UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

(Mark One)

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

   FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999

                                             OR

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

   FOR THE TRANSITION PERIOD FROM _____ TO _____

                         COMMISSION FILE NUMBER: 0-20724

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

      DELAWARE                                        53-0181291
   (State or other                                 (I.R.S. Employer
   jurisdiction of                                 Identification No.)
   incorporation or
    organization)

                            6707 DEMOCRACY BOULEVARD
                                   SUITE 800
                               BETHESDA, MD 20817
          (Address of principal executive offices, including zip code)
                                 (301) 581-4600
              (Registrant's telephone number, including area code)


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

Indicate the number of shares  outstanding  of each of the issuer's  classes of
common stock, as of February 14, 2000.

Common Stock,  $1.00 par value                                    14,835,083
------------------------------                                 ----------------
         Class                                                 Number of Shares

<PAGE>
<TABLE>
<CAPTION>

                                               WATSON WYATT & COMPANY
                                        CONSOLIDATED STATEMENTS OF OPERATIONS
                                (THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

                                                        Three Months Ended December 31,     Six Months Ended December 31,
                                                        -------------------------------     -----------------------------
                                                           1999                  1998          1999               1998
                                                        ----------           ----------     ----------         ----------
                                                                  (Unaudited)                        (Unaudited)
<S>                                                     <C>                  <C>            <C>                <C>

Fees                                                    $  152,411           $  140,358     $  298,734         $  274,343
                                                        ----------           ----------     ----------         ----------

Costs of providing services:
     Salaries and employee benefits                         80,950               72,470        160,753            148,968
     Stock incentive bonus plan                              9,000                5,500         15,000              7,500
     Occupancy and communications                           15,681               15,433         30,423             29,954
     Professional and subcontracted services                15,131               13,338         24,927             22,052
     Other                                                   9,026                8,740         16,300             11,586
                                                        ----------           ----------     ----------         ----------
                                                           129,788              115,481        247,403            220,060

General and administrative expenses                         14,724               16,692         27,902             27,852
Depreciation and amortization                                4,610                3,971          9,517              7,824
                                                        ----------           ----------     ----------         ----------
                                                           149,122              136,144        284,822            255,736
                                                        ----------           ----------     ----------         ----------

Income from operations                                       3,289                4,214         13,912             18,607

Other:
     Interest income                                           216                  404          1,252                528
     Interest expense                                         (698)              (1,168)        (1,088)            (1,721)

Income from affiliates                                       1,155                  865          2,143              1,025
                                                        ----------           ----------     ----------         ----------

Income before income taxes and minority interest             3,962                4,315         16,219             18,439

Provision for income taxes                                   1,916                2,087          7,835              8,917
                                                        ----------           ----------     ----------         ----------

Income before minority interest                              2,046                2,228          8,384              9,522


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

Income from continuing operations                            2,204                2,143          8,560              9,437

Discontinued operations:

Adjustment to reduce loss on disposal of discontinued
     Outsourcing Business [less applicable income tax
     expense of $0, $6,322, $0 and $6,322 respectively]          -                8,678              -              8,678
                                                        ----------           ----------     ----------         ----------

Net income                                              $    2,204           $   10,821     $    8,560         $   18,115
                                                        ==========           ==========     ==========         ==========



Earnings per share, continuing operations, basic
     and fully diluted                                  $    0.15            $     0.15     $    0.57          $     0.63
                                                        =========            ==========     ==========         ==========

Earnings per share, discontinued operations, basic
     and fully diluted                                  $       -            $     0.59     $        -         $     0.58
                                                        =========            ==========     ==========         ==========

Earnings per share, net income, basic
     and fully diluted                                  $    0.15            $     0.74     $     0.57         $     1.21
                                                        =========            ==========     ==========         ==========

Weighted average shares of Redeemable Common Stock,        14,917                14,587         15,140             14,977
     basic and fully diluted                            =========            ==========     ==========         ==========



                                               See accompanying notes
                                                         F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

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

                                                                                December 31,              June 30,
                                                                                   1999                     1999
                                                                               -------------            -------------
                                                                                (Unaudited)

<S>                                                                            <C>                      <C>
                                                        ASSETS

Cash and cash equivalents                                                      $      13,688            $      35,985
Receivables from clients:
     Billed, net of allowances of $6,436 and $3,701                                   82,838                   72,798
     Unbilled                                                                         64,707                   63,068
                                                                               -------------            -------------
                                                                                     147,545                  135,866
Other current assets                                                                   9,734                   10,834
                                                                               -------------            -------------
  Total current assets                                                               170,967                  182,685
Investment in affiliates                                                              17,109                   15,306
Fixed assets, net                                                                     38,381                   42,797
Deferred income taxes                                                                 56,206                   56,206
Intangible assets, net                                                                 9,484                    7,455
Other assets                                                                           8,877                    9,511
                                                                               -------------            -------------

                                                                               $     301,024            $     313,960
                                                                               =============            =============

                       LIABILITIES, REDEEMABLE COMMON STOCK AND PERMANENT SHAREHOLDERS' EQUITY


Accounts payable and accrued liabilities                                       $     143,821            $     152,371
Note payable and book overdrafts                                                       8,401                      248
Income taxes payable                                                                   9,863                   18,374
                                                                               -------------            -------------
     Total current liabilities                                                       162,085                  170,993

Accrued retirement benefits                                                           74,233                   77,140
Deferred rent and accrued lease losses                                                 7,628                    9,270
Other noncurrent liabilities                                                          22,249                   22,608
Minority interest in subsidiaries                                                        550                      669
Redeemable Common Stock - $1 par value:
     25,000,000 shares authorized;
     14,879,886 and 16,112,416 issued
     and outstanding; at redemption value                                             99,398                  107,631

Permanent shareholders' equity:
Adjustment for redemption value less
     than amounts paid in by shareholders                                             10,547                   11,420
Retained deficit                                                                     (74,198)                 (83,209)
Cumulative translation adjustment (accumulated other comprehensive loss)              (1,468)                  (2,562)
Commitments and contingencies
                                                                               -------------            -------------

                                                                               $     301,024            $     313,960
                                                                               =============            =============



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

                                                    WATSON WYATT & COMPANY
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                  (THOUSANDS OF U.S. DOLLARS)


                                                                                              Six Months Ended December 31,
                                                                                              -----------------------------
                                                                                                 1999               1998
                                                                                              ----------         ----------
                                                                                                       (Unaudited)

<S>                                                                                           <C>                <C>

Cash flows from (used for) operating activities:
     Net income                                                                               $    8,560         $   18,115
     Adjustments to reconcile net income to net cash
       provided by operating activities:

         Adjustment to reduce loss on discontinued operations                                          -             (8,678)
         Provision for doubtful receivables from clients                                           6,203              6,423
         Depreciation                                                                              8,651              7,184
         Amortization of intangible assets                                                           866                641
         Income from affiliates                                                                   (2,143)            (1,025)
         Minority interest in net (loss) income of consolidated subsidiaries                        (176)                85
         (Increase) decrease in assets (net of discontinued operations):
             Receivables from clients                                                            (17,882)           (27,822)
             Income taxes receivable                                                                   -              2,216
             Other current assets                                                                  1,100             (1,900)
             Other assets                                                                            634              1,133
         (Decrease) increase in liabilities (net of discontinued operations):
             Accounts payable and accrued liabilities                                             (8,550)            (4,093)
             Income taxes payable                                                                 (8,511)             5,177
             Accrued retirement benefits                                                          (2,907)             1,783
             Deferred rent and accrued lease losses                                               (1,642)            (1,498)
             Other noncurrent liabilities                                                            279                870
         Other, net                                                                                 (584)              (138)
         Discontinued operations, net                                                               (637)            (4,466)
                                                                                              ----------          ----------
         Net cash used for operating activities                                                  (16,739)            (5,993)
                                                                                              ----------          ----------

Cash flows from (used in) investing activities:
     Purchases of fixed assets                                                                    (3,636)             (6,297)
     Acquisitions                                                                                 (2,800)             (6,158)
     Investment in affiliates                                                                        594               2,257
                                                                                              ----------          ----------
         Net cash used in investing activities                                                    (5,842)            (10,198)
                                                                                              ----------          ----------

Cash flows from (used by) financing activities:
     Net borrowings and book overdrafts                                                            8,153              24,906
     Issuances of Redeemable Common Stock                                                              -                   -
     Repurchases of Redeemable Common Stock                                                       (8,656)            (10,584)
                                                                                              ----------          ----------
         Net cash (used by) from financing activities                                               (503)             14,322
                                                                                              ----------          ----------
Effect of exchange rates on cash                                                                     787                 283
                                                                                              ----------          ----------

Decrease in cash and cash equivalents                                                            (22,297)             (1,586)

Cash and cash equivalents at beginning of period                                                  35,985              13,405
                                                                                              ----------          ----------

Cash and cash equivalents at end of period                                                    $   13,688          $   11,819
                                                                                              ==========          ==========





                                                   See accompanying notes
                                                             F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                              WATSON WYATT & COMPANY
                       CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY
                                            (THOUSANDS OF U.S. DOLLARS)
                                                    (Unaudited)

                                                                                 Adjustment for
                                                                                Redemption Value
                                                                  Cumulative    Less Than Amounts
                                                   Retained      Translation       Paid in by
                                                    Deficit          Loss         Shareholders       Total
                                                 ------------     ----------       ----------      ---------
<S>                                              <C>              <C>              <C>             <C>
Balance at June 30, 1999                         $    (83,209)    $   (2,562)      $   11,420      $ (74,351)

Comprehensive Income:
Net income                                              8,560              -                -          8,560
Foreign currency translation adjustment                     -          1,094                -          1,094
                                                 ------------     ----------       ----------      ---------
Total Comprehensive Income                              8,560          1,094                -          9,654
Effect of repurchases of 1,232,530 shares of
     common stock                                         451              -             (451)             -
Adjustment of redemption value for change
     in Formula Book Value per share                        -              -             (422)          (422)
                                                 ------------     ----------       ----------      ---------

Balance at December 31, 1999                     $    (74,198)    $   (1,468)      $   10,547      $ (65,119)
                                                 ============     ==========       ==========      =========






                                             See accompanying notes
                                                      F-5
</TABLE>
<PAGE>

                             WATSON WYATT & COMPANY

                  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                 (UNAUDITED)


1.   The accompanying  unaudited  consolidated  financial statements  of Watson
     Wyatt & Company and its subsidiaries, (collectively, "Watson Wyatt" or the
     "Company"),  are presented in accordance with the rules and regulations of
     the Securities and Exchange  Commission  ("SEC") and do not include all of
     the  disclosures   normally  required  by  Generally  Accepted  Accounting
     Principles.  In the opinion of management,  these  statements  reflect all
     adjustments,  consisting only of normal recurring  adjustments,  which are
     necessary for a fair presentation of the consolidated financial statements
     for the interim periods.  The consolidated  financial statements should be
     read in conjunction with the audited consolidated financial statements and
     notes thereto  contained in the  Company's  Annual Report on Form 10-K for
     the fiscal year ended June 30, 1999.

     The results of operations  for the six months ended  December 31, 1999 are
     not  necessarily  indicative  of the results  that can be expected for the
     entire  fiscal year  ending June 30,  2000.  The results  reflect  prorata
     growth in share value,  anticipated tax rates and potential  distributions
     at the discretion of the Company's Board of Directors.  Certain prior year
     amounts   have  been   reclassified   to  conform  to  the  current   year
     presentation.

2.   On January 19, 2000, the Company filed registration statements on Form S-3
     and Form S-4 with the  Securities  and  Exchange  Commission  to offer its
     common stock to the public through a corporate  reorganization and Initial
     Public  Offering  ("IPO").  As a part of this  proposed  transaction,  the
     current  operating  company,  Watson  Wyatt & Company,  will merge with an
     indirect  wholly-owned  subsidiary to become a wholly-owned  subsidiary of
     Watson Wyatt & Company Holdings.

3.   Under the Company's current Bylaws, the Company is obligated to repurchase
     its Redeemable Common Stock, except in certain circumstances. Accordingly,
     the  redemption  value of  outstanding  shares is classified as Redeemable
     Common Stock and not as permanent shareholders' equity.  Redeemable Common
     Stock is equal to the  number  of  shares  outstanding  multiplied  by the
     Formula  Book Value per share,  which was $6.68 per share at December  31,
     1999  and  June 30,  1999.  Permanent  shareholders'  equity  includes  an
     adjustment  for  the  difference  between  the  redemption  value  of  the
     Redeemable  Common Stock and the amounts  actually  paid or deemed paid by
     shareholders for the shares.

4.   During the six  months ended December 31, 1999,  the  Company  repurchased
     1,232,530  shares of Redeemable  Common Stock. The computation of earnings
     per share,  basic and fully  diluted,  is based upon the weighted  average
     number of shares of Redeemable Common Stock outstanding during the period.
     The number of shares (in thousands)  used in the computation is 14,917 and
     14,587  for  the  three   months   ended   December  31,  1999  and  1998,
     respectively,  and 15,140 and 14,977 for the six months ended December 31,
     1999 and 1998, respectively.

                                      -6-
<PAGE>

5.   In the third quarter of fiscal  year  1998, the Company  discontinued  its
     Benefits Administration Outsourcing Business,  including its investment in
     its affiliate  Wellspring  Resources,  LLC  ("Wellspring") and recorded an
     after-tax  loss of $69.9 million  related  thereto.  In October 1998,  the
     Company consummated agreements with certain clients,  Wellspring,  and its
     former  venture  partner to transfer  operating  responsibility  for these
     clients to Wellspring,  clarifying the remaining  future  obligations  and
     costs related to the  discontinuation.  The Company  reduced the amount of
     its provision for losses from disposal of the Outsourcing  Business in the
     second  quarter  of fiscal  year  1999 by $8.7  million,  net of tax,  and
     believes it has adequate provisions for any remaining costs.

6.   Subsequent to the end of its second  fiscal quarter, the Company  approved
     an anticipated  restructuring plan for its Canadian operations.  Costs for
     the plan will be included in subsequent operating results.

7.   The Company  has adopted SFAS No. 130  "Reporting  Comprehensive  Income."
     Comprehensive  Income  includes  net income and changes in the  cumulative
     translation  gain or loss.  For the three months ended  December 31, 1999,
     Comprehensive Income totaled $3.3 million, compared with $11.2 million for
     the three  months  ended  December  31,  1998.  For the six  months  ended
     December 31, 1999 and 1998,  Comprehensive Income totaled $9.7 million and
     $18.5 million, respectively.

8.   In fiscal year 1999, the  Company adopted SFAS No. 131 "Disclosures  about
     Segments  of an  Enterprise  and  Related  Information."  The  Company  is
     primarily organized geographically and has seven reportable segments:

            (1)  U.S. East
            (2)  U.S. Central
            (3)  U.S. West
            (4)  Asia/Pacific
            (5)  Canada
            (6)  Latin America
            (7)  Data Services

The Company  evaluates the performance of its segments and allocates  resources
to them based on net operating income. Prior year and first quarter fiscal year
2000 data have been restated to be consistent with current  classifications for
comparative purposes.

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

                    U.S.      U.S.     U.S.      Asia/               Latin    Data
                    East    Central    West     Pacific   Canada    America Services   Total
                    ----    -------    ----     -------   ------    ------- --------   -----
<S>               <C>       <C>       <C>       <C>       <C>      <C>      <C>      <C>
Fees              $ 52,870  $ 42,838  $ 19,678  $ 13,413  $ 9,942  $ 1,723  $ 3,277  $ 143,741
Net operating
  income/(loss)     12,968     7,227     1,675     1,362     (576)    (216)   1,061     23,501
Receivables         57,480    45,724    18,338    14,141   10,661    2,229        -    148,573
</TABLE>
                                      -7-
<PAGE>

The table below presents  specified  information  about reported segments as of
and for the three months ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>

                    U.S.      U.S.     U.S.      Asia/               Latin    Data
                    East    Central    West     Pacific   Canada    America Services   Total
                    ----    -------    ----     -------   ------    ------- --------   -----
<S>               <C>       <C>       <C>       <C>       <C>      <C>      <C>      <C>
Fees              $ 49,509  $ 37,848  $ 18,283  $ 11,807  $10,014  $ 1,235  $ 3,975  $ 132,671
Net operating
  income/(loss)     13,210     5,823     1,128       954      193     (570)   1,463     22,201
Receivables         48,795    44,439    21,708    12,436   11,896    1,718        -    140,992
</TABLE>


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

                    U.S.      U.S.     U.S.      Asia/               Latin    Data
                    East    Central    West     Pacific   Canada    America Services   Total
                    ----    -------    ----     -------   ------    ------- --------   -----
<S>               <C>       <C>       <C>       <C>       <C>      <C>      <C>      <C>
Fees              $104,658  $ 83,184  $ 39,192  $ 26,838  $19,668  $ 3,288  $ 6,903  $ 283,731
Net operating
  income/(loss)     27,995    14,205     4,029     2,960     (784)    (514)   2,943     50,834
Receivables         57,480    45,724    18,338    14,141   10,661    2,229        -    148,573
</TABLE>


The table below presents  specified  information  about reported segments as of
and for the six months ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>

                    U.S.      U.S.     U.S.      Asia/               Latin    Data
                    East    Central    West     Pacific   Canada    America Services   Total
                    ----    -------    ----     -------   ------    ------- --------   -----
<S>               <C>       <C>       <C>       <C>       <C>      <C>      <C>      <C>
Fees              $ 93,565  $ 74,113  $ 40,299  $ 23,635  $19,672  $ 2,699  $ 7,971  $ 261,954
Net operating
  income/(loss)     25,396    12,367     4,866     2,562      491     (710)   3,206     48,178
Receivables         48,795    44,439    21,708    12,436   11,896    1,718        -    140,992
</TABLE>


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

                                      -8-
<PAGE>

A  reconciliation  of the information  reported by segment to the  consolidated
amounts follows for the three month and six month periods ended December 31:
<TABLE>
<CAPTION>

                                                    Three Months Ended December 31,        Six Months Ended December 31,
                                                    -------------------------------        -----------------------------
                                                       1999                 1998              1999               1998
                                                    ----------           ----------        ----------         ----------
<S>                                                 <C>                  <C>               <C>                <C>
Fees:
-----
Total segment fees                                  $  143,741           $  132,671        $  283,731         $  261,954
Reimbursable expenses not included in total
  segment fees                                           9,154                8,283            15,381             14,284
Other, net                                                (484)                (596)             (378)            (1,895)
                                                    ----------           ----------        ----------         ----------
Consolidated fees                                   $  152,411           $  140,358        $  298,734         $  274,343
                                                    ==========           ==========        ==========         ==========

Net Operating Income:
---------------------
Total segment net operating income                  $   23,501           $   22,201        $   50,834         $   48,178
Income from affiliates                                   1,155                  865             2,143              1,025
Differences in allocation methods for
  depreciation, G&A and pension costs                      726               (3,311)            2,515             (1,396)
Gain on sale of business units                               -                    -                 -              3,822
Discretionary bonuses and SIBP                         (20,550)             (15,774)          (41,750)           (31,548)
Other, net                                                (870)                 334             2,477             (1,642)
                                                    ----------           ----------        ----------         ----------
Consolidated pretax income from
  continuing operations                             $    3,962           $    4,315        $   16,219         $   18,439
                                                    ==========           ==========        ==========         ==========

Receivables:
------------
Total segment receivables -
  billed and unbilled                               $  148,573           $  140,992        $  148,573         $  140,992
Net valuation differences and
  receivables of discontinued operations                (1,028)               1,406            (1,028)             1,406
                                                    ----------           ----------        ----------         ----------
Total billed and unbilled receivables                  147,545              142,398           147,545            142,398
Assets not reported by segment                         153,479              139,621           153,479            139,621
                                                    ----------           ----------        ----------         ----------
Consolidated assets                                 $  301,024           $  282,019        $  301,024         $  282,019
                                                    ==========           ==========        ==========         ==========
</TABLE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

CORPORATE INFORMATION

Watson  Wyatt  &  Company,   together  with  its  affiliates  and  consolidated
subsidiaries,   (collectively,  "Watson  Wyatt"  or  the  "Company"),  provides
employee  benefits,  human  resources and human  resources  systems  technology
consulting to major employers  throughout the world. The Company implements its
strategy through over 3,800 associates in 60 offices located in 18 countries.

                                      -9-
<PAGE>

Watson  Wyatt & Company was  incorporated  in Delaware  on February  17,  1958.
Including  predecessors,  the  Company has been in  business  since  1946.  The
Company  conducted  business as The Wyatt Company until  changing its corporate
name to Watson  Wyatt & Company in  connection  with the  establishment  of the
Watson Wyatt Worldwide alliance.  In 1995, the Company entered into an alliance
with  R.  Watson  &  Sons  (now  Watson  Wyatt  Partners),   a  leading  United
Kingdom-based  actuarial,  benefits and human resources consulting  partnership
that was founded in 1878.  Since 1995,  the Company has  marketed  its services
globally  under  the  Watson  Wyatt   Worldwide   brand,   sharing   resources,
technologies, processes and business referrals.

Although  the  Company  operates  globally as an  alliance,  its  revenues  and
operating  expenses  reflect solely the results of operations of Watson Wyatt &
Company.  The Company's  share of the results of operations of its  affiliates,
recorded  using the equity method of  accounting,  is reflected in "Income from
affiliates".  Watson Wyatt & Company's  principal  affiliates  are Watson Wyatt
Partners and Watson Wyatt Holdings  (Europe)  Limited.  The Company owns 25% of
Watson  Wyatt  Holdings  (Europe)  Limited and Watson Wyatt  Partners  owns the
remaining 75%.

Watson  Wyatt's  principal  executive  offices  are  located at 6707  Democracy
Boulevard, Suite 800, Bethesda, Maryland, 20817. The Company's telephone number
is (301) 581-4600.


FINANCIAL STATEMENT OVERVIEW

Watson Wyatt's fiscal year ends June 30. The financial  statements contained in
this quarterly report reflect  Consolidated Balance Sheets as of the end of the
second  quarter of fiscal year 2000  (December  31,  1999) and as of the end of
fiscal year 1999 (June 30, 1999), Consolidated Statements of Operations for the
three and six month  periods  ended  December  31, 1999 and 1998,  Consolidated
Statements of Cash Flows for the six month periods ended  December 31, 1999 and
1998 and Consolidated  Statements of  Changes in Permanent Shareholders' Equity
for the six month period ended December 31, 1999.

The Company derives  substantially  all of its revenue from fees for consulting
services, which generally are billed at standard hourly rates or on a fixed-fee
basis.  Clients  are  typically  invoiced  on  a  monthly  basis  with  revenue
recognized  as services are  provided.  For the most recent three fiscal years,
fees  from U.S.  consulting  operations  have  comprised  approximately  80% of
consolidated  revenues.  No  single  client  accounted  for more than 3% of the
Company's consolidated revenues for the fiscal years ended June 30, 1999, 1998,
and 1997.

The  Company's  most  significant  expenses are  salaries  and  benefits  costs
(including  bonuses),  which  typically  comprise  over 60% of  total  costs of
providing  services.  In addition to payroll  and related  benefits  and taxes,
salaries and benefits also include incentive bonus expense,  which is linked to
the  Company's  operating  performance.  Other  significant  costs of providing
services include office rent and related costs, communications and professional
and subcontracted services.

                                      -10-
<PAGE>

RESULTS OF  OPERATIONS--SIX  MONTHS  ENDED  DECEMBER  31, 1999  COMPARED TO SIX
MONTHS ENDED DECEMBER 31, 1998.

REVENUES.  Fees for the six months ended December 31, 1999 were $298.7 million,
compared to $274.3  million for the six months  ended  December  31,  1998,  an
increase of $24.4 million,  or 9%. Fees for the three months ended December 31,
1999 were $152.4,  compared to $140.4 for the three  months ended  December 31,
1998, an increase of $12.1  million,  or 9%. The revenue growth in both periods
is due to improved  performance  in the Company's  U.S.  East and U.S.  Central
Regions,  primarily  from increased  billable hours in the Benefits  Consulting
Group.

SALARIES AND EMPLOYEE BENEFITS.  Salaries and employee benefit expenses for the
six  months ended  December  31, 1999 were $160.8  million,  compared to $149.0
million  for the six months  ended  December  31,  1998,  an  increase of $11.8
million,  or 8%. Salaries and employee  benefit expenses for the second quarter
of fiscal  year 2000 were $81.0  million,  compared  to $72.5  million  for the
second  quarter of fiscal year 1999, an increase of $8.5  million,  or 12%. The
increase in both periods is due to an increase in  compensation  to associates,
partly the result of annual salary increases and a 3% increase in headcount.

STOCK  INCENTIVE  BONUS PLAN. The accrued bonus under the Stock Incentive Bonus
Plan  ("SIBP")  for the six months ended  December 31, 1999 was $15.0  million,
compared  to $7.5  million  for the six months  ended  December  31,  1998,  an
increase of $7.5 million,  or 100%. The SIBP expense for the three months ended
December  31, 1999 was $9.0  million,  compared  to $5.5  million for the three
months  ended  December  31,  1998,  an increase of $3.5  million,  or 64%. The
accruals were calculated in accordance with the Company's  current  practice of
distributing all income in excess of a targeted amount.

OCCUPANCY AND COMMUNICATIONS.  Occupancy and communication expenses for the six
months ended  December 31, 1999 were $30.4  million,  compared to $30.0 million
for the six months ended December 31, 1998, an increase of $0.4 million, or 1%.
The  increase  can be  attributed  to  higher  telephone  expenses  and  office
supplies.  Occupancy  and  communication  expenses  for the three  months ended
December 31, 1999 were $15.7  million,  compared to $15.4 million for the three
months  ended  December  31,  1998,  an  increase of $0.3  million,  or 2%. The
increase  is due to higher  equipment  rental,  repairs  and  maintenance,  and
telephone expenses.

PROFESSIONAL  AND  SUBCONTRACTED   SERVICES.   Professional  and  subcontracted
services  for the six  months  ended  December  31,  1999 were  $24.9  million,
compared to $22.0  million  for the six months  ended  December  31,  1998,  an
increase  of  $2.9  million,  or 13%.  The  increase  is due to a $1.2  million
actuarial  and  strategic  consulting  expense from a  sub-contractor  and $0.9
million in non-compete payments.  The remaining $0.8 million increase is due to
an increase in recruiting  fees and other outside  services.  Professional  and
subcontracted  services for the three months ended December 31, 1999 were $15.1
million,  compared to $13.3  million for the three  months  ended  December 31,
1998, an increase of $1.8 million, or 13%. This increase is attributable to the
$1.2 million and $0.9 million expenses mentioned above.

                                      -11-
<PAGE>

OTHER.  Other costs of providing services for the six months ended December 31,
1999 were $16.3  million,  compared to $11.6  million for the six months  ended
December 31, 1998,  an increase of $4.7  million,  or 41%.  The  difference  is
attributable  to a $3.7  million  gain from the sale of the  Company's  defined
contribution  daily  record-keeping  software  included in the six months ended
December 31, 1998.  The remainder of the difference can be attributed to a $0.5
million increase in travel expenses and a $0.3 million increase in expenditures
for the  professional  development  for the  Company's  U.S. and  international
consultants.  Other costs of  providing  services  for the three  months  ended
December  31, 1999 were $9.0  million,  compared to $8.7  million for the three
months ended December 31, 1998, an increase of $0.3 million, or 3%.

GENERAL AND ADMINISTRATIVE. General and administrative ("G&A") expenses for the
six months ended December 31, 1999 were $27.9  million,  unchanged from the six
months  ended  December  31,  1998.  G&A  expenses  for the three  months ended
December 31, 1999 were $14.7  million,  compared to $16.7 million for the three
months  ended  December  31,  1998,  a decrease of $2.0  million,  or 11%.  The
decrease is mainly due to a  concentrated  $2.1 million media ad campaign which
occurred in the three months ended December 31, 1998.

DEPRECIATION AND  AMORTIZATION.  Depreciation and amortization  expense for the
six months ended  December 31, 1999 was $9.5 million,  compared to $7.8 million
for the six months ended  December 31, 1998,  an increase of $1.7  million,  or
22%.  Depreciation and amortization expense for the three months ended December
31, 1999 was $4.6 million,  compared to $4.0 million for the three months ended
December 31, 1998, an increase of $0.6  million,  or 16%. This increase in both
periods is due to a higher  depreciable  capital  base and  higher  intangibles
related to prior year acquisitions.

INTEREST INCOME. Interest income for the six months ended December 31, 1999 was
$1.3 million,  compared to $0.5 million for the first six months ended December
31, 1998, an increase of $0.8 million, or 160%. This increase can be attributed
to the receipt of interest of $0.5 million  related to a federal tax refund and
to  additional  interest  income of $0.3  million  earned  during the year on a
higher  average  investment  balance for the first quarter of fiscal year 2000.
Interest  income for the three months ended December 31, 1999 was $0.4 million,
compared to $0.2  million for the three  months  ended  December  31,  1998,  a
decrease of $0.2  million,  or 47%. The decrease can be  attributed  to a lower
average investment balance for the three months ended December 31, 1999.

INTEREST  EXPENSE.  Interest expense for the six months ended December 31, 1999
was $1.1  million,  compared to $1.7 million for the six months ended  December
31, 1998, a decrease of $0.6 million,  or 37%.  Interest  expense for the three
months ended  December 31, 1999 was $0.7 million,  compared to $1.2 million for
the three months ended  December 31, 1998, a decrease of $0.5 million,  or 40%.
The Company  borrowed less money  against its  revolving  line of credit in the
first six  months of  fiscal  year 2000 than in the first six  months of fiscal
year 1999.

INCOME  FROM  AFFILIATES.  Income  from  affiliates  for the six  months  ended
December 31, 1999 was $2.1 million, compared to $1.0 million for the six months
ended  December 31, 1998,  an increase of $1.1  million,  or 109%.  Income from
affiliates  for the three  months  ended  December  31, 1999 was $1.2  million,
compared  to $0.9  million for the three months ended  December  31,  1998,  an
increase  of $0.3  million,  or 34%.  The  increase  in  both  periods  reflect
improvement  in  business  operations  by  the  Company's  affiliates  in  both
Continental Europe and the United Kingdom.

                                      -12-
<PAGE>

PROVISION FOR INCOME TAXES.  Income taxes for the six months ended December 31,
1999 were $7.8  million,  compared  to $8.9  million  for the six months  ended
December  31,  1998  due to lower  income  before  income  taxes  and  minority
interest.  The  Company's  effective  tax rate of 48% for the six months  ended
December 31, 1999 remained unchanged from the comparable prior year period. The
Company's  tax rate is  affected  by  differing  foreign  tax rates in  various
jurisdictions. The Company does not record a tax benefit on certain foreign net
operating  loss  carryovers  and foreign  deferred  expenses  unless it is more
likely than not that a benefit will be realized.

NET  INCOME.  Net income for the six months  ended  December  31, 1999 was $8.6
million,  compared to $18.1 million for the six months ended December 31, 1998,
a decrease  of $9.5  million,  or 53%.  Net income for the three  months  ended
December  31, 1999 was $2.2  million,  compared to $10.8  million for the three
months  ended  December  31,  1998,  a decrease of $8.6  million,  or 80%.  The
decrease  in both  periods is  principally  due to the $8.7  million  after-tax
adjustment  to  reduce  the  loss  on  disposal  of the  discontinued  Benefits
Administration  Outsourcing  Business recorded in fiscal year 1999. Income from
continuing  operations for the three and six months ended December 31, 1999 and
1998 also reflect increased levels of SIBP accruals discussed above.

DISCONTINUED  OPERATIONS.  During the six months ended  December 31, 1998,  the
Company further resolved its future obligations  related to the discontinuation
of its Benefits  Administration  Outsourcing  Business and reduced the expected
loss on disposal by $8.7 million, net of taxes. Management believes the Company
has adequate provisions for any remaining costs related to the discontinuation.


LIQUIDITY AND CAPITAL RESOURCES

The  Company's  cash and cash  equivalents  at December 31, 1999 totaled  $13.7
million, compared to $36.0 million at June 30, 1999. The Company had borrowings
outstanding  under its line of credit of $3.0  million as of December 31, 1999,
and no borrowings  as of June 30, 1999.  Sources and uses of cash are explained
below.

CASH USED FOR OPERATING ACTIVITIES.  Cash used for operating activities for the
six months ended December 31, 1999 was $16.7 million,  compared to $6.0 million
for the six months ended  December 31, 1998.  The increase in cash  outflows is
due to the timing of corporate tax payments and accounts payable,  and benefits
payments  to  retirees  in  fiscal  year  2000,  net  of a  lower  increase  in
receivables  and lower outflows in connection  with the  discontinued  Benefits
Administration  Outsourcing  Business.  Further,  the  allowance  for  doubtful
accounts  increased $2.7 million from June 30, 1999 to December 31, 1999.  This
increase is typical of the Company's historical patterns, where the receivables
and allowance are substantially  reduced at year end from an increased emphasis
on collections. Both the receivable balances and the related allowance increase
in the first six months of the following year. The number of months of accounts
receivable outstanding was 1.7 at both December 31, 1999 and December 31, 1998.

CASH USED IN INVESTING  ACTIVITIES.  Cash used in investing  activities for the
six months ended December 31, 1999 was $5.8 million,  compared to $10.2 million
for the six months ended  December 31, 1998. The decrease in cash usage was due
to lower  contingency  payments  associated  with 1999  acquisitions  and lower
current year purchases of fixed assets, partially offset by lower distributions
from affiliates to the Company.

Anticipated  commitments  of  funds  are  estimated  at $23.3  million  for the
remainder of fiscal year 2000, mainly for computer  hardware  purchases and for
office relocations and renovations. The Company expects operating cash flows to
provide for these cash needs.

                                      -13-
<PAGE>

CASH USED BY FINANCING ACTIVITIES. Cash flows used by financing activities were
$0.5  million for the six months  ended  December  31,  1999,  compared to cash
provided by  financing  activities  of $14.3  million for the six months  ended
December 31, 1998.  The Company  borrowed less money against its revolving line
of credit in the  first  six  months of fiscal  year 2000 than in the first six
months of fiscal year 1999,  and had lower  repurchases  of  Redeemable  Common
Stock.

The Company's $120.0 million revolving credit line matures on June 30, 2003. Of
the $95.0  million of the credit line that is allocated  for  operating  needs,
$89.8 million was available as of December 31, 1999,  compared to $92.8 million
on June 30,  1999.  Further,  the Company had  borrowings  outstanding  of $3.0
million as of December 31, 1999. The remaining $2.2 million is unavailable as a
result of support required for letters of credit issued under the credit line.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following  discussion of Year 2000,  Note 6 on page 7, the last sentence of
"Provision   for  Income  Taxes"  and  the  last   sentence  of   "Discontinued
Operations",  both on page  12,  and the  second  paragraph  of  "Cash  Used in
Investing  Activities"  on  page 13  contain  forward-looking  statements  that
involve substantial risks and uncertainties. These statements can be identified
by  forward-looking  words  such  as  "may,"  "will,"  "expect,"  "anticipate,"
"believe,"   "estimate,"   "plan,"  "intend,"   "continue"  or  similar  words.
Statements  that  contain  these words  should be read  carefully  because they
discuss the Company's future expectations, contain projections of the Company's
future   results  of   operations   or  financial   condition  or  state  other
"forward-looking" information.

Undue reliance should not be placed on these forward-looking statements.  There
are  risks,  uncertainties,  and  events  that may cause the  Company's  actual
results  to  differ  materially  from  the  expectations.  Although  management
believes that the expectations reflected in the forward-looking  statements are
reasonable,  management  cannot guarantee  future results,  levels of activity,
performance or achievements.  Moreover, neither the Company, its management nor
any other person assumes  responsibility  for the accuracy and  completeness of
the forward-looking statements. The Company and management are under no duty to
update any of the  forward-looking  statements after the date of this filing or
to conform  these  statements to actual  results or to changes in  management's
expectations.


YEAR 2000 ISSUE

The  Company  has  substantially  completed  a program to address the Year 2000
issue as it affects its business  and  management  believes  that the Year 2000
issue  is not  likely  to  have a  material  adverse  effect  on the  Company's
business,  results of operations, or financial condition.  Nevertheless,  since
the effects of the Year 2000 issue are likely to be  unpredictable,  management
does not expect that the Year 2000  compliance  program will eliminate all risk
to the Company associated with the Year 2000 issue.

                                      -14-
<PAGE>

Management  believes  that the most  significant  risk  facing  the  Company in
connection with the Year 2000 issue relates to software provided by the Company
for use by, or on behalf of,  its  clients.  This  software  has been  provided
principally by the HR  Technologies  Group  (including  benefit  administration
software and call center  services) and the  retirement  practice  (principally
spreadsheet-based  benefit  calculators).   The  risks  presented  include  the
possibility of errors or contractual liability caused by non-compliant software
that is not  identified  or  corrected  and the costs of replacing or repairing
client systems.  Testing and remediation  have been completed on  approximately
80% of such systems.  Virtually all of the systems not yet repaired are used to
support  open   enrollment  in  benefits  plans  and  any  required  Year  2000
remediation will be performed as a part of modifications to such systems before
they are next used.

The cost to address  Year 2000  compliance  issues  exceeded  $4.0  million for
fiscal year 1999.  The  principal  expenditures  were for repair and testing of
internal and client  software,  costs  associated  with the Company's Year 2000
compliance  program and costs of outside  consultants.  Management expects that
the  costs for the  Company's  Year 2000  compliance  program  will be lower in
fiscal  year 2000.  Funds for costs  associated  with the  Company's  Year 2000
compliance  efforts  will come from  operating  cash flows for all areas of its
operations and will be expensed as incurred.

                                      -15-
<PAGE>

PART II.    OTHER INFORMATION
            -----------------

ITEM 1.     LEGAL PROCEEDINGS

From time to time, the Company is a party to various lawsuits,  arbitrations or
mediations  that  arise in the  ordinary  course of  business.  These  disputes
typically  involve  claims  relating to employment  matters or the rendering of
professional  services.  The four  matters  summarized  below  involve the most
significant  pending  or  potential  claims  against  the  Company.  Management
believes,  based on currently  available  information,  that the results of all
such proceedings,  in the aggregate, will not have a material adverse effect on
the  Company's  financial  condition,  but  claims  which are  possible  in its
business  could be material to the financial  results for a particular  period,
depending, in part, upon the operating results for that period.

Regina,  Saskatchewan  Police.  The  Administrative  Board of the Regina Police
Superannuation  and Benefit Plan filed an action  against the Company and three
individual employees in 1994 alleging errors in valuation methods,  assumptions
and  calculations  for the Plan during the course of work provided for the Plan
since the 1970s.  Discovery is concluded and the exchange of expert  reports is
anticipated  during 2000.  The  Administrative  Board seeks  approximately  $26
million in damages, plus interest.

City of Milwaukee,  Wisconsin. The City of Milwaukee Employees Retirement Board
("ERB")  notified the  Company of a potential  claim  involving an  erroneously
calculated cost of living  adjustment  that was based on a formula  provided by
the staff of the ERB. In response to the notice of claim,  the Company  filed a
declaratory  judgment  action  against the City of Milwaukee and the ERB in the
U.S.  District  Court in Chicago.  By mutual  consent,  the  parties  agreed to
dismiss the claim with leave to reinstate, pending settlement discussions among
other parties.

Connecticut  Carpenters  Pension Fund. The Connecticut  Carpenters Pension Fund
has filed an action against the Company claiming errors in valuations from 1991
through 1998 that allegedly resulted in understated liabilities. The plaintiffs
are seeking damages of approximately $45 million. The case is in discovery.

Claim against Watson Wyatt Partners.  A law firm representing a client based in
Europe has notified  Watson Wyatt  Partners,  The Company's  European  alliance
partner, of a claim involving alleged errors in the design of a global employee
stock  option  plan  which may  include  work  performed  by  present or former
subsidiaries of Watson Wyatt & Company.

The  Company  carries  substantial  professional  liability  insurance  with  a
self-insured retention of $1 million per occurrence which provides coverage for
professional  liability claims. The Company also carries  employment  practices
liability insurance.

ITEM 2.     CHANGES IN SECURITIES

None.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

                                      -16-
<PAGE>

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the  fifty-third  annual  meeting of  shareholders  of the Company,  held on
November 17, 1999,  the  shareholders  elected  fourteen  (14)  nominees to the
Board.  Proxies  representing  11,244,963  shares were  received  (total shares
outstanding  as of the  Record  Date were  14,897,639)  and the  results of the
voting were as follows:

         NOMINEES TO THE BOARD       FOR        WITHHOLD
         -----------------------------------------------
         Thomas W. Barratt        10,907,879     337,084
         Paula A. DeLisle         10,907,723     337,240
         David B. Friend           9,715,850   1,529,113
         John J. Haley            11,165,021      79,942
         Ira T. Kay               10,385,836     859,127
         Brian E. Kennedy         10,591,560     653,403
         Eric P. Lofgren          10,928,628     316,335
         Robert D. Masding        10,697,175     547,788
         R. Michael McCullough    10,900,215     344,748
         Gail E. McKee            10,346,633     898,330
         Kevin L. Meehan          11,113,114     131,849
         Charles P. Wood, Jr.     11,113,244     131,719
         John A. Steinbrunner     10,915,585     329,378
         A. Grahame Stott         11,034,114     210,849


ITEM 5.     OTHER INFORMATION

On January 27, 2000 the Company filed a Current  Report on Form 8-K  announcing
the filing of Registration Statements on Form S-3 and S-4 to affect a corporate
reorganization in order to create a holding company structure, and a subsequent
public offering by the holding company.

There is no  assurance  that the  proposed  reorganization  or  initial  public
offering will be consummated.


ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

a.    Exhibits

      3.1   Restated Certificate of Incorporation of Watson Wyatt & Company2
      3.2   Restated Bylaws (as amended through November 19, 1998)3
      4     Form of Certificate Representing Common Stock1
      10    Credit Agreement Among NationsBank, N.A. and Others dated June
            30, 19984

b.    Reports on Form 8-K

      None.

--------
1    Incorporated  by reference from  Registrant's Initial Statement on Form 10
     (File No. 0-20724), filed on October 13, 1992
2    Incorporated by reference from Registrant's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1996 (File No. 0-20724), filed on September
     16, 1996
3    Incorporated by  reference from  Registrant's Statement on  Form S-8 (File
     No. 33-369545), filed on December 23, 1998
4    Incorporated by reference from Registrant's Annual Report on Form 10-K for
     the fiscal year ended June 30, 1998 (File No. 0-20724), filed on September
     24, 1998

                                      -17-
<PAGE>

SIGNATURES


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

Watson Wyatt & Company
(Registrant)




/S/ JOHN J. HALEY                                      FEBRUARY 14, 2000
------------------------------                         -----------------
Name:  John J. Haley                                   Date
Title: President and Chief
       Executive Officer


/S/ CARL D. MAUTZ                                      FEBRUARY 14, 2000
------------------------------                         -----------------
Name:  Carl D. Mautz                                   Date
Title: Vice President and Chief
       Financial Officer


/S/ PETER L. CHILDS                                    FEBRUARY 14, 2000
------------------------------                         -----------------
Name:  Peter L. Childs                                 Date
Title: Controller

                                     -18-