                                                                                   |  | 
|                                                                                                         |  | 
|Dale L. Gifford Chairman of the Board, Chief Executive Officerand Director (Principal executive officer) |  | 
|                                                                                                         |  | 
|/s/    DAN A. DECANNIERE                                                                                 |  | 
|                                                                                                         |  | 
|Dan A. DeCanniere Chief Financial Officer(Principal financial and accounting officer)                    |  | 
|                                                                                                         |  | 
|/s/    BRYAN J. DOYLE                                                                                    |  | 
|                                                                                                         |  | 
|Bryan J. Doyle Director                                                                                  |  | 
|                                                                                                         |  | 
|/s/    CHERYL A. FRANCIS                                                                                 |  | 
|                                                                                                         |  | 
|Cheryl A. Francis Director                                                                               |  | 
|                                                                                                         |  | 
|/s/    JULIE S. GORDON                                                                                   |  | 
|                                                                                                         |  | 
|Julie S. Gordon Director                                                                                 |  | 
|                                                                                                         |  | 
|/s/    DANIEL J. HOLLAND                                                                                 |  | 
|                                                                                                         |  | 
|Daniel J. Holland Chief Operating Officer, Director                                                      |  | 



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|ITEM 15(a). |  | INDEX TO FINANCIAL STATEMENTS
|----------- |  | -----------------------------



|                                                                                                                         | 
|------------------------------------------------------------------------------------------------------------------------ | 
|Report of Ernst & Young LLP, Independent Auditors                                                                        | 
|                                                                                                                         | 
|Consolidated Balance Sheets as of September 30, 2003 and 2002                                                            | 
|                                                                                                                         | 
|Consolidated and Combined Statements of Operations for the Fiscal Years Ended September 30, 2003, 2002 and 2001          | 
|                                                                                                                         | 
|Consolidated and Combined Statements of Stockholders Equity for the Fiscal Year Ended September 30, 2003, 2002 and 2001 | 
|                                                                                                                         | 
|Consolidated and Combined Statements of Cash Flows for the Fiscal Years Ended September 30, 2003, 2002, and 2001         | 
|                                                                                                                         | 
|Notes to Consolidated Financial Statements                                                                               | 



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##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To the Board of
Directors and Stockholders of Hewitt Associates, Inc.:



We have audited the
accompanying consolidated balance sheets of Hewitt Associates, Inc. (a Delaware corporation) and subsidiaries and its predecessor (the Company) as of September 30, 2003 and 2002, and the related consolidated and combined statements of
operations, stockholders equity and cash flows for each of the three years ended September 30, 2003. These consolidated and combined financial statements are the responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated and combined financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of September 30, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2003, in conformity with accounting principles generally accepted in
the United States of America.



|ERNST & YOUNG LLP                 
|----------------------------------
|                                  
|Chicago, Illinois October 29, 2003



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##### Table of Contents

HEWITT ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share and per share amounts)



|                                                                                                        |  | September 30,2003 |           | September 30,2002
|------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | -----------------
|ASSETS                                                                                                  |  |                   |           |                  
|Current Assets                                                                                          |  |                   |           |                  
|Cash and cash equivalents                                                                               |  | $                 | 227,505   |                  
|Client receivables and unbilled work in process, less allowances of $15,011 in 2003 and $16,160 in 2002 |  |                   | 468,573   |                  
|Prepaid expenses and other current assets                                                               |  |                   | 38,204    |                  
|Due from related parties                                                                                |  |                   |          |                  
|Deferred income taxes, net                                                                              |  |                   | 8,948     |                  
|                                                                                                        |  |                   |           |                  
|Total current assets                                                                                    |  |                   | 743,230   |                  
|                                                                                                        |  |                   |           |                  
|Non-Current Assets                                                                                      |  |                   |           |                  
|Deferred contract costs                                                                                 |  |                   | 140,418   |                  
|Property and equipment, net                                                                             |  |                   | 237,476   |                  
|Capitalized software, net                                                                               |  |                   | 95,054    |                  
|Other intangible assets, net                                                                            |  |                   | 107,540   |                  
|Goodwill, net                                                                                           |  |                   | 259,294   |                  
|Other assets, net                                                                                       |  |                   | 14,794    |                  
|                                                                                                        |  |                   |           |                  
|Total non-current assets                                                                                |  |                   | 854,576   |                  
|                                                                                                        |  |                   |           |                  
|Total Assets                                                                                            |  | $                 | 1,597,806 |                  
|                                                                                                        |  |                   |           |                  
|                                                                                                        |  |                  
|LIABILITIES                                                                                             |  |                   |           |                  
|Current Liabilities                                                                                     |  |                   |           |                  
|Accounts payable                                                                                        |  | $                 | 14,508    |                  
|Accrued salaries and benefits                                                                           |  |                   | 147,821   |                  
|Accrued expenses                                                                                        |  |                   | 95,228    |                  
|Advanced billings to clients                                                                            |  |                   | 108,272   |                  
|Short-term debt and current portion of long-term debt                                                   |  |                   | 33,000    |                  
|Current portion of capital lease obligations                                                            |  |                   | 6,602     |                  
|Employee deferred compensation and accrued profit sharing                                               |  |                   | 47,583    |                  
|                                                                                                        |  |                   |           |                  
|Total current liabilities                                                                               |  |                   | 453,014   |                  
|                                                                                                        |  |                   |           |                  
|Long-Term Liabilities                                                                                   |  |                   |           |                  
|Debt, less current portion                                                                              |  |                   | 135,563   |                  
|Capital lease obligations, less current portion                                                         |  |                   | 83,191    |                  
|Deferred contract revenues                                                                              |  |                   | 118,167   |                  
|Other long-term liabilities                                                                             |  |                   | 70,386    |                  
|Deferred income taxes, net                                                                              |  |                   | 47,424    |                  
|                                                                                                        |  |                   |           |                  
|Total long-term liabilities                                                                             |  |                   | 454,731   |                  
|                                                                                                        |  |                   |           |                  
|Total Liabilities                                                                                       |  | $                 | 907,745   |                  
|                                                                                                        |  |                   |           |                  



Commitments and Contingencies (Notes 14 and 18)



48



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##### Table of Contents

HEWITT ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS - Continued

(Dollars in thousands except share and
per share amounts)



|                                                                                                                                                                                        |  | September 30,2003 |           |   | September 30,2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | - | ----------------- | -
|STOCKHOLDERS EQUITY                                                                                                                                                                    |  |                   |           |   |                   |  
|Stockholders Equity                                                                                                                                                                    |  |                   |           |   |                   |  
|Preferred stock, par value $0.01 per share, 10,000,000 shares authorized                                                                                                                |  | $                 |          |   |                   | $
|Class A common stock, par value $0.01 per share, 750,000,000 shares authorized, 30,463,187 and 19,162,660 shares issued and
outstanding as of September 30, 2003 and 2002, respectively |  |                   | 305       |   |                   |  
|Class B common stock, par value $0.01 per share, 200,000,000 shares authorized, 63,420,466 and 73,726,424 shares issued and
outstanding as of September 30, 2003 and 2002, respectively |  |                   | 634       |   |                   |  
|Class C common stock, par value $0.01 per share, 50,000,000 shares authorized, 4,603,915 and 5,568,869 shares issued and
outstanding as of September 30, 2003 and 2002, respectively    |  |                   | 46        |   |                   |  
|Restricted stock units, 173,998 and 319,902 units issued and outstanding as of September 30, 2003 and 2002,
respectively                                                                |  |                   | 3,302     |   |                   |  
|Additional paid-in capital                                                                                                                                                              |  |                   | 627,329   |   |                   |  
|Cost of common stock in treasury, 270,294 shares of Class A common stock at September 30, 2003                                                                                          |  |                   | (6,164    | ) |                   |  
|Retained earnings (deficit)                                                                                                                                                             |  |                   | 71,586    |   |                   |  
|Unearned compensation                                                                                                                                                                   |  |                   | (45,534   | ) |                   |  
|Accumulated other comprehensive income                                                                                                                                                  |  |                   | 38,557    |   |                   |  
|                                                                                                                                                                                        |  |                   |           |   |                   |  
|Total stockholders equity                                                                                                                                                              |  |                   | 690,061   |   |                   |  
|                                                                                                                                                                                        |  |                   |           |   |                   |  
|Total Liabilities and Stockholders Equity                                                                                                                                              |  | $                 | 1,597,806 |   |                   | $
|                                                                                                                                                                                        |  |                   |           |   |                   |  



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



49



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##### Table of Contents

HEWITT ASSOCIATES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (1)

(Dollars in thousands except
share and per share amounts)



|                                                                                             |  | Year Ended September 30, |           
|-------------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                             |  | 2003                     |           
|Revenues:                                                                                    |  |                          |           
|Revenue before reimbursements (net revenues)                                                 |  | $                        | 1,981,656 
|Reimbursements                                                                               |  |                          | 49,637    
|                                                                                             |  |                          |           
|Total revenues                                                                               |  |                          | 2,031,293 
|                                                                                             |  |                          |           
|Operating expenses:                                                                          |  |                          |           
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                          | 1,269,065 
|Initial public offering restricted stock awards                                              |  |                          | 39,010    
|Reimbursable expenses                                                                        |  |                          | 49,637    
|Other operating expenses                                                                     |  |                          | 396,009   
|Selling, general and administrative expenses                                                 |  |                          | 99,591    
|Non-recurring software charge                                                                |  |                          |          
|                                                                                             |  |                          |           
|Total operating expenses                                                                     |  |                          | 1,853,312 
|                                                                                             |  |                          |           
|Operating income                                                                             |  |                          | 177,981   
|Other expenses, net:                                                                         |  |                          |           
|Interest expense                                                                             |  |                          | (20,014   
|Interest income                                                                              |  |                          | 2,638     
|Other income (expense), net                                                                  |  |                          | 36        
|                                                                                             |  |                          |           
|                                                                                             |  |                          | (17,340   
|                                                                                             |  |                          |           
|Income before taxes and owner distributions                                                  |  |                          |           
|                                                                                             |  |                          |           
|Income before income taxes                                                                   |  |                          | 160,641   
|Provision for income taxes                                                                   |  |                          | 66,364    
|                                                                                             |  |                          |           
|Net income                                                                                   |  | $                        | 94,277    
|                                                                                             |  |                          |           
|Earnings (loss) per share(2):                                                                |  |                          |           
|Basic                                                                                        |  | $                        | 0.99      
|Diluted                                                                                      |  | $                        | 0.97      
|Weighted average shares(2):                                                                  |  |                          |           
|Basic                                                                                        |  |                          | 94,783,223
|Diluted                                                                                      |  |                          | 96,832,723



|(1) | In connection with the Companys transition to a corporate structure on May 31, 2002,
owners who worked in the business became employees and the Company began to record their compensation in compensation and related expenses and the Company became subject to corporate income taxes. As such, owner compensation expenses and corporate
income taxes were recorded in fiscal 2003, but only for four months in fiscal 2002. Additionally, on June 5, 2002, the Company acquired the benefits consulting business of Bacon & Woodrow and their results are included in the Companys
results from the acquisition date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Loss per share in fiscal 2002 is calculated based on the net loss incurred for the four month
period from May 31, 2002, the date on which the Companys transition to a corporate structure was completed, through September 30, 2002. Similarly, common stock is weighted from May 31, 2002 and not from the beginning of fiscal 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



50



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##### Table of Contents

HEWITT ASSOCIATES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS EQUITY

(Dollars in thousands except share and per share amounts)



|                                                                                      |  | Pref-erredShares |   | Class ACommon Shares |            |   | Class BCommon Shares |        |     | Class CCommon Shares |        |             | RestrictedStock Units |        |   | AdditionalPaid-inCapital |        |  | Treasury Stock,at Cost |        |  | RetainedEarnings(Deficit) |        |   | UnearnedCompen-sation |          |        | OwnersCapital |        |        | Accu-mulatedOtherCompre-hensiveIncome(Loss) |  |   | Total   |  
|------------------------------------------------------------------------------------- |  | ---------------- | - | -------------------- | ---------- | - | -------------------- | ------ | --- | -------------------- | ------ | ----------- | --------------------- | ------ | - | ------------------------ | ------ |  | ---------------------- | ------ |  | ------------------------- | ------ | - | --------------------- | -------- | ------ | -------------- | ------ | ------ | ------------------------------------------- |  | - | ------- | -
|                                                                                      |  | Shares           |   |                      | Amount     |   |                      | Shares |     |                      | Amount |             |                       | Shares |   |                          | Amount |  |                        | Shares |  |                           | Amount |   |                       |          | Shares |                | Amount |        |                                             |  |   |         |  
|Balance at September 30, 2000                                                         |  | $                |  |                      |           |   |                      | $      |    |                      |        |            |                       |        | $ |                         |        |  |                       |        |  | $                         |       |   |                       |         |        |                | $      |       |                                             |  | $ |        |  
|Comprehensive income:                                                                 |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Income before taxes and owner distributions                                           |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Other comprehensive income (loss):                                                    |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Foreign currency translation adjustments                                              |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Unrealized gains on securities:                                                       |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Unrealized holding gains                                                              |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Less: reclass- ification adjustments for gains                                        |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Total other comprehensive income (loss)                                               |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Total comprehensive income                                                            |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Capital distributions, net                                                            |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Balance at September 30, 2001                                                         |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Comprehensive income:                                                                 |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Income before taxes and owner distributions for the eight months ended May 31, 2002   |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Net loss for the four months ended September 30, 2002                                 |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Other comprehensive income (loss):                                                    |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Minimum pension liability adjustment                                                  |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Foreign currency translation adjustments                                              |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Total comprehensive income                                                            |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Capital distributions, net                                                            |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Effect of the transition to corporate structure                                       |  |                  |  |                      |           |   |                      |        |    |                      |        | 70,819,520  |                       |        |   | 708                      |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 56,508  |  
|Disproportionate share allocation adjustment                                          |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 17,843  |  
|Acquisition of Bacon & Woodrow                                                        |  |                  |  |                      | 941,753    |   |                      |        | 9   |                      |        | 2,906,904   |                       |        |   | 29                       |        |  | 5,568,869              |        |  |                           | 56     |   |                       |         |        |                |        |       |                                             |  |   | 219,146 |  
|Net proceeds from initial public offering                                             |  |                  |  |                      | 12,822,500 |   |                      |        | 128 |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 219,170 |  
|Initial public offering restricted stock grant                                        |  |                  |  |                      | 5,467,216  |   |                      |        | 55  |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       | 322,692  |        |                |        | 6,131  |                                             |  |   | 103,955 |  
|Amortization of unearned compensation                                                 |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Issuance of Class A common shares - outside directors                                 |  |                  |  |                      | 3,404      |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 79      |  
|Net forfeiture of restricted common stock pursuant to the global stock plan and other |  |                  |  |                      | (72,213    | ) |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       | (2,790   | )      |                |        | (53    | )                                           |  |   | (1,324  | )
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Balance at September 30, 2002                                                         |  |                  |  |                      | 19,162,660 |   |                      |        | 192 |                      |        | 73,726,424  |                       |        |   | 737                      |        |  | 5,568,869              |        |  |                           | 56     |   |                       | 319,902  |        |                |        | 6,078  |                                             |  |   | 615,377 |  
|Comprehensive income:                                                                 |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Net income                                                                            |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Other comprehensive income (loss):                                                    |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Minimum pension liability adjustment                                                  |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Foreign currency translation adjustments                                              |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Total comprehensive income                                                            |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Payments for initial public offering costs                                            |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | (796    | )
|Amortization of unearned compensation                                                 |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Tax benefits from stock plans                                                         |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 12,122  |  
|Restricted stock unit vesting                                                         |  |                  |  |                      | 140,285    |   |                      |        | 1   |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       | (140,285 | )      |                |        | (2,669 | )                                           |  |   | 2,668   |  
|Shares exchanged in secondary offering                                                |  |                  |  |                      | 11,270,912 |   |                      |        | 113 |                      |        | (10,305,958 | )                     |        |   | (103                     | )      |  | (964,954               | )      |  |                           | (10    | ) |                       |         |        |                |        |       |                                             |  |   |        |  
|Purchase of Class A common shares                                                     |  |                  |  |                      |           |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   |        |  
|Issuance of Class A common shares:                                                    |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Employee stock options                                                                |  |                  |  |                      | 35,808     |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 681     |  
|Outside Directors                                                                     |  |                  |  |                      | 6,661      |   |                      |        |    |                      |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       |         |        |                |        |       |                                             |  |   | 175     |  
|Net forfeiture of restricted common stock pursuant to the global stock plan and other |  |                  |  |                      | (153,139   | ) |                      |        | (1  | )                    |        |            |                       |        |   |                         |        |  |                       |        |  |                           |       |   |                       | (5,619   | )      |                |        | (107   | )                                           |  |   | (2,898  | )
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  
|Balance at September 30, 2003                                                         |  | $                |  |                      | 30,463,187 |   |                      | $      | 305 |                      |        | 63,420,466  |                       |        | $ | 634                      |        |  | 4,603,915              |        |  | $                         | 46     |   |                       | 173,998  |        |                | $      | 3,302  |                                             |  | $ | 627,329 |  
|                                                                                      |  |                  |   |                      |            |   |                      |        |     |                      |        |             |                       |        |   |                          |        |  |                        |        |  |                           |        |   |                       |          |        |                |        |        |                                             |  |   |         |  



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



51



---

##### Table of Contents

HEWITT ASSOCIATES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



|                                                                                                                                  |  | Year Ended September 30, |         
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                                                                                  |  | 2003                     |         
|Cash flows from operating activities:                                                                                             |  |                          |         
|Income before taxes and owner distributions                                                                                       |  |                          |         
|Net income                                                                                                                        |  | $                        | 94,277  
|Adjustments to reconcile income before taxes and owner distributions and net income to net cash provided by operating
activities: |  |                          |         
|Depreciation                                                                                                                      |  |                          | 76,703  
|Amortization                                                                                                                      |  |                          | 37,691  
|Non-recurring software charge                                                                                                     |  |                          |        
|Net unrealized (gain) loss on securities                                                                                          |  |                          |        
|Initial public offering restricted stock awards                                                                                   |  |                          | 34,833  
|Owner compensation charge (Note 3)                                                                                                |  |                          |        
|Establishment of owner vacation liability (Note 3)                                                                                |  |                          |        
|Director stock remuneration                                                                                                       |  |                          | 175     
|Deferred income taxes                                                                                                             |  |                          | 36,187  
|Changes in operating assets and liabilities:                                                                                      |  |                          |         
|Client receivables and unbilled work in process                                                                                   |  |                          | (52,537 
|Prepaid expenses and other current assets                                                                                         |  |                          | (583    
|Deferred contract costs                                                                                                           |  |                          | (12,251 
|Accounts payable                                                                                                                  |  |                          | (12,995 
|Due from related parties                                                                                                          |  |                          | 3,468   
|Accrued salaries and benefits                                                                                                     |  |                          | 38,466  
|Accrued expenses                                                                                                                  |  |                          | 12,736  
|Advanced billings to clients                                                                                                      |  |                          | 30,884  
|Deferred contract revenues                                                                                                        |  |                          | (9,150  
|Employee deferred compensation and accrued profit sharing                                                                         |  |                          | (9,320  
|Other long-term liabilities                                                                                                       |  |                          | 9,970   
|                                                                                                                                  |  |                          |         
|Net cash provided by operating activities                                                                                         |  |                          | 278,554 
|                                                                                                                                  |  |                          |         
|Cash flows from investing activities:                                                                                             |  |                          |         
|Additions to property and equipment                                                                                               |  |                          | (43,415 
|Cash paid for acquisitions and transaction costs, net of cash received                                                            |  |                          | (65,152 
|Increase in other assets                                                                                                          |  |                          | (29,501 
|                                                                                                                                  |  |                          |         
|Net cash used in investing activities                                                                                             |  |                          | (138,068
|                                                                                                                                  |  |                          |         
|Cash flows from financing activities:                                                                                             |  |                          |         
|Proceeds from issuance of stock                                                                                                   |  |                          |        
|Proceeds from the exercise of stock options                                                                                       |  |                          | 681     
|Capital distributions to former owners, net                                                                                       |  |                          |        
|Short-term borrowings                                                                                                             |  |                          | 7,669   
|Repayments of short-term borrowings                                                                                               |  |                          | (32,624 
|Proceeds from long-term debt issuance                                                                                             |  |                          |        
|Repayments of long-term debt                                                                                                      |  |                          | (9,236  
|Repayments of capital lease obligations                                                                                           |  |                          | (11,171 
|Payment of deferred financing fees                                                                                                |  |                          |        
|Purchase of common stock for treasury                                                                                             |  |                          | (6,164  
|Payment of offering costs                                                                                                         |  |                          | (796    
|                                                                                                                                  |  |                          |         
|Net cash used in financing activities                                                                                             |  |                          | (51,641 
|                                                                                                                                  |  |                          |         
|Effect of exchange rate changes on cash and cash equivalents                                                                      |  |                          | 2,210   
|                                                                                                                                  |  |                          |         
|Net increase in cash and cash equivalents                                                                                         |  |                          | 91,055  
|Cash and cash equivalents, beginning of year                                                                                      |  |                          | 136,450 
|                                                                                                                                  |  |                          |         
|Cash and cash equivalents, end of year                                                                                            |  | $                        | 227,505 
|                                                                                                                                  |  |                          |         



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HEWITT ASSOCIATES, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWSContinued

(Dollars in
thousands)



|                                                                            |  | Year Ended September 30, |         
|--------------------------------------------------------------------------- |  | ------------------------ | --------
|                                                                            |  | 2003                     |         
|Change in client receivables and unbilled work in process:                  |  |                          |         
|Beginning of year client receivables and unbilled work in process           |  | $                        | 394,184 
|Non-cash distribution of client receivables to Hewitt Holdings              |  |                          |        
|Fair value of acquired client receivables and unbilled work in process      |  |                          | 12,481  
|Effect of exchange rates on client receivables and unbilled work in process |  |                          | 9,371   
|End of year client receivables and unbilled work in process                 |  |                          | (468,573
|                                                                            |  |                          |         
|Change in client receivables and unbilled work in process                   |  | $                        | (52,537 
|                                                                            |  |                          |         
|Schedule of noncash investing and financing activities:                     |  |                          |         
|Acquisition, cash paid, net of cash acquired:                               |  |                          |         
|Common stock issued in connection with acquisition                          |  | $                        |        
|Fair value of assets acquired                                               |  |                          | (72,932 
|Fair value of liabilities assumed                                           |  |                          | 52,126  
|Goodwill                                                                    |  |                          | (44,346 
|                                                                            |  |                          |         
|Cash paid, net of cash acquired                                             |  |                          | (65,152 
|Real estate and equipment purchased under capital leases                    |  |                          |        
|Software licenses purchased under long-term agreements                      |  |                          | 8,146   
|Client receivables distributed to Hewitt Holdings                           |  |                          |        
|Conversion of owner capital to common stock                                 |  |                          |        
|Accrued offering costs                                                      |  | $                        |        
|Supplementary disclosure of cash paid during the year:                      |  |                          |         
|Interest paid                                                               |  | $                        | 18,390  
|Income taxes paid                                                           |  |                          | 8,486   



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



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HEWITT ASSOCIATES, INC.

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2003, 2002 and 2001

(Dollars in thousands except share and per share amounts)



1. Description of Business



Hewitt
Associates, Inc., a Delaware corporation, and its subsidiaries (Hewitt or the Company) provide human resources outsourcing and consulting services.



Prior to May 31, 2002, the results of the Company included the combined results of three Illinois limited liability companies: Hewitt
Associates LLC and subsidiaries, Hewitt Financial Services LLC, and Sageo LLC (collectively, Hewitt Associates LLC and Affiliates). Hewitt Associates LLC and Affiliates was under the control of Hewitt Holdings LLC (Hewitt
Holdings) and its owners. The term owner refers to the individuals who are current or retired members of Hewitt Holdings.



On May 31, 2002, the Company completed its transition to a corporate structure whereby Hewitt Holdings ownership interests in Hewitt Associates LLC and Affiliates
were transferred to Hewitt Holdings newly formed and then wholly-owned subsidiary, Hewitt Associates, Inc.



On June 5, 2002, the Company acquired the actuarial and benefits consulting business of Bacon & Woodrow in the United Kingdom. The results of operations for Bacon
& Woodrows actuarial and benefits consulting business are included in the Companys and the Consulting segments results from the acquisition date (see Note 6).



On June 27, 2002, the Company sold 11,150,000 shares of Class A common stock at $19.00 per share in its initial public offering. In July
2002, the underwriters exercised their over-allotment option to purchase an additional 1,672,500 shares of the Companys Class A common stock at $19.00 per share. The combined transactions generated $218,502 in net cash proceeds after offering
expenses.



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



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



On August 6, 2003, owners, former Bacon & Woodrow partners and certain key employees sold 9,852,865 shares of the Companys Class A common stock at $23 per share
in a registered secondary offering. On August 11, 2003, the Companys underwriters exercised their over-allotment option to purchase an additional 1,477,929 shares from the selling stockholders. The offering was initiated pursuant to a request
under a registration rights agreement which the Company and Hewitt Holdings entered into at the time of the Companys initial public offering. The Company did not receive any proceeds from the offering and expensed approximately $800 of
offering costs.



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2. Summary of Significant Accounting Policies



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



Principles of Consolidation and Combination



The accompanying consolidated and combined financial statements reflect
the operations of the Company and its majority owned subsidiaries after elimination of intercompany accounts and transactions. Combined financial statements are presented for periods prior to the transition to a corporate structure when the combined
entities that now make up the Company were under common control. Upon consummation of the transition to a corporate structure, the affiliated companies of Hewitt were transferred into the newly formed corporation, Hewitt Associates, Inc., and their
results are presented on a consolidated basis.



Revenue Recognition



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



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



Losses on outsourcing 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 continuously 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.



The Companys clients typically pay for consulting services either on a time-and-materials or, to a lesser degree, on a fixed-fee basis. Revenues are recognized under time-and-material based arrangements as
services are provided. On fixed-fee engagements, revenues are recognized as the services are performed, which is measured by hours incurred in proportion to total hours estimated to complete a project.



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



The Company considers the criteria established by Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as
an Agent,in determining whether revenue should be recognized on a gross versus a net basis. In consideration of these criteria, the Company recognizes revenue primarily on a gross basis. Factors considered in determining if gross or net
recognition is appropriate include whether the Company is primarily responsible to the client for the services, 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, upfront implementation efforts are required to set up a client and their human resource or benefit programs on the Companys systems.
The direct implementation or set up costs and any upfront set up fees are deferred and recognized into earnings over the life of the outsourcing agreement. Specific, incremental and



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direct costs of implementation are deferred and recognized as primarily compensation and related expenses evenly over the period between the initiation of
ongoing services through the end of the contract term. Implementation fees may be received either upfront or over the ongoing services period in the fee per participant. By deferring the upfront 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.



As of September 30, 2003 and 2002, net deferred contract costs in excess of deferred contract revenues totaled $22,251 and $921, respectively. The Company has reclassified its deferred contract costs and deferred
contract revenues to show the gross amounts separately on the consolidated balance sheets. In prior periods, both short-term and long-term portions of deferred costs and revenues were recorded in prepaid expenses and other current assets,
non-current other assets, advanced billings to clients and other long-term liabilities. As a result of the reclassification, total net assets and liabilities did not change, however, total assets and total liabilities and shareholders equity
increased by equal amounts, or $116,869 and $128,172 as of September 30, 2003 and 2002, respectively. Additionally, at September 30, 2003, a small portion of the deferred contract revenues includes deferred revenue on payroll software maintenance
agreements.



Client Receivables and Unbilled Work in Process



The Company periodically evaluates the collectibility of its client receivables and
unbilled work in process based on a combination of factors. In circumstances where the Company is aware of a specific clients difficulty in meeting its financial obligations (e.g., bankruptcy filings, failure to pay amounts due to the Company
or to others), the Company records an allowance for doubtful accounts to reduce the client receivable to what the Company reasonably believes will be collected. For all other clients, the Company recognizes an allowance for doubtful accounts based
on past write-off history and the length of time the receivables are past due. Facts and circumstances may change that would require the Company to alter its estimates of the collectibility of client receivables and unbilled work in progress.



Performance-Based Compensation



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



Income Before Income Taxes



Prior to May 31, 2002, the Company operated as a group of affiliated limited liability companies and recorded income before income taxes and owner distributions in
accordance with accounting principles generally accepted in the United States of America. Income before income taxes prior to May 31, 2002 is not comparable to current year income before income taxes because in the prior year periods, compensation
and related expenses for services rendered by owners have not been reflected as expenses and the Company incurred no corporate income taxes in its historical results prior to its transition to a corporate structure. Results prior to May 31, 2002, do
not reflect the financial position, results of operations, and changes in cash flows that would have been reported had the Company operated as a corporation for all the periods presented.



Income Taxes



On May 31, 2002, the Company became subject to federal and state income taxes and began to apply the asset and liability method described in Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using tax rates



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expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Prior to May 31, 2002, the Company was not subject to corporate income taxes because it operated as a limited liability company.
Taxes on income earned prior to May 31, 2002, were the responsibility of Hewitt Holdings owners.



Foreign Currency Translation



The
Companys foreign operations use the local currency as their functional currency. Accordingly, assets and liabilities of foreign subsidiaries are translated into U.S. Dollars at exchange rates in effect at year-end, while revenues and expenses
are translated at average exchange rates prevailing during the year. Translation adjustments are reported as a component of accumulated other comprehensive income (loss) in owners capital and stockholders equity. Gains or losses
resulting from foreign exchange transactions, which have not been significant, are recorded in earnings.



Earnings Per Share



On May 31, 2002,
the Company completed its transition to a corporate structure and began to report earnings per share in accordance with SFAS No. 128, Earnings Per Share.Under the treasury stock method, unvested restricted stock awards and unexercised stock
options with fair market values of the underlying stock greater than the stock options exercise prices are considered common stock equivalents for the purposes of calculating diluted earnings per share for periods when there are positive
earnings and the incremental effect would be dilutive. For the year ended September 30, 2002, earnings per share was calculated based on the net loss incurred in the four month period from May 31, 2002, through September 30, 2002. Prior to May 31,
2002, Hewitt was comprised of limited liability companies and did not have outstanding common stock from which to calculate earnings per share, nor did the Companys earnings include owner compensation or income taxes. As such, the
Companys net income prior to May 31, 2002, is not comparable to net income of a corporation or the Companys net income after May 31, 2002. Therefore, historical earnings per share is not available for periods prior to May 31, 2002, and
the consolidated and combined financial statements do not reflect the financial position and results of operations that would have been reported had the Company operated as a corporation prior to May 31, 2002.



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 and combined 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.



Concentrations of Credit Risk



The Companys financial instruments that are exposed to concentrations of credit risk consist of cash equivalents, client receivables and unbilled work in process.
Hewitt invests its cash equivalents in the highest rated money market investments and continuously monitors the investment ratings. Concentrations of credit risk with respect to unbilled revenues and receivables are limited as no client makes up a
significant portion of the Companys billings. Credit risk itself is limited due to the Companys large number of Fortune 500clients, its clients strong credit histories, and their dispersion across many different industries
and geographic regions. For each of the years ended September 30, 2003, 2002 and 2001, no single client represented ten percent or more of the Companys total revenues.



Fair Value of Financial Instruments



Cash and cash equivalents, marketable securities, client receivables, and foreign exchange instruments are financial assets with carrying values that approximate fair
value. Accounts payable, other accrued expenses and liabilities and the Companys variable rate debt are financial liabilities with carrying values that approximate fair value. The fair



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value of the Companys $147,000 fixed rate senior term notes is estimated to be approximately $153,000 at September 30, 2003 and was calculated by
discounting the future cash flows of the senior term notes at rates currently offered to the Company for similar debt instruments with comparable maturities.



Cash and Cash Equivalents



The Company defines cash and cash equivalents as cash and investments with original maturities of 90 days or less. At September 30, 2003 and 2002, cash and cash
equivalents included cash in checking and money market accounts as well as investment grade municipal debt obligations and corporate tax-advantaged money market investments maturing in 90 days or less.



Property and Equipment



Property and equipment are recorded at cost. Depreciation and amortization include amounts recorded under capital leases and are computed
using the straight-line method over the estimated useful lives of the assets, which are as follows:



|Asset Description            |  | Asset Life                                   
|---------------------------- |  | ---------------------------------------------
|Computer equipment           |  | 3 to 5 years                                 
|Telecommunications equipment |  | 5 years                                      
|Furniture and equipment      |  | 5 to 15 years                                
|Leasehold improvements       |  | Lesser of estimated useful life or lease term
|Buildings                    |  | Lesser of estimated useful life or lease term



Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets held for use are assessed by a comparison of the carrying amount of the asset to the
estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset is considered impaired and expense is recorded in an amount
required to reduce the carrying amount of the asset to its fair value.



Software Development Costs



Software development costs for
software developed for internal use are accounted for in accordance with the American Institute of Certified Public Accountants Statement of Position No. 98-1 (SOP 98-1), Accounting for Costs of Computer Software Developed or
Obtained for Internal Use.SOP 98-1 requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. The Company amortizes the software costs over periods ranging from three to five years.



Costs associated with the planning and design phase of the development of
software products, including coding and testing activities necessary to establish technological feasibility of computer software products to be sold, leased, or otherwise marketed, are expensed as incurred. Once technological feasibility has been
determined, costs incurred in the construction phase of software development, including coding, testing, and product quality assurance are capitalized. Capitalization ceases when the software products are available for release to customers.



Goodwill and Intangible Assets



The Company adopted the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets, effective October 1, 2002. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are reviewed for impairment annually, or more frequently if indicators arise. The evaluation is based upon a
comparison of the estimated fair value of the 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 assumptions. See Note 11 for additional information on goodwill and intangible assets.



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Amortization of the Companys definite lived intangible assets are computed using the straight-line method over the
estimated useful lives of the assets, which are as follows:



|Asset Description      |  | Asset Life    
|---------------------- |  | --------------
|Capitalized software   |  | 3 to 5 years  
|Trademarks             |  | 3 to 5 years  
|Customer relationships |  | 12 to 30 years



Stock-Based Compensation



The Company applies the intrinsic value method for accounting for
stock-based compensation as outlined in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employeesand provides the pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based
Compensationas amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure.



Restricted stock awards, including restricted stock and restricted stock units, are measured using the fair market value of the stock as of the grant date and are
recorded as unearned compensation on the balance sheet. As the restricted stock awards vest, the unearned compensation is amortized to compensation expense on a straight-line basis. Employer payroll taxes are also recorded as expense when they
become due over the vesting period. The shares are subject to forfeiture and restrictions on sale or transfer for six months to four years from the grant date. For purposes of calculating basic and diluted earnings per share, vested restricted stock
awards and exercised stock options are considered outstanding. Restricted stock awards vest on a cliff schedule so that restricted stock awards are not considered outstanding until the stated vesting date for earnings per share calculations.



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. Since the stock options have no intrinsic value on the grant date, no compensation expense is recorded in connection with the stock option grants. Generally, stock options vest
25 percent on each anniversary of the grant date, are fully vested four years from the grant date and have a term of ten years.



For purposes of pro forma disclosures, the estimated fair value of the stock options is amortized to compensation expense over the stock options vesting period. The
Companys pro forma net income and earnings per share for years ended September 30, 2003 and 2002, would have been as follows:



|                                                                             |  | 2003 |         |   | 2002 |  
|---------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | -
|Net income:                                                                  |  |      |         |   |      |  
|As reported                                                                  |  | $    | 94,277  |   |      | $
|Less net income through May 31, 2002                                         |  |      |         |   |      |  
|                                                                             |  |      |         |   |      |  
|Net loss from June 1, 2002 through September 30, 2002                        |  |      |         |   |      |  
|Stock-based compensation expense included in reported net income, net of tax |  |      | 23,016  |   |      |  
|Pro forma stock compensation expense, net of tax                             |  |      | (28,459 | ) |      |  
|                                                                             |  |      |         |   |      |  
|Adjusted net income                                                          |  | $    | 88,834  |   |      | $
|                                                                             |  |      |         |   |      |  
|Net income (loss) per share  basic:                                         |  |      |         |   |      |  
|As reported                                                                  |  | $    | 0.99    |   |      | $
|Adjusted net income (loss) per share                                         |  | $    | 0.94    |   |      | $
|                                                                             |  |     
|Net income (loss) per share  diluted:                                       |  |      |         |   |      |  
|As reported                                                                  |  | $    | 0.97    |   |      | $
|Adjusted net income (loss) per share                                         |  | $    | 0.92    |   |      | $



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The above pro forma information regarding net income and earnings per share has been determined as if the Company had
accounted for its employee stock options under the fair value method. The fair value for these stock options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:



|                        |  | 2003        |  | 2002       
|----------------------- |  | ----------- |  | -----------
|Expected volatility     |  | 35%         |  | 35%        
|Risk-free interest rate |  | 2.87%-3.37% |  | 3.81%-4.19%
|Expected life           |  | 5           |  | 4          
|Dividend yield          |  | 0%          |  | 0%         



New Accounting Pronouncements



In November 2002, the Financial Accounting Standards Boards
(FASB) Emerging Issues Task Force reached a consensus on EITF Issue No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.EITF Issue No. 00-21 provides guidance on how to account for revenue arrangements which
include multiple products or services to ensure that all standalone deliverables are tracked, valued and accounted for on an individual basis and in the proper periods. The guidance in EITF Issue No. 00-21 is effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. Accordingly, in the quarter ended September 30, 2003, the Company began to apply the provisions of EITF Issue No. 00-21. The Company has contracts with multiple services primarily in the
Outsourcing segment. In these contracts, standalone deliverables include core services, such as Defined Benefit Plan Administration, Health & Welfare Plan Administration or Defined Contribution Benefit Plan Administration, and standalone
ancillary services, such as Your Total Rewards. Outsourcing standalone deliverables generally have both upfront implementation fees and ongoing service fees. Upfront, non-refundable implementation fees are deferred and recognized over the
life of the contract and ongoing services are generally recognized monthly as services are provided. Consulting services provided in connection with outsourcing engagements historically have been accounted for at the time services are provided and
are valued based on prevailing market rates. The adoption of EITF Issue No. 00-21 did not have a material impact on the Companys financial position, results of operations, or cash flows.



On July 30, 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit
or Disposal Activities. The statement requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or a disposal plan. Examples of costs covered by
the statement include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. The adoption did not have a material impact on the Companys current financial position or results of operations.



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



Reclassifications



Certain prior year amounts have been reclassified to conform with the current year
presentation.



3. Transition to a Corporate Structure



On May 31, 2002, the Company completed its transition to a corporate structure in
connection with its planned initial public offering.



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Prior to the transition to a corporate structure, the Company consisted of single-member limited liability companies,
which were wholly owned by Hewitt Holdings. As such, owners capital represented the ownership interests of Hewitt Holdings in the Company. Historically, distributions to and contributions from Hewitt Holdings were based on the capital
requirements of the Company and of Hewitt Holdings, and were subject to the discretion of the owners of Hewitt Holdings.



On March 1, 2002, Hewitt Associates, Inc., a Delaware corporation, was formed as a subsidiary of Hewitt Holdings. Three classes of common stock were authorized. The
holders of Class A, Class B, and Class C common stock have one vote per share. All shares of Class B and Class C common stock are voted in accordance with a majority of the votes cast by the holders of Class B and Class C common stock as a group.



In May 2002, Hewitt Associates LLC distributed $152,500 of accounts receivable
and $55,000 of cash to Hewitt Holdings to fund a distribution to the owners of accumulated earnings in preparation for Hewitt Associates LLC and Affiliates transition to a corporate structure. Cash collected on the receivables was first
received by the Company and then remitted to Hewitt Holdings and the Company did not bear any collection risk associated with these receivables.



As of September 30, 2002, $3,468 was due from Hewitt Holdings.



On May 31, 2002, Hewitt Holdings transferred all of its ownership interests in Hewitt Associates LLC and Affiliates to Hewitt Associates, Inc., thereby making Hewitt
Associates LLC and Affiliates a wholly-owned subsidiary of the Company. The capital in the business was converted and Hewitt Holdings received 70,819,520 shares of the Companys Class B common stock.



In connection with the transition to a corporate structure, the Company incurred a
non-recurring compensation expense resulting from certain owners receiving more than their proportional share of total capital, without offset for those owners who received less than their proportional share in the issuance of the Class B common
stock. The amount of this one-time charge was $17,843. As a result of owners becoming employees of the Company, the owners began to receive compensation and the Company incurred an additional non-recurring compensation expense resulting from the
establishment of a vacation liability for these owners in the amount of $8,300. The Company also became subject to income taxes subsequent to its transition to a corporate structure. As a result, the Company incurred a non-recurring income tax
expense of $21,711 to initially record deferred tax assets and liabilities under the provisions of SFAS No. 109.



On July 1, 2003, Hewitt Holdings distributed the shares of Class B common stock of Hewitt Associates to its owners, with the exception of certain owners resident outside
the United States who will continue to hold their shares through Hewitt Holdings. The shares continue to be subject to the same restrictions with respect to voting, transfer and book to market phase-in as they were when the shares were held by
Hewitt Holdings. The distribution reduced Hewitt Holdings majority interest in Hewitt Associates of approximately 71% at June 30, 2003, to a minority interest of approximately 2% at September 30, 2003.



4. Initial Public Offering



On June 27, 2002, the Company sold 11,150,000 shares of Class A common stock at $19.00 per
share in its initial public offering. The Companys gross proceeds from the offering were $211,850, before the underwriting discount of $14,829 and offering expenses of $8,072.



In July 2002, the underwriters exercised their over-allotment option to purchase an additional 1,672,500 shares of the Companys Class
A common stock at $19.00 per share. The option exercise generated gross proceeds of $31,778 before the underwriting discount of $2,225.



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



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In connection with the initial public offering, the Company granted to employees restricted stock, restricted stock
units, and nonqualified stock options on common stock. (See Note 17, Stock-Based Compensation Plan, for additional information).



5. 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 potential common stock equivalents.



For the year ended
September 30, 2002, earnings per share was calculated based on the net loss incurred between May 31, 2002 and September 30, 2002, the four month period during which the Company operated as a corporation. As such, the earnings per share for the year
ended September 30, 2002 is not indicative of the amount that would have been computed had the Company been a corporation for the entire year presented. During the period between May 31, 2002 and September 30, 2002, the Company also incurred several
one-time charges totaling $47,854 (see Note 3) related to the Companys transition to a corporate structure and $27,525 of compensation expense related to the initial public offering restricted stock award which resulted in a net loss. As such,
the effect of incremental shares of common stock equivalents has not been reflected as an adjustment to diluted earnings per share as the impact is antidilutive. Additionally, common stock has been weighted from the time of the Companys
transition to a corporate structure on May 31, 2002 and not from the beginning of fiscal 2002.



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



|                                                         |  | 2003 |            | 2002 |  
|-------------------------------------------------------- |  | ---- | ---------- | ---- | -
|Net income as reported                                   |  | $    | 94,277     |      | $
|                                                         |  |      |            |      |  
|Less net income through May 31, 2002                     |  |      |            |      |  
|                                                         |  |      |            |      |  
|Net loss from June 1, 2002 through June 30, 2002         |  |      |            |      | $
|                                                         |  |      |            |      |  
|Weighted-average number of common stock for basic        |  |      | 94,783,223 |      |  
|                                                         |  |     
|Incremental effect of dilutive common stock equivalents: |  |      |            |      |  
|Unvested restricted stock awards                         |  |      | 1,312,259  |      |  
|Unexercised in-the-money stock options                   |  |      | 737,241    |      |  
|                                                         |  |      |            |      |  
|Weighted-average number of common stock for diluted      |  |      | 96,832,723 |      |  
|                                                         |  |      |            |      |  
|Earnings per sharebasic                                 |  | $    | 0.99       |      | $
|                                                         |  |      |            |      |  
|Earnings per sharediluted                               |  | $    | 0.97       |      | $
|                                                         |  |      |            |      |  



6. Acquisitions



Bacon & Woodrow



On June 5, 2002, the Company acquired the actuarial and benefits consulting business of Bacon & Woodrow (Bacon &
Woodrow) in the United Kingdom. The purchase price totaled $259,009, and was comprised of $219,240 of common stock, $38,882 in assumed net liabilities, and $887 of acquisition related costs. Bacon & Woodrows results of operations are
included within the Companys historical results from the acquisition date of June 5, 2002.



Pursuant to the purchase agreement, the former partners and employees of Bacon & Woodrow initially received an aggregate of 1,400,000 shares of the Companys Series A mandatorily redeemable preferred stock
which was redeemable for shares of the Companys common stock. Effective August 2, 2002, the Bacon & Woodrow former



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partners and employees elected to exchange their shares of Series A preferred stock for common stock. Of the 9,417,526 shares of common stock issued, the
former partners of Bacon & Woodrow received 2,906,904 shares of Class B common stock and 5,568,869 shares of Class C common stock, and a trust for the benefit of the non-partner employees of Bacon & Woodrow received 941,753 shares of Class A
common stock.



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



In the
quarter ending September 30, 2003, the Company began amortizing the customer relationships intangible asset by taking a charge for the year then ending. The customer relationships intangible asset totaled £45,200, or $65,874 as of the
acquisition date, and $75,226 at the current exchange rate at September 30, 2003. The Company is amortizing the intangible asset in two classes on a straight-line basis over 15 and 30 years. The allocation between the two classes was based primarily
on customer revenue size. The useful life for each class was based primarily on historical customer turnover, the relative difficulty in the ability of customers to switch service providers and the nature and complexity of the customers. The Company
estimates that it will record recurring non-cash, pre-tax amortization expense of approximately £408 ($679 at a September 30, 2003 exchange rate) per quarter for the next 15 years and approximately £345 ($574 at a September 30, 2003
exchange rate ) per quarter thereafter through the end of the 30 year period.



Assuming the acquisition of Bacon & Woodrow occurred at the beginning of fiscal 2002 and 2001, pro forma net revenues would have been approximately $1,807,000 in 2002 and $1,599,000 in 2001; pro forma net income would have been
approximately $215,000 in 2002 and $207,000 in 2001. These pro forma results, which are unaudited, give effect to the Companys incorporation and initial public offering on the dates such events actually occurred, on May 31, 2002 and June 27,
2002, respectively. Because the Company was a limited liability company during 2001 and for the first eight months of fiscal 2002, the pro forma effect of the acquisition on earnings per share is not meaningful. The pro forma results are not
necessarily indicative of what would have occurred if the acquisition had been consummated at the beginning of each year, nor are they necessarily indicative of future consolidated operating results.



Cyborg Worldwide, Inc.



On June 5, 2003, the Company purchased Cyborg Worldwide, Inc., the parent of Cyborg Systems, Inc. (Cyborg), a global provider of
human resources management software and payroll services. Cyborg will operate within the Companys Outsourcing segment. The purchase price totaled $43,645, and was comprised of $43,000 of cash and $645 of acquisition related costs, plus the
potential for additional performance-based consideration of up to $30,000 payable through 2006. The preliminary allocation of the $43,645 purchase price to acquired net assets resulted in the allocation of $14,758 to goodwill and $30,638 to
identifiable intangible assets, which includes $17,823 to customer relationships with an estimated twelve-year useful life, $12,116 to capitalized software with an estimated five-year life and $699 to trademarks with an estimated three-year useful
life. The preliminary allocation also included allocations of $9,138 to identifiable assets and $10,889 to assumed liabilities. The Company expects all of the goodwill to be deductible for U.S. tax purposes. Cyborgs results of operations are
included within the Companys historical results from the acquisition date of June 5, 2003. This acquisition is not considered to be material to the Company, and, therefore, the inclusion of related pro-forma information is not required.



Benefits Administration and Actuarial Business of the Northern Trust
Corporation



On June 15, 2003, the Company acquired substantially all of
the assets of Northern Trust Retirement Consulting LLC, Northern Trust Corporations retirement consulting and administration business (NTRC), which provides retirement consulting and actuarial services and defined benefit, defined
contribution and retiree health and welfare administration services. The benefit administration business will operate within the Companys Outsourcing segment and the retirement consulting and actuarial business within the Consulting segment.
The purchase price was comprised of $17,600 in cash for the assignment of client, vendor and third party contract rights and obligations



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applicable to the acquired business; computer equipment, furniture and leasehold improvements owned or leased by NTRC in its Atlanta, Georgia facility and
the assumption of NTRCs real estate lease obligation for its Atlanta, Georgia facility. The preliminary allocation of the purchase price resulted in the allocation of $7,285 to goodwill. The Company expects all of the goodwill to be deductible
for U.S. tax purposes. As part of the acquisition agreement, the Company has agreed with the Northern Trust Corporation to, on a non-exclusive basis, recommend Northern Trust Corporations custody, trustee and benefit payment services to the
Companys clients and prospective clients and Northern Trust Corporation has agreed to recommend the Companys outsourcing services to their clients and prospective clients. NTRCs results of operations are included within the
Companys historical results from the acquisition date of June 15, 2003. This acquisition is not considered to be material to the Company, and, therefore, the inclusion of related pro-forma information is not required.



Other Acquisitions



During 2003, the Company acquired the controlling interests in joint venture investments in The Netherlands, India, and Singapore, and an
actuarial business in Ireland. The Company acquired these entities for cash at an aggregate cost of $14,617. The preliminary allocations of the purchase price resulted in the aggregate allocation of $19,792 to goodwill, of which $5,427 was assigned
to the Outsourcing segment, with the remainder of $14,365 assigned to the Consulting segment. The Company expects approximately one-half of the goodwill to be deductible for U.S. tax purposes. These acquisitions are not considered to be material to
the Company, and, therefore, the inclusion of related pro-forma information is not required.



7. Client Receivables and Unbilled Work in Process



Client receivables and unbilled work in process, net of allowances, at September 30, 2003 and 2002, consisted of the following:



|                         |  | 2003 |         | 2002
|------------------------ |  | ---- | ------- | ----
|Client receivables       |  | $    | 278,966 |     
|Unbilled work in process |  |      | 189,607 |     
|                         |  |      |         |     
|                         |  | $    | 468,573 |     
|                         |  |      |         |     



An analysis of the activity in the
client receivable and unbilled work in process allowances for the years ended September 30, 2003 and 2002, consisted of the following:



|                             |  | 2003 |         |   | 2002 |  
|---------------------------- |  | ---- | ------- | - | ---- | -
|Balance at beginning of year |  | $    | 16,160  |   |      | $
|Increase in allowances       |  |      | 17,661  |   |      |  
|Use of allowances            |  |      | (18,810 | ) |      |  
|                             |  |      |         |   |      |  
|Balance at end of year       |  | $    | 15,011  |   |      | $
|                             |  |      |         |   |      |  



8. Marketable Securities



During fiscal 2001, the Company sold certain marketable equity securities
which were classified as available-for-sale. The realized gain on these securities was $5,413 which was recorded in other expenses, net during the year ended September 30, 2001.



9. Financial Instruments



The Company does not enter into derivative transactions except in limited situations when there is a compelling reason to mitigate economic risk. On August 6, 2001,
Hewitt purchased a £150 million foreign currency option to offset the foreign currency risk associated with its planned purchase of the benefits consulting business of Bacon & Woodrow for common stock with a value of £140 million.
(See Note 6, Acquisitions). The cost of the foreign



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currency option was $2,344 and it expired in May 2002. This instrument did not qualify for the hedge accounting treatment under SFAS No. 133, Accounting
for Derivative Instruments and Hedging Activities, because SFAS No. 133 prohibits hedge accounting for a forecasted business combination. The instrument was marked to the spot rate and resulting gains or losses were recognized currently in other
expenses, net. For the years ended September 30, 2002 and 2001, the loss on the option was $3,653 and the gain was $1,309, respectively. The Company had no derivative instruments outstanding at September 30, 2003.



10. Property and Equipment



As of September 30, 2003 and 2002, net property and equipment, which includes assets under
capital leases, consisted of the following:



|                                               |  | 2003 |          |   | 2002 |  
|---------------------------------------------- |  | ---- | -------- | - | ---- | -
|Property and equipment:                        |  |      |          |   |      |  
|Buildings                                      |  | $    | 90,328   |   |      | $
|Computer equipment                             |  |      | 255,723  |   |      |  
|Telecommunications equipment                   |  |      | 110,569  |   |      |  
|Furniture and equipment                        |  |      | 92,145   |   |      |  
|Leasehold improvements                         |  |      | 81,912   |   |      |  
|                                               |  |      |          |   |      |  
|Total property and equipment                   |  |      | 630,677  |   |      |  
|Less accumulated depreciation and amortization |  |      | (393,201 | ) |      |  
|                                               |  |      |          |   |      |  
|Property and equipment, net                    |  | $    | 237,476  |   |      | $
|                                               |  |      |          |   |      |  



11. Goodwill and Other Intangible
Assets



In July 2001, the FASB issued SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their estimated residual values. The Company adopted the provisions of SFAS No. 142 effective October 1, 2002. During the year ended September 30, 2003, no impairments were
recognized.



The following is a summary of net income and income before taxes
and owner distributions for the years ended September 30, 2002 and 2001, as adjusted to remove the amortization of goodwill:



|                                                                            |  | 2002 |         | 2001
|--------------------------------------------------------------------------- |  | ---- | ------- | ----
|Net income in 2002 and income before taxes and owner distributions in 2001: |  |      |         |     
|As reported                                                                 |  | $    | 190,373 |     
|Goodwill amortization, net of tax                                           |  |      | 730     |     
|                                                                            |  |      |         |     
|As adjusted                                                                 |  | $    | 191,103 |     
|                                                                            |  |      |         |     



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The following is a summary of changes in the carrying amount of goodwill by segment for the years ended September 30,
2003 and 2002:



|                                            |  | OutsourcingSegment |        | ConsultingSegment |   |         | Total | 
|------------------------------------------- |  | ------------------ | ------ | ----------------- | - | ------- | ----- | 
|Balance at September 30, 2001               |  | $                  |       |                   | $ | 8,506   |       | 
|Additions                                   |  |                    |       |                   |   | 181,927 |       | 
|Amortization                                |  |                    |       |                   |   | (848    | )     | 
|Effect of changes in foreign exchange rates |  |                    |       |                   |   | 11,701  |       | 
|                                            |  |                    |        |                   |   |         |       | 
|Balance at September 30, 2002               |  |                    |       |                   |   | 201,286 |       | 
|Additions                                   |  |                    | 26,741 |                   |   | 17,605  |       | 
|Effect of changes in foreign exchange rates |  |                    |       |                   |   | 13,662  |       | 
|                                            |  |                    |        |                   |   |         |       | 
|Balance at September 30, 2003               |  | $                  | 26,741 |                   | $ | 232,553 |       | 
|                                            |  |                    |        |                   |   |         |       | 



Goodwill, customer relationships, and
trademark additions during the year ended September 30, 2003, resulted from acquisitions (see Note 6, Acquisitions) and goodwill also increased from an adjustment to the purchase price allocation related to an acquisition in Switzerland. Goodwill,
customer relationships, and trademark additions during the year ended September 30, 2002 primarily resulted from the acquisition of the benefits consulting business of Bacon & Woodrow.



Intangible assets with definite useful lives are amortized over their respective estimated
useful lives. The following is a summary of intangible assets at September 30, 2003 and 2002:



|                        |  | September 30, 2003  |         | September 30, 2002     
|----------------------- |  | ------------------- | ------- | -----------------------
|                        |  | GrossCarryingAmount |         | AccumulatedAmortization
|Definite useful lives   |  |                     |         |                        
|Capitalized software    |  | $                   | 219,220 |                        
|Trademarks              |  |                     | 11,517  |                        
|Customer relationships  |  |                     | 102,392 |                        
|                        |  |                     |         |                        
|Total                   |  | $                   | 333,129 |                        
|                        |  |                     |         |                        
|Indefinite useful life  |  |                     |         |                        
|Customer relationships  |  |                     |         |                        
|                        |  |                     |         |                        
|Total intangible assets |  |                     |         |                        
|                        |  |                     |         |                        



Capitalized software included $13,516
of additions from the Companys acquisitions of Cyborg and the Northern Trust Corporations retirement consulting and administration business.



Amortization expense related to definite lived intangible assets for the years ended September 30, 2003, 2002 and 2001, are as follows:



|                       |  | 2003 |        | 2002 |   | 2001  
|---------------------- |  | ---- | ------ | ---- | - | ------
|Capitalized software   |  | $    | 32,234 |      | $ | 24,679
|Trademarks             |  |      | 2,210  |      |   | 509   
|Customer relationships |  |      | 3,247  |      |   |      
|                       |  |      |        |      |   |       
|Total                  |  | $    | 37,691 |      | $ | 25,188
|                       |  |      |        |      |   |       



During the fourth quarter of fiscal
2001, the Company also recorded a $26,469 non-recurring charge related to the discontinuation of software that had been used in the Sageo business.



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Applying current foreign exchange rates, estimated amortization expense related to intangible assets with definite lives
at September 30, 2003, for each of the years in the five-year period ending September 30, 2008 and thereafter is as follows:



|Fiscal year ending:                        |  | 2004 |        | 2005 |   | 2006   |  | 2007 |        | 2008 |   | 2009 andthereafter |  | Total
|------------------------------------------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------------------ |  | -----
|Estimated intangibles amortization expense |  | $    | 39,716 |      | $ | 32,881 |  | $    | 26,095 |      | $ | 17,516             |  | $    



12. Other Assets



As of September 30, 2003 and 2002, other assets consisted of the following:



|                                                 |  | 2003 |        | 2002
|------------------------------------------------ |  | ---- | ------ | ----
|Other assets:                                    |  |      |        |     
|Prepaid long-term interest and service contracts |  | $    | 11,667 |     
|Investments in affiliated companies              |  |      | 3,127  |     
|                                                 |  |      |        |     
|Other assets                                     |  | $    | 14,794 |     
|                                                 |  |      |        |     



The Company has several prepaid
long-term maintenance contracts for maintenance on computer software systems, that expire through June 2005. Benefits related to these long-term prepaid maintenance contracts are received over the contractual period, as designated. The long-term
portion of the prepaid interest relates to prepaid lease obligations of the Company.



Investments in less than 50%-owned affiliated companies over which the Company has the ability to exercise significant influence are accounted for using the equity method of accounting. During 2003, the Company acquired the controlling
interests in joint venture investments in The Netherlands, India, and Singapore. See Note 6, Acquisitions, for additional information.



13. Debt



Debt at September 30, 2003 and 2002, consisted of the following:



|                                     |  | 2003 |         | 2002
|------------------------------------ |  | ---- | ------- | ----
|Unsecured lines of credit            |  | $    | 15,852  |     
|Other foreign debt                   |  |      | 5,711   |     
|Unsecured senior term notes          |  |      | 147,000 |     
|                                     |  |      |         |     
|                                     |  |      | 168,563 |     
|Current portion                      |  |      | 33,000  |     
|                                     |  |      |         |     
|Long-term debt, less current portion |  | $    | 135,563 |     
|                                     |  |      |         |     



The principal portion of long-term
debt becomes due as follows:



|Fiscal year ending: |  |   |        
|------------------- |  | - | -------
|2004                |  | $ | 33,000 
|2005                |  |   | 13,470 
|2006                |  |   | 24,067 
|2007                |  |   | 28,021 
|2008                |  |   | 17,005 
|2009 and thereafter |  |   | 53,000 
|                    |  |   |        
|Total               |  | $ | 168,563
|                    |  |   |        



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On September 27, 2002, the Company obtained two unsecured line of credit facilities. The 364- day facility provided for
borrowings up to $70 million and expired on September 26, 2003. The three-year facility provided for borrowings up to $50 million. On September 29, 2003, the three-year facility was amended to provide for borrowings up to $75 million. 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 average daily commitment under the facility. If the utilization under the facility exceeds 50% of the commitment, an additional utilization fee based on the utilization is assessed at a rate of 0.125% per annum. At
September 30, 2003 and 2002, there was no outstanding balance on either facility.



On March 7, 2003, Hewitt entered into a contract with a lender to guarantee borrowings of its subsidiaries up to $13 million in multiple currency loans and letters of credit to replace its unsecured multi-currency line of credit, which the
Company repaid in February 2003. On August 1, 2003, the contract was amended to increase the guarantee amount to $20 million. There is no fixed termination date on this contract. This contract allows Hewitt subsidiaries to secure financing at rates
based on Hewitts credit-worthiness; however, the terms and conditions of the financing for each of our foreign offices have not yet been finalized with the lender. On March 17, 2003, the Companys subsidiary, the Lincolnshire Insurance
Company, obtained a $6 million letter of credit under this contract. There were no borrowings under the contract or draws against the letter of credit as of September 30, 2003.



On October 16, 2000, the Company issued unsecured senior term notes to various note holders in the amount of $25,000. Of this amount,
$10,000 bears interest at 7.65%, and is repayable on October 15, 2005; $15,000 bears interest at 7.90%, and is repayable on October 15, 2010.



On July 7, 2000, the Company issued unsecured senior term notes to various note holders in the amount of $25,000. Of this amount, $15,000 bears interest at 7.93%, and is
repayable on June 30, 2007; $10,000 bears interest at 8.11%, and is repayable on June 30, 2010.



On March 30, 2000, the Company issued $50,000 of unsecured senior term notes to various note holders. Of this amount, $15,000 bears interest at 7.94% and is repayable in annual installments beginning March 2003
through March 2007. The first of the annual installments was paid in March 2003 in the amount of $3,000. The remaining $35,000 bears interest at 8.08% and is repayable in annual installments beginning March 2008 through March 2012.



On February 23, 1998, the Company obtained an unsecured multi-currency line of credit with
banks permitting borrowings up to $10,000 at a multi-currency interbank interest rate plus 75 basis points, ranging from .75% to 5.21% as of September 30, 2002. At September 30, 2002, short-term borrowings under the multi-currency line of credit
were $5,972. The drawn amounts were denominated in foreign currencies, and have been translated at the exchange rate in effect at September 30, 2002. All outstanding balances on the unsecured multi-currency line of credit were repaid in full at the
expiration of the facility on February 28, 2003. In addition, Hewitt Bacon & Woodrow Ltd., the Companys U.K. subsidiary, has an unsecured British Pound Sterling line of credit permitting borrowings of up to £20 million until July 30,
2003, and £17 million thereafter until expiration of the facility on January 31, 2004. As of September 30, 2003 and 2002, the outstanding balance was £9,500 and £14,987, respectively, equivalent to $15,852 and $23,529,
respectively, with interest at a rate of 4.53% and 4.85%, respectively. Other foreign debt outstanding at September 30, 2003 and 2002 totaled $5,711 and $4,417, respectively, pursuant to local banking relationships.



On May 30, 1996, the Company issued unsecured senior term notes to various note holders in
the amount of $50,000, bearing interest at 7.45%. The notes are repayable in annual installments beginning May 2004 through May 2008.



On May 28, 1996, the Company obtained an unsecured seven-year term loan agreement with various banks in the amount of $30,000, bearing interest at 6.50%. The Company paid
interest on a quarterly basis through June 30, 2002. On July 31, 1998, the Company also began to make monthly principal payments which continued through June 30, 2002, at which time, the Company paid the remaining principal balance.



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Various debt agreements call for the maintenance of specified financial ratios, among other restrictions. At September
30, 2003 and 2002, the Company was in compliance with all debt covenants.



14. Lease Agreements



The Company has obligations under
long-term non-cancelable lease agreements, principally for office space, furniture and equipment, with terms ranging from one to twenty years. Some of the leases are with related parties (See Note 15, Related Party Transactions).



Capital Leases



Capital lease obligations at September 30, 2003 and 2002, consisted of the following:



|                                                |  | 2003 |        | 2002
|----------------------------------------------- |  | ---- | ------ | ----
|Building capital leases                         |  | $    | 85,813 |     
|Computer and telecommunications equipment       |  |      | 3,980  |     
|                                                |  |      |        |     
|                                                |  |      | 89,793 |     
|Current portion                                 |  |      | 6,602  |     
|                                                |  |      |        |     
|Capital lease obligations, less current portion |  | $    | 83,191 |     
|                                                |  |      |        |     



The Companys two building
capital leases are payable in monthly installments at 7.33% interest and expire in April 2017 and May 2017.



The Companys computer and telecommunications equipment installment notes are secured by the related equipment and are payable typically over three to five years in monthly or quarterly installments and at
various interest rates ranging from 5.84% to 7.97%.



The following is a
schedule of minimum future rental payments which are required as of September 30, 2003, under capital leases with an initial or remaining non-cancelable lease term in excess of one year:



Capital Leases:



|                             |  | Principal |        | Interest |   | Total 
|---------------------------- |  | --------- | ------ | -------- | - | ------
|Fiscal year ending:          |  |           |        |          |   |       
|2004                         |  | $         | 6,602  |          | $ | 6,260 
|2005                         |  |           | 3,218  |          |   | 5,975 
|2006                         |  |           | 3,743  |          |   | 5,735 
|2007                         |  |           | 4,097  |          |   | 5,463 
|2008                         |  |           | 4,604  |          |   | 5,156 
|2009 and thereafter          |  |           | 67,529 |          |   | 25,260
|                             |  |           |        |          |   |       
|Total minimum lease payments |  | $         | 89,793 |          | $ | 53,849
|                             |  |           |        |          |   |       



Operating Leases



The Company also has various third-party operating leases for office space, furniture and
equipment with terms ranging from one to twenty years. The Company has various office leases that grant a free rent period and have escalating rents. The Company also has leases that have lease renewal provisions. The accompanying consolidated and
combined statements of operations reflect all rent expense on a straight-line basis over the term of the leases. The difference between straight-line basis rent and the amount paid has been recorded as accrued lease obligations.



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The following is a schedule of minimum future rental payments which are required as of September 30, 2003, under
operating leases with an initial or remaining non-cancelable lease terms in excess of one year:



Operating Leases:



|                             |  | ThirdParty |         | RelatedParty |   | Total  
|---------------------------- |  | ---------- | ------- | ------------ | - | -------
|Fiscal year ending:          |  |            |         |              |   |        
|2004                         |  | $          | 50,204  |              | $ | 33,764 
|2005                         |  |            | 42,140  |              |   | 33,017 
|2006                         |  |            | 37,744  |              |   | 33,281 
|2007                         |  |            | 29,542  |              |   | 33,577 
|2008                         |  |            | 22,903  |              |   | 33,786 
|2009 and thereafter          |  |            | 133,032 |              |   | 297,603
|                             |  |            |         |              |   |        
|Total minimum lease payments |  | $          | 315,565 |              | $ | 465,028
|                             |  |            |         |              |   |        



Total rental expense for operating
leases amounted to $104,094 in 2003, $103,958 in 2002 and $86,696 in 2001.



15. Related Party Transactions



The Company entered into real
estate transactions as described below with Hewitt Holdings and its subsidiaries, Hewitt Properties I LLC, Hewitt Properties II LLC, Hewitt Properties III LLC, Hewitt Properties IV LLC, and Hewitt Properties VII LLC, The Bayview Trust, and Overlook
Associates (an equity method investment of Hewitt Holdings). The following related party leases were outstanding during the years ended September 30, 2003 and 2002:



|Holdings PropertyEntities |  | Location                  |  | CommencementDate |  | Expiration Date
|------------------------- |  | ------------------------- |  | ---------------- |  | ---------------
|Hewitt Holdings LLC       |  | Rowayton, Connecticut     |  | October 1994     |  | November 2001  
|Hewitt Properties I       |  | Lincolnshire, Illinois    |  | November 1998    |  | November 2018  
|Hewitt Properties II      |  | Lincolnshire, Illinois    |  | December 1999    |  | December 2019  
|Hewitt Properties III     |  | Lincolnshire, Illinois    |  | May 1999         |  | May 2014       
|Hewitt Properties IV      |  | Orlando, Florida          |  | March 2000       |  | March 2020     
|Hewitt Properties IV      |  | The Woodlands, Texas      |  | March 2000       |  | March 2020     
|Hewitt Properties VII*    |  | Norwalk, Connecticut      |  | September 2001   |  | September 2017 
|The Bayview Trust*        |  | Newport Beach, California |  | June 2002        |  | May 2017       
|Overlook Associates       |  | Lincolnshire, Illinois    |  | **               |  | **             



|* | Hewitt Holdings sold its interest in the Norwalk property in April 2002 and its interest in the Newport Beach property in March 2003, as such, these leases are no longer held by a
related party, but remain capital leases of the Company.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|** | The Company has several leases with Overlook Associates, the first began in 1989 and the last expires in 2017.
|-- | --------------------------------------------------------------------------------------------------------------



Total lease payments were $34,105 in 2003, $40,053 in 2002 and $39,436 in 2001. The leases
were entered into on terms comparable to those which could have been obtained on an arms length basis. The historical cost of the real property owned by the Holdings property entities aggregates to $357,114 and $394,068 in 2003 and 2002,
respectively. The investment in these properties were funded through capital contributions by Hewitt Holdings and third-party debt. Total outstanding debt owed to third parties by these related parties totaled $273,619 and $285,298 in 2003 and 2002,
respectively. The debt is payable over periods that range from two to seventeen years, and bears fixed interest rates that range from 5.58% to 7.93%. This debt is not reflected on the Companys balance sheet as it is an obligation of Hewitt
Holdings and its related parties, and is not an obligation of the Company. Substantially all of the activities of the Hewitt Holdings property entities involve assets that are leased to the Company. The Company does not guarantee the debt related to
these properties.



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In April 2002, Hewitt Properties VII sold the Norwalk, Connecticut property and the Company entered into a 15-year
capital lease with the purchaser to lease the office space. The Company recorded a $65,000 increase to both property and long-term debt to record this long-term lease obligation.



In June 2002, the Company entered into a 15-year capital lease with The Bayview Trust to lease office space in Newport Beach, California.
The Company recorded a $23,944 increase to both property and long-term debt to record this long-term lease obligation. On March 7, 2003, The Bayview Trust sold the property in Newport Beach, California, and the Companys lease was assigned to
the third-party purchaser of the building.



From May 31, 2002, through
September 30, 2007, Hewitt Associates LLC will provide certain support services to Hewitt Holdings, primarily in the financial, real estate and legal departments, as may be requested by Hewitt Holdings from time to time. Hewitt Holdings will pay
Hewitt Associates LLC an annual fee of $50 for basic services. Hewitt Associates LLC may charge Hewitt Holdings separately for additional services on a time and materials basis. Through September 30, 2003, all services Hewitt Associates LLC has
provided under the services agreement, totaling $425 in 2003 and $17 in 2002, have been paid by Hewitt Holdings.



The consolidated and combined statements of operations include expenses that have been allocated to the Company by Hewitt Holdings on a specific identification basis.
Management believes these allocations and charges are reasonable and that such expenses would not have differed materially had the Company operated on a stand-alone basis.



16. Retirement Plans



Employee 401(k) and Profit Sharing Plan



The Company has a qualified 401(k) and profit sharing plan for its eligible employees. Under the plan, Hewitt makes annual contributions equal to a percentage of
participants total cash compensation and may make additional contributions in accordance with the terms of the plan. Additionally, employees may make contributions in accordance with the terms of the plan, with a portion of those contributions
matched by the Company. In 2003, 2002, and 2001, profit sharing plan expenses were $53,980, $66,005 and $58,547, respectively.



Defined Benefit Plans



With the acquisition of the actuarial and benefits consulting business of Bacon & Woodrow, the Company acquired a defined benefit pension plan, which was closed to new entrants in 1998 and provides retirement
benefits to eligible employees. The Company also has other smaller defined benefit pension plans to provide benefits to eligible employees. It is the Companys policy to fund in accordance with local practice and legislation.



Healthcare Plans



The Company provides health benefits for retired employees and certain dependents when the employee becomes 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. These
plans contain other cost-sharing features such as deductibles and coinsurance. The Company does not pre-fund these plans and has the right to modify or terminate any of these plans in the future.



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The following tables provide a reconciliation of the changes in the defined benefit and healthcare plans benefit
obligations and fair value of assets for the years ended September 30, 2003 and 2002, and a statement of funded status as of September 30, 2003 and 2002.



|                                                                                                                |  | Pension Benefits |         |   | Health Benefits |  
|--------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | --------------- | -
|                                                                                                                |  | 2003             |         |   | 2002            |  
|Change in Benefit Obligation                                                                                    |  |                  |         |   |                 |  
|Benefit obligation, beginning of year                                                                           |  | $                | 63,413  |   |                 | $
|Acquisitions                                                                                                    |  |                  | 41,172  |   |                 |  
|Service cost                                                                                                    |  |                  | 5,784   |   |                 |  
|Interest cost                                                                                                   |  |                  | 4,107   |   |                 |  
|Plan amendments                                                                                                 |  |                  |        |   |                 |  
|Actuarial losses                                                                                                |  |                  | 9,318   |   |                 |  
|Benefit payments                                                                                                |  |                  | (1,336  | ) |                 |  
|Changes in foreign exchange rates                                                                               |  |                  | 6,175   |   |                 |  
|                                                                                                                |  |                  |         |   |                 |  
|Benefit obligation, end of year                                                                                 |  | $                | 128,633 |   |                 | $
|                                                                                                                |  |                  |         |   |                 |  
|                                                                                                                |  |                  |         |  
|Change in Plan Assets                                                                                           |  |                  |         |   |                 |  
|Fair value of plan assets, beginning of year                                                                    |  | $                | 39,079  |   |                 | $
|Acquisitions                                                                                                    |  |                  | 38,118  |   |                 |  
|Actual return on plan assets                                                                                    |  |                  | 2,269   |   |                 |  
|Employer contribution                                                                                           |  |                  | 5,852   |   |                 |  
|Benefit payments                                                                                                |  |                  | (1,336  | ) |                 |  
|Changes in foreign exchange rates                                                                               |  |                  | 3,768   |   |                 |  
|                                                                                                                |  |                  |         |   |                 |  
|Fair value of plan assets, end of year                                                                          |  | $                | 87,750  |   |                 | $
|                                                                                                                |  |                  |         |   |                 |  
|                                                                                                                |  |                  |         |  
|Reconciliation of Accrued Obligation and Total Amount Recognized                                                |  |                  |         |   |                 |  
|Unfunded status                                                                                                 |  | $                | (40,883 | ) |                 | $
|Unrecognized net loss                                                                                           |  |                  | 21,889  |   |                 |  
|Unrecognized prior service cost                                                                                 |  |                  |        |   |                 |  
|Unrecognized transition obligation                                                                              |  |                  |        |   |                 |  
|Minimum pension liability                                                                                       |  |                  | (1,023  | ) |                 |  
|                                                                                                                |  |                  |         |   |                 |  
|Net amount recognized, end of year                                                                              |  | $                | (20,017 | ) |                 | $
|                                                                                                                |  |                  |         |   |                 |  
|                                                                                                               
|The assumptions used in the measurement of our benefit obligations as of June 30, 2003 and 2002 are as follows:
|                                                                                                                |  |                 
|                                                                                                                |  | Pension Benefits |         |   | Health Benefits |  
|                                                                                                                |  | 2003             |         |   | 2002            |  
|Weighted-average assumptions:                                                                                   |  |                  |         |   |                 |  
|Discount rate                                                                                                   |  |                  | 4.85    | % |                 |  
|Expected return on plan assets                                                                                  |  |                  | 5.51    | % |                 |  
|Rate of compensation increase                                                                                   |  |                  | 3.40    | % |                 |  



The health plan provides flat dollar
credits based on years of service and age at retirement. There is a small group of grandfathered retirees who receive postretirement medical coverage at a percentage of cost. The liabilities for these retirees are valued assuming a 11.5% health care
cost trend rate for 2003. The rate was assumed to decrease gradually to 6.0% in 2014 and remain at that level thereafter.



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The components of net periodic benefit costs for the three years ended September 30, 2003 include:



|                                        |  | Pension Benefits |        |   | Health Benefits
|--------------------------------------- |  | ---------------- | ------ | - | ---------------
|                                        |  | 2003             |        |   | 2002           
|Components of Net Periodic Benefit Cost |  |                  |        |   |                
|Service cost                            |  | $                | 5,784  |   |                
|Interest cost                           |  |                  | 4,107  |   |                
|Expected return on plan assets          |  |                  | (3,411 | ) |                
|Amortization of:                        |  |                  |        |   |                
|-Unrecognized prior service cost        |  |                  |       |   |                
|-Unrecognized loss                      |  |                  |       |   |                
|-Transition obligation                  |  |                  |       |   |                
|                                        |  |                  |        |   |                
|Net periodic benefit cost               |  | $                | 6,480  |   |                
|                                        |  |                  |        |   |                



The effect of a one percentage point
increase or decrease in the assumed health care cost trend rates on total service and interest costs and the postretirement benefit obligation are provided in the following table.



|                                                                |  | 2003 |     |   | 2002 |  
|--------------------------------------------------------------- |  | ---- | --- | - | ---- | -
|Effect of 1% Change in the Assumed Health Care Cost Trend Rates |  |      |     |   |      |  
|Effect of 1% increase on:                                       |  |      |     |   |      |  
|-Total of service and interest cost components                  |  | $    | 4   |   |      | $
|-Benefit obligation                                             |  |      | 64  |   |      |  
|Effect of 1% decrease on:                                       |  |      |     |   |      |  
|-Total of service and interest cost components                  |  | $    | (4  | ) |      | $
|-Benefit obligation                                             |  |      | (59 | ) |      |  



17. Stock-Based Compensation Plans



In 2002, the Company adopted the Hewitt Global Stock and Incentive
Compensation Plan (the Plan) for associates and directors. The incentive compensation plan is administered by the Compensation and Leadership Committee of the Board of Directors of the Company (the Committee). Under the Plan,
associates and directors may receive awards of nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and cash-based awards. As of September 30,
2003, only restricted stock and 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 September 30, 2003, there were
11,880,851 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. Over the
six-month and four-year vesting periods, the unearned compensation is being recognized as compensation expense. For the years ended September 30, 2003 and 2002, compensation expense for the initial public offering restricted stock awards was $39,010
and $27,525, respectively, representing amortization and applicable payroll taxes for the respective periods. On December 31, 2002, 1,967,843 shares of restricted stock vested and 91,458 restricted stock units vested and such restricted stock units
were converted to Class A common stock and cash. Additionally, on June 27, 2003, 833,091 shares of restricted stock vested and 48,827 restricted stock units vested and such restricted stock units were converted to



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Class A common stock and cash. The Company withheld 269,873 shares of such Class A common stock from the vested shares for the payment of the payroll taxes
of the employees associated with the vesting of such restricted stock and restricted stock units on June 27, 2003. The shares were withheld by the Company at an average cost of $22.80 and were recorded as treasury stock. As of September 30, 2003,
the remaining $45,534 of unearned compensation plus related payroll taxes will be recognized as initial public offering restricted stock awards compensation expense as the awards vest through June 27, 2006.



Stock Options



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, stock 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 directors. The stock option price is
determined by the Committee, provided that for stock options issued to participants in the United States, the stock option price should not be less than 100% of the fair market value of the underlying shares on the date the stock option is granted
and no stock option should be exercisable later than the tenth anniversary of its grant. The nonqualified stock options vest over a period of four years and expire in ten years. The following table summarizes stock option activity during 2003 and
2002:



|                                                      |  | 2003      |   | 2002
|----------------------------------------------------- |  | --------- | - | ----
|                                                      |  | Shares    |   |     
|Outstanding at beginning of fiscal year               |  | 4,089,003 |   |     
|Granted                                               |  | 3,844,793 |   |     
|Exercised                                             |  | (35,808   | ) |     
|Forfeited                                             |  | (105,999  | ) |     
|                                                      |  |           |   |     
|Outstanding at end of fiscal year                     |  | 7,791,989 |   |     
|                                                      |  |           |   |     
|Exercisable options outstanding at end of fiscal year |  | 1,106,256 |   |     
|                                                      |  |           |   |     



The weighted-average estimated fair
market value of employee stock options granted during 2003 and 2002 was $8.59 and $6.50 per share, respectively. These stock options were granted at exercise prices equal to the current fair market value of the underlying stock. The following table
summarizes information about stock options outstanding at September 30, 2003.



|                                  |  | Outstanding Options |  | Exercisable Options          
|--------------------------------- |  | ------------------- |  | -----------------------------
|                                  |  | NumberOutstanding   |  | Weighted-AverageExercisePrice
|Reasonable price range groupings: |  |                     |  |                              
|$19.00                            |  | 3,726,037           |  | $                            
|$23.50-$28.00                     |  | 4,017,465           |  |                              
|$32.45                            |  | 48,487              |  |                              
|                                  |  |                     |  |                              
|                                  |  | 7,791,989           |  | $                            
|                                  |  |                     |  |                              



18. Legal Proceedings



The Company is occasionally 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 affect on the business, financial condition or results of operations of the Company.



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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 such factors as the degree of probability of an unfavorable
outcome and the ability to make a reasonable estimate of the amount of loss. As of September 30, 2003, the Company had no outstanding claims and was not subject to any pending litigation alleging that the Companys products or services infringe
the intellectual property rights of any third parties.



19. Other
Comprehensive Income (Loss)



Accumulated other comprehensive income (loss)
consists of the following components:



|                                  |  | ForeignCurrencyTranslationAdjustment |        |   | MinimumPensionLiability |   |        | NetUnrealizedGains(Losses) |  |   | AccumulatedOtherCompre-hensiveIncome (Loss) |  
|--------------------------------- |  | ------------------------------------ | ------ | - | ----------------------- | - | ------ | -------------------------- |  | - | ------------------------------------------- | -
|As of September 30, 2000          |  | $                                    | (528   | ) |                         | $ |       |                            |  | $ | 2,191                                       |  
|Other comprehensive income (loss) |  |                                      | (239   | ) |                         |   |       |                            |  |   | (2,191                                      | )
|                                  |  |                                      |        |   |                         |   |        |                            |  |   |                                             |  
|As of September 30, 2001          |  |                                      | (767   | ) |                         |   |       |                            |  |   |                                            |  
|Other comprehensive income (loss) |  |                                      | 17,648 |   |                         |   | (690   | )                          |  |   |                                            |  
|                                  |  |                                      |        |   |                         |   |        |                            |  |   |                                             |  
|As of September 30, 2002          |  |                                      | 16,881 |   |                         |   | (690   | )                          |  |   |                                            |  
|Other comprehensive income (loss) |  |                                      | 22,699 |   |                         |   | (333   | )                          |  |   |                                            |  
|                                  |  |                                      |        |   |                         |   |        |                            |  |   |                                             |  
|As of September 30, 2003          |  | $                                    | 39,580 |   |                         | $ | (1,023 | )                          |  | $ |                                            |  
|                                  |  |                                      |        |   |                         |   |        |                            |  |   |                                             |  



20. Income Taxes



Prior to the Companys transition to a corporate structure, no provision for income
taxes was made as the liability for such taxes were that of the former owners. As a result of the Companys transition to a corporate structure on May 31, 2002, a tax expense of $21,711 was recognized in fiscal 2002 related to deferred tax
assets and liabilities recorded in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes, arising from temporary differences between the book and tax basis of the Companys assets and liabilities at the date of
transition.



For the year ended September 30, 2003 and for the four month
period subsequent to the transition to a corporate structure in fiscal 2002, the Companys provision for income taxes aggregated $66,364 and $11,342 ($33,053 income tax expense less the $21,711 tax expense related to the transition to a
corporate structure), respectively, and consisted of the following:



|                |  | 2003    |        | 2002    
|--------------- |  | ------- | ------ | --------
|                |  | Current |        | Deferred
|U.S. Federal    |  | $       | 24,018 |         
|State and local |  |         | 3,808  |         
|Foreign         |  |         | 2,353  |         
|                |  |         |        |         
|                |  | $       | 30,179 |         
|                |  |         |        |         



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At September 30, 2003 and 2002, the Company had income taxes payable of $17,401 and income taxes receivable of $2,091,
respectively. Payments for the current federal income tax liability for 2003 will be reduced by approximately $12,000 for the vesting of restricted stock and restricted stock units and the exercise of nonqualified stock options. The tax benefit
resulting from the vesting of the restricted stock and stock units and the exercise of these options has been credited to additional paid-in capital. Income tax expense for the period subsequent to transition differed from the amounts computed by
applying the U.S. federal income tax rate of 35% to income before taxes ($160,641 for the year ended September 30, 2003, and $10,361 for the period June 1, 2002 through September 30, 2002) as a result of the following:



|                                                                            |  | 2003 |        | 2002
|--------------------------------------------------------------------------- |  | ---- | ------ | ----
|Provision for taxes at U.S. federal statutory rate                          |  | $    | 56,224 |     
|Increase (reduction) in income taxes resulting from:                        |  |      |        |     
|Costs of transition to corporate structure                                  |  |      |       |     
|State and local income taxes, net of federal income tax benefit             |  |      | 5,040  |     
|Nondeductible expenses                                                      |  |      | 839    |     
|Foreign earnings taxed at varying rates and foreign losses not tax effected |  |      | 2,923  |     
|Other                                                                       |  |      | 1,338  |     
|                                                                            |  |      |        |     
|                                                                            |  | $    | 66,364 |     
|                                                                            |  |      |        |     



The tax effects of temporary
differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:



|                                 |  | 2003 |         |   | 2002 |  
|-------------------------------- |  | ---- | ------- | - | ---- | -
|Deferred tax assets:             |  |      |         |   |      |  
|Accrued expenses                 |  | $    | 20,181  |   |      | $
|Foreign tax loss carryforwards   |  |      | 27,579  |   |      |  
|Other                            |  |      | 12,505  |   |      |  
|                                 |  |      |         |   |      |  
|                                 |  |      | 60,265  |   |      |  
|Valuation allowance              |  |      | (27,579 | ) |      |  
|                                 |  |      |         |   |      |  
|                                 |  | $    | 32,686  |   |      | $
|                                 |  |      |         |   |      |  
|                                 |  |     
|Deferred tax liabilities:        |  |      |         |   |      |  
|Compensation and benefits        |  | $    | 12,286  |   |      | $
|Income deferred for tax purposes |  |      | 3,332   |   |      |  
|Goodwill amortization            |  |      | 27,633  |   |      |  
|Depreciation and amortization    |  |      | 10,273  |   |      |  
|Other                            |  |      | 17,638  |   |      |  
|                                 |  |      |         |   |      |  
|                                 |  | $    | 71,162  |   |      | $
|                                 |  |      |         |   |      |  



In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. In
order to fully realize the deferred tax asset, the Company will need to generate future taxable income prior to the expiration of the foreign net operating loss carryforwards which expire in 2004 through 2018. Foreign taxable loss for the year ended
September 30, 2003, and for the four-month period ended September 30, 2002 was $11,922 and $21,477, respectively. Consolidated taxable income for the year ended September 30, 2003, and for the four month period ended September 30, 2002, was $163,263
and $26,457, respectively. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are deductible, management believes it is more likely than not the Company
will realize the benefits of these deductible differences, net of the existing valuation allowances at September 30, 2003. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.



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21. Segments and Geographic 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 systems to administer its clients human resource programs: benefits,
payroll and workforce management. 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). The Companys recent acquisition of
Cyborg expands Hewitts outsourcing service offering to include payroll administration, allows Hewitt to provide clients with a standalone payroll service and, importantly, enables Hewitt to offer a comprehensive range of human resources
services. Hewitts payroll services include installed payroll software and fully outsourced processing. Hewitts workforce management outsourcing services include workforce administration, rewards management, recruiting and staffing,
performance management, learning and development, and talent 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Hewitt 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 businesses. 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 and devotes resources to maintaining existing client relationships. The compensation and related expenses, other operating expenses, and selling, general and administrative expenses of the
administrative and marketing functions are not allocated to the business segments, rather, they are included in unallocated shared costs. The costs of information services, human resources and the direct client delivery 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.



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



|                                                           |  | Year Ended September 30,
|---------------------------------------------------------- |  | ------------------------
|                                                           |  | 2003                    
|Outsourcing(1) (2)                                         |  |                         
|Revenues before reimbursements (net revenues)              |  | $                       
|Segment income before the non-recurring software charge(3) |  |                         
|Segment income(3)                                          |  |                         
|Net client receivables and work in process                 |  |                         
|Goodwill and certain intangible assets                     |  |                         
|Deferred contract costs                                    |  |                         
|                                                           |  |                         
|Consulting(4)                                              |  |                         
|Revenues before reimbursements (net revenues)              |  | $                       
|Segment income(3)                                          |  |                         
|Net client receivables and work in process                 |  |                         
|Goodwill and certain intangible assets                     |  |                         
|Deferred contract costs                                    |  |                         
|                                                           |  |                         
|Total Company                                              |  |                         
|Revenues before reimbursements (net revenues)              |  | $                       
|Reimbursements                                             |  |                         
|                                                           |  |                         
|Total revenues                                             |  | $                       
|                                                           |  |                         
|                                                           |  |                         
|Segment income before the non-recurring software charge(3) |  | $                       
|Non-recurring software charge                              |  |                         
|                                                           |  |                         
|Segment income(3)                                          |  |                         
|                                                           |  |                         
|Charges not recorded at the Segment level:                 |  |                         
|One-time charges(5)                                        |  |                         
|Initial public offering restricted stock awards(6)         |  |                         
|Unallocated shared costs(3)                                |  |                         
|                                                           |  |                         
|Operating income(3)                                        |  | $                       
|                                                           |  |                         
|Net client receivables and work in process                 |  | $                       
|Goodwill and certain intangible assets                     |  |                         
|Deferred contract costs                                    |  |                         
|Assets not reported by segment                             |  |                         
|                                                           |  |                         
|Total assets                                               |  | $                       
|                                                           |  |                         



|(1) | On June 5, 2003, the Company acquired Cyborg and on June 15, 2003, the Company acquired substantially all of the assets of NTRC . As such, their results are included
in the Companys results from the respective acquisition dates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The fiscal year 2001 Outsourcing results include the results of Sageo prior to the decision to transition Sageo clients from Sageos website to
the Total Benefits Administration web
interface. In the year ended
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | September 30, 2001, stand-alone company expenses were eliminated, Sageo website development spending ceased and the Sageo employees who worked within the
stand-alone Sageo operation were terminated or redeployed. Sageo contributed $10,342 of Outsourcing net revenues and reduced Outsourcing segment income by $73,462 for the year ended September 30, 2001.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Prior to May 31, 2002, owners were compensated through distributions of income. In connection with the Companys transition to a corporate structure on May 31,
2002, owners who worked in the business became employees and the Company began to record their compensation as compensation and related expenses in arriving at segment income.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On June 5, 2002, the Company acquired the benefits consulting business of Bacon & Woodrow. As such, the results of Bacon & Woodrow have been included in the
Companys Consulting segments results from the acquisition date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | In connection with the Companys transition to a corporate structure, the following one-time charges were incurred: a) $8,300 of non-recurring compensation
expense related to the establishment of a vacation liability for its former owners and b) $17,843 of non-recurring compensation expense resulting from certain owners receiving more common stock than their proportional share of total capital, without
offset for those owners who receive less than their proportional share of stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Compensation expense of $39,010 and $27,525 million for the years ended September 30, 2003 and 2002, respectively, related to the amortization of initial public
offering restricted stock awards.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Revenues and long-lived assets
for the years ended September 30 are indicated below. Revenues are attributed to geographic areas based on the country where the associates perform the services. Long-lived assets include net property and equipment, deferred contract costs, goodwill
and intangible assets, such as capitalized software.



|                    |  | Year Ended September 30,
|------------------- |  | ------------------------
|                    |  | 2003                    
|Revenues            |  |                         
|United States       |  | $                       
|United Kingdom      |  |                         
|All Other Countries |  |                         
|                    |  |                         
|Total               |  | $                       
|                    |  |                         
|                    |  |                         
|Long-Lived Assets   |  |                         
|United States       |  | $                       
|United Kingdom      |  |                         
|All Other Countries |  |                         
|                    |  |                         
|Total               |  | $                       
|                    |  |                         



22. Regulated Subsidiary



Hewitt Financial Services LLC (HFS), a wholly-owned
subsidiary of the Company, is a registered U.S. broker-dealer. HFS is subject to the Securities and Exchange Commissions Uniform Net Capital Rule, and has elected to compute its net capital in accordance with the Alternative
Standard of that rule. As of September 30, 2003 and 2002, HFS had regulatory net capital, as defined, of $2,402 and $1,641, respectively, which exceeded the amounts required by $2,397 and $1,636, respectively.



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INDEX TO EXHIBITS



|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|2.1*    |  | Business Amalgamation Agreement between the Partners of Bacon & Woodrow signatory thereto, Hewitt Holdings LLC and Hewitt Associates, Inc. (incorporated herein by reference to
Exhibit 2.1 to Hewitt Associates, Inc.s Registration Statement on Form S-1, as amended, Registration No. 333-84198).                                                                                                                                                                                                                                                  
|        | 
|2.2*    |  | Amendment to Business Amalgamation Agreement, between the Partners of Bacon & Woodrow signatory thereto, Hewitt Holdings LLC and Hewitt Associates, Inc. (incorporated herein
by reference to Exhibit 2.2 to Hewitt Associates, Inc.s Annual Report on Form 10-K for the year ended September 30, 2002.)                                                                                                                                                                                                                                              
|        | 
|3.1*    |  | Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to Hewitt Associates, Inc.s Registration Statement on Form S-1, as
amended, Registration No. 333-84198).                                                                                                                                                                                                                                                                                                                                           
|        | 
|3.2*    |  | Amended and Restated By-laws (incorporated herein by reference to Exhibit 3.2 to Hewitt Associates, Inc.s Registration Statement on Form S-1, as amended, Registration No.
333-84198).                                                                                                                                                                                                                                                                                                                                                                
|        | 
|4.1*    |  | Specimen Class A Common Stock Certificate of the Registrant (incorporated herein by reference to Exhibit 4.1 to Hewitt Associates, Inc.s Registration Statement on Form S-1,
as amended, Registration No. 333-84198).                                                                                                                                                                                                                                                                                                                                 
|        | 
|10.1*   |  | Amended and Restated Multicurrency Promissory Note, dated February 23, 1998 (incorporated herein by reference to Exhibit 10.1 to Hewitt Associates, Inc.s Registration
Statement on Form S-1, as amended, Registration No. 333-105560).                                                                                                                                                                                                                                                                                                               
|        | 
|10.2*   |  | Hewitt Global Stock and Incentive Compensation Plan (incorporated herein by reference to Exhibit 10.2 to Hewitt Associates, Inc.s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002).                                                                                                                                                                                                                                                                                                                                                 
|        | 
|10.3*   |  | Amended and Restated Registration Rights Agreement between Hewitt Holdings LLC and Hewitt Associates, Inc. (incorporated herein by reference to Exhibit 10.3 to Hewitt Associates,
Inc.s Registration Statement on Form S-1, as amended, Registration No. 333-105560).                                                                                                                                                                                                                                                                                
|        | 
|10.4*   |  | Hewitt Associates LLC Note Purchase Agreement, dated May 1, 1996, authorizing the issue and sale of $50,000,000 aggregate principal amount of its 7.45% Senior Notes due May 30,
2008 (incorporated herein by reference to Exhibit 10.4 to Hewitt Associates, Inc.s Registration Statement on Form S-1, as amended, Registration No. 333-105560).                                                                                                                                                                                                     
|        | 
|10.5*   |  | Hewitt Associates LLC Note Purchase Agreement, dated as of March 15, 2000, authorizing the issue and sale of $15,000,000 aggregate principal amount of its 7.94% Senior Notes,
Series A, Tranche 1, due March 30, 2007 and $35,000,000 aggregate principal amount of its 8.08% Senior Notes, Series A, Tranche 2, due March 30, 2012 (incorporated herein by reference to Exhibit 10.5 to Hewitt Associates, Inc.s Registration
Statement on Form S-1, as amended, Registration No. 333-105560).                                                      
|        | 
|10.6*   |  | Hewitt Associates LLC First Amendment to Note Purchase Agreement, dated as of June 15, 2000, amending the Note Purchase Agreement authorizing the issue and sale of $15,000,000
aggregate principal amount of its 7.94% Senior Notes, Series A, Tranche 1, due March 30, 2007 and $35,000,000 aggregate principal amount of its 8.08% Senior Notes, Series A, Tranche 2, due March 30, 2012 (incorporated herein by reference to Exhibit
10.6 to Hewitt Associates, Inc.s Registration Statement on Form S-1, as amended, Registration No. 333-84198).



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|        | 
|------- | 
|10.7*   | 
|        | 
|10.8*   | 
|        | 
|10.9*   | 
|        | 
|10.10*  | 
|        | 
|10.11*  | 
|        | 
|10.12*+ | 
|        | 
|10.13*  | 
|        | 
|10.14*  | 
|        | 
|10.15*  | 
|        | 
|10.16*  | 



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|       | 
|------ | 
|10.17* | 
|       | 
|10.18* | 
|       | 
|10.19* | 
|       | 
|10.20* | 
|       | 
|10.21* | 
|       | 
|10.22* | 
|       | 
|10.23* | 
|       | 
|10.24* | 
|       | 
|10.25* | 
|       | 
|10.26* | 
|       | 
|10.27* | 



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|       | 
|------ | 
|10.28* | 
|       | 
|10.29* | 
|       | 
|10.30* | 
|       | 
|10.31* | 
|       | 
|10.32* | 
|       | 
|10.33  | 
|       | 
|10.34  | 
|       | 
|14.    | 
|       | 
|21.    | 
|       | 
|23.1   | 
|       | 
|31.1   | 
|       | 
|31.2   | 
|       | 
|32.1   | 
|       | 
|32.2   | 



|* | As previously filed.
|- | --------------------



|*+ | Confidential treatment has been granted for portions of this document.
|-- | ----------------------------------------------------------------------



83