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 SEPTEMBER 30, 1997

                                      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 November 14, 1997.

Common Stock, $1.00 par value                                 17,680,267
-----------------------------                                 ----------
          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 September 30,
                                                       --------------------------------
                                                           1997                1996
                                                       -------------       ------------
                                                                   (Unaudited)
<S>                                                   <C>                 <C> 
Fees                                                   $     133,475       $    127,497

Costs of providing services:
    Salaries and employee benefits                            64,207             62,664
    Occupancy and communications                              15,219             18,997
    Professional and subcontracted services                   19,723             20,393
    Other                                                      7,000              5,663
                                                       -------------       ------------
                                                             106,149            107,717

General and administrative expenses                           10,378              9,912
Depreciation and amortization                                  6,514              5,361
                                                       -------------       ------------
                                                             123,041            122,990

Income from operations                                        10,434              4,507

Other:
    Interest income                                              249                283
    Interest expense                                            (409)              (275)

Loss from affiliates                                            (438)            (1,305)
                                                       -------------       ------------

Income before income taxes and minority interest               9,836              3,210

Provision for (benefit from) income taxes:
    Current                                                    4,515              1,504
    Deferred                                                     134                  -
                                                       -------------       ------------
                                                               4,649              1,504
                                                       -------------       ------------

Income before minority interest                                5,187              1,706

Minority interest in net income of consolidated
    subsidiaries                                                 (44)               (41)
                                                       -------------       ------------

Net income                                             $       5,143       $      1,665
                                                       =============       ============


Earnings per share                                     $        0.29       $       0.09
                                                       =============       ============

</TABLE>


 

                             See accompanying notes
                                       -2-

<PAGE>
<TABLE>
<CAPTION>
 
                             WATSON WYATT & COMPANY
                           CONSOLIDATED BALANCE SHEETS
                           (Thousands of U.S. Dollars)

                                                           September 30,       June 30,
                                                               1997              1997
                                                          --------------    --------------
                                                            (Unaudited)
       
<S>                                                       <C>               <C> 
ASSETS

Cash and cash equivalents                                 $       10,874    $       26,257
Receivables from clients:

    Billed, net of allowances of $4,838 and $2,525                69,891            67,393
    Unbilled                                                      65,601            56,368
                                                          --------------    --------------
                                                                 135,492           123,761

Other current assets                                               9,340             7,287
                                                          --------------    --------------
    Total current assets                                         155,706           157,305

Investment in affiliates                                          55,523            52,516
Fixed assets                                                      37,179            37,045
Deferred income taxes                                             34,560            39,025
Deferred software and development costs                           31,030            32,869
Other intangible assets                                            2,786             2,661
Other assets                                                      10,425            10,357
                                                          --------------    --------------

                                                          $      327,209    $      331,778
                                                          ==============    ==============

LIABILITIES, REDEEMABLE COMMON STOCK, AND PERMANENT SHAREHOLDERS' EQUITY

Accounts payable and accrued liabilities                  $       89,418    $      103,415
Note payable and book overdrafts                                  13,608               408
Income taxes payable                                               4,569             3,563
Deferred income taxes                                             24,177            28,612
                                                          --------------    --------------
    Total current liabilities                                    131,772           135,998

Accrued retirement benefits                                       87,724            86,697
Deferred rent and accrued lease losses                            13,812            14,938
Other noncurrent liabilities                                       7,903             9,908

Minority interest in subsidiaries                                    330               351

Redeemable Common Stock - $1 par value:
    25,000,000 shares authorized;
    17,816,636 and 18,130,429 issued
    and outstanding; at redemption value                          94,428            96,091

Permanent shareholders' equity:
Adjustment for redemption value greater than
    amounts paid in by shareholders                              (36,844)          (37,674)
Retained earnings                                                 28,565            24,633
Cumulative translation gain (loss)                                  (481)              836

Commitments and contingencies                                                           
                                                          --------------    --------------

                                                          $      327,209    $      331,778
                                                          ==============    ==============


</TABLE>



                             See accompanying notes
                                       -3-

<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (Thousands of U.S. Dollars)


                                                                   Three Months Ended September 30,
                                                                   --------------------------------
                                                                        1997               1996
                                                                   -------------      -------------
<S>                                                                <C>                <C>

Cash flows from operating activities:
    Net income                                                     $       5,143      $       1,665
    Adjustments to reconcile net income to net cash
    provided by operating activities:
        Provision for doubtful receivables from clients                    3,830              3,610
        Depreciation                                                       3,559              3,161
        Amortization of deferred software and development costs
            and other intangible assets                                    2,954              2,200
        Change in deferred income taxes                                       30                  -
        Loss from affiliates                                                 438              1,305
        Minority interest in net income of consolidated subsidiaries          44                 41
        Other                                                                 (6)                48
        (Increase) decrease in assets:
            Receivables from clients                                     (15,560)            (9,299)
            Income taxes receivable                                         (145)                 -
            Other current assets                                          (1,908)           (13,422)
            Other assets                                                    (379)            (1,209)
        Increase (decrease) in liabilities:
            Accounts payable and accrued liabilities                     (13,997)           (17,879)
            Income taxes payable                                           1,006            (10,533)
            Accrued retirement benefits                                    1,027              3,472
            Deferred rent                                                 (1,126)             3,672
            Other noncurrent liabilities                                  (2,005)            (1,562)
                                                                   -------------      -------------
        Net cash used by operating activities                            (17,095)           (34,730)
                                                                   -------------      -------------

Cash flows from investing activities:
    Purchases of fixed assets                                             (3,925)            (3,091)
    Acquisitions                                                               -               (197)
    Investment in software and development costs                            (899)            (2,988)
    Investment in affiliates                                              (3,990)            (1,373)
                                                                   -------------      -------------
        Net cash used in investing activities                             (8,814)            (7,649)
                                                                   -------------      -------------

Cash flows from financing activities:
    Net borrowings and bank overdrafts                                    13,200             34,700
    Issuances of Redeemable Common Stock                                     525                135
    Repurchases of Redeemable Common Stock                                (2,569)            (6,103)
                                                                   -------------      -------------
        Net cash provided by financing activities                         11,156             28,732
                                                                   -------------      -------------

Effect of exchange rate changes on cash                                     (630)                34
                                                                   -------------      -------------

Decrease in cash and cash equivalents                                    (15,383)           (13,613)

Cash and cash equivalents at beginning of period                          26,257             21,694
                                                                   -------------      -------------

Cash and cash equivalents at end of period                         $      10,874      $       8,081
                                                                   =============      =============
</TABLE>







                             See accompanying notes
                                       -4-

<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
      CONSOLIDATED STATEMENTS OF CHANGES IN PERMANENT SHAREHOLDERS' EQUITY
                           (Thousands of U.S. Dollars)

                                                                                 Excess of Redemption
                                                                  Cumulative      Value Over Amounts
                                                Retained          Translation         Paid in by
                                                Earnings             Gain            Shareholders
                                             -------------       -------------       -------------
<S>                                          <C>                 <C>                 <C>

Balance at June 30, 1997                     $      24,633       $         836       $     (37,674)

Net income                                           5,143                   -                   -
Effect of repurchases of 420,046 shares of
     common stock (various prices per share)        (1,211)                  -               1,211
Foreign currency translation adjustment                  -              (1,317)                  -
Adjustment of redemption value for change     
     in formula book value per share                     -                   -                (381)
                                             -------------       -------------       -------------

Balance at September 30, 1997                $      28,565       $        (481)      $     (36,844)
                                             =============       =============       =============
</TABLE>









                            See accompanying notes
                                      -5-

<PAGE>

                            WATSON WYATT & COMPANY

                  NOTES TO 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  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 Form 10-K for the year ended June
   30, 1997.

   The  results  of   operations  for  the three  months ended  September  30,
   1997 are not  necessarily  indicative  of the results  that can be expected
   for the  entire  fiscal  year  ending  June 30,  1998.  Certain  prior year
   amounts have been reclassified to conform to the current year presentation.

2. Under  the Company's  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 $5.30 per share at  September  30,
   1997  and  June  30,  1997.  Permanent  shareholders'  equity  includes  an
   adjustment  for  the  difference   between  the  redemption  value  of  the
   Redeemable  Common Stock and the amounts  actually paid by shareholders for
   the shares.

3. During  the three months ended September 30, 1997, the Company  repurchased
   420,046  shares  of  common  stock,  at  various  prices  per  share.   The
   computation  of  earnings  per  share is based  upon the  weighted  average
   number of shares  of  common  stock  outstanding  during  the  period.  The
   number of shares used in the  computation  is 17,981,000 and 17,636,000 for
   the three months ended September 30, 1997 and 1996, respectively.

4. Summarized   operating   results  reported  by  the  Company's   affiliate,
   Wellspring Resources,  LLC ("Wellspring"),  for the quarter ended September
   30, 1997,  are an after tax loss of $0.5 million  reflecting  $13.2 million
   in revenue and  expenses of $13.7  million.  The Company  contributed  $4.8
   million in the first quarter to fund  Wellspring's  cash  operating  needs.
   Wellspring  operating  losses are expected to continue and additional  cash
   requirements are expected.

   The  Company  guarantees  certain leases for office  premises and equipment
   for  Wellspring.  Minimum  rentals  guaranteed  under these leases are $2.5
   million for the remainder of fiscal year 1998 and  aggregate  $71.7 million
   for the  remaining  lease  terms,  which  expire at various  dates  through
   2007.  These  leases  are also  jointly  and  severally  guaranteed  by the
   Company's partner,  State Street Global Advisors. In addition,  the Company
   guarantees   Wellspring's   obligation  to  a  customer  in  the  event  of
   termination  without  cause.  The amount of the  guarantee at September 30,
   1997 was $5.2 million, and declines monthly through the year 2002.

5. The  first  quarter  results  of fiscal  year 1997 were  reduced  by a $4.4
   million  sublease  loss due to the  relocation of the corporate and certain
   operating offices.

                                      -6-
<PAGE>


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

GENERAL

Watson  Wyatt  &  Company,  together  with  its  affiliates  and  consolidated
subsidiaries,  (collectively, "Watson Wyatt" or "the Company"), provides human
resource and employee  benefits  consulting  and  administrative/recordkeeping
services.  The  Company  also  provides  a broad  range  of  services  in risk
management and general insurance and investment  consulting,  and derives fees
from sales of surveys  and  licensing  of  software.  The  Company  works with
organizations  of  all  sizes,  from  the  largest  multinationals  to  public
employers and nonprofit institutions.

Founded  in  1946,  Watson  Wyatt  is  owned  almost  entirely  by its  active
employees.  The  Company  is  incorporated  in  Delaware,  and  its  principal
executive  offices  are  located at 6707  Democracy  Boulevard,  Bethesda,  MD
20817.  Together  with its  affiliates,  it operates  globally as Watson Wyatt
Worldwide.

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 first quarter of fiscal year 1998  (September  30, 1997) and as of the end
of the prior fiscal year 1997 (June 30, 1997), and consolidated  statements of
operations,  of cash flows and of changes in  permanent  shareholders'  equity
for the three months ended September 30, 1997 and 1996.

RESULTS OF  OPERATIONS--THREE  MONTHS  ENDED  SEPTEMBER  30, 1997  COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1996.

For the first  three  months of fiscal  year  1998 the  Company  produced  net
income of $5.1  million,  an increase of $3.4  million from net income of $1.7
million for the first three  months of fiscal year 1997.  Income for the first
quarter of 1997 was reduced by the $2.3 million  after tax effect of the lease
loss.

Fees for the first  three  months of fiscal  year 1998  total  $133.5  million
compared to $127.5  million for the first three months of fiscal year 1997, an
increase  of $6.0  million,  or 5%.  The  revenue  growth is  attributable  to
improved performance in the Company's consulting offices.

Salaries and employee  benefit  expenses for the first  quarter of fiscal year
1998 were $64.2  million,  an increase of $1.5 million,  from $62.7 million in
the first quarter of fiscal year 1997.  The increase in costs is  attributable
to normal annual salary increases,  with the number of associates  essentially
unchanged from the same period in fiscal year 1997.

Occupancy and  communication  expenses during the first quarter of fiscal year
1998 totaled  $15.2  million,  a decrease of $3.8  million,  or 20%,  from the
first  quarter of the prior year.  The change is due to a $4.4  million  lease
loss recorded in fiscal year 1997 for the relocation of the corporate  offices
to lower cost space in a suburban location.

Professional and subcontracted  services decreased by $0.7 million, or 3% from
fiscal year 1997.  Such services in the consulting  offices  decreased by $1.5
million and were  partially  offset by an  increase of $0.8  million in higher
charges for the continued servicing of the retained  outsourcing  contracts by
the Company's affiliate, Wellspring.

                                      -7-
<PAGE>
Other costs of providing  services  were $7.0 million for the first quarter of
fiscal year 1998,  up $1.3  million,  or 24%, from the first quarter of fiscal
year 1997. The expense  growth  includes the following  increases:  travel and
hotel $0.7 million,  publications  $0.3 million,  and general office  expenses
$0.4 million.

General and  administrative  ("G&A")  expenses for the first quarter of fiscal
year 1998 were $10.4 million,  a $0.5 million,  or 5%, increase from the first
quarter of fiscal  year  1997,  related  primarily  to  increased  advertising
expense.

Depreciation  and  amortization  expense of $6.5 million for the first quarter
of fiscal year 1998  represents  an increase  of $1.1  million  over the first
quarter of fiscal year 1997.  The  increased  expense is primarily  due to the
amortization of capitalized software and development costs.

Income before income taxes and minority  interest of $9.8 million in the first
quarter of fiscal  year 1998  resulted  in a tax  provision  of $4.6  million.
This  compares to a  provision  of $1.5  million on $3.2  million of income in
fiscal year 1997.  The effective tax rate for both periods was 47%.

Loss from  affiliates  was $0.4 million for the quarter  ended  September  30,
1997  compared to $1.3 million for the quarter ended  September 30, 1996.  The
majority of these  losses  result from the  Company's  affiliate,  Wellspring.
The Company,  two days before  filing,  received  financial  projections  from
Wellspring  indicating  additional  cash  requirements  for Wellspring and the
three outsourcing  contracts retained by the Company ("Retained  Clients") and
operating  losses  greater  than  previously   expected  or  included  in  the
Company's  annual  financial plan. The Company is evaluating this forecast and
is requiring further information from Wellspring.

The Company and its partner,  State Street,  have indicated their intention to
fund  Wellspring's  cash  requirements  as needed.  The Company is  evaluating
alternative sources of capital for Wellspring including potential  investments
from  third  parties.  These  discussions  are in  preliminary  stages and the
Company cannot, therefore, assess the probable outcome.

LIQUIDITY AND CAPITAL RESOURCES.

The  Company  relies   primarily  on  funds  from  operations  and  short-term
borrowings  as its  sources of  liquidity.  The Company  believes  that it has
access  to  ample  financial   resources  to  finance  its  growth,  meet  its
commitments  to  affiliates  as  well  as  support  ongoing  operations.   The
Company's  cash and cash  equivalents  at  September  30, 1997  totaled  $10.9
million,  compared  to $26.3  million  at June 30,  1997.  This  decrease  was
typical for the first  quarter of the year and was expected as both income tax
and  bonus  payments  were  made in the  first  quarter.  The  Company  had no
borrowings under its line of credit at September 30 or June 30, 1997.

CASH FROM  OPERATIONS.  For the first three  months of fiscal  year 1998,  the
Company  had cash  outflows  from  operations  of $17.1  million,  compared to
outflows  from  operations  of $34.7  million  for the first  three  months of
fiscal year 1997.  The  decrease in cash  outflows  from 1997 was due to lower
income tax payments and the  collection  of a  receivable  from an  affiliate,
offset by decreased collection of accounts receivable.

The  Company's  ratio of  current  assets  to  current  liabilities  increased
slightly to 1.2 at September 30, 1997 compared to 1.1 at June 30, 1997.

                                      -8-
<PAGE>

CASH FROM  INVESTING  ACTIVITIES.  Investing  activity  cash  outflow was $8.8
million for the three months of fiscal year 1998,  versus $7.6 million for the
same  period in 1997.  The  increase in  investing  cash  outflows  was due to
increased   expenditures  for  fixed  assets,  $0.8  million,   and  a  higher
investment  in  affiliates,  $2.6  million,  offset  by  lower  investment  in
software and development costs, $2.1 million.

Anticipated  commitments  of funds  are  estimated  at $29.3  million  for the
remainder of fiscal year 1998,  including  expected purchases of fixed assets,
50% of the  capital  requirements  of  Wellspring,  and  50.1% of the  capital
requirements of WWHE.  Additional cash  requirements  for Wellspring  referred
to above are  under  evaluation  and are not  included  in the  aforementioned
commitment of funds.  The Company expects  operating  cashflows to provide for
the Company's cash needs.

The  Company's  revolving  credit  line  matures on  January  5,  2001.  As of
September 30, 1997,  $44.8 million dollars of the credit line was available to
the  Company  as  revolving  credit for  operating  needs,  compared  to $33.0
million on September 30, 1996.

CASH FROM  FINANCING  ACTIVITIES.  Cash flow provided by financing  activities
was $11.2  million  for the first  three  months of fiscal  year 1998,  versus
$28.7 million in the preceding  fiscal year.  The decrease is due primarily to
the lower level of borrowing and bank overdrafts in fiscal year 1998.


PART II.   OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

Watson Wyatt is from time to time a defendant in various  lawsuits which arise
in the ordinary course of business.  These disputes  typically  involve claims
relating to  employment  matters or the  rendering of  professional  services.
The  management  of the  Company  does not  believe  that  any such  currently
pending or threatened  litigation is likely to have a material  adverse effect
on the business or financial condition of Watson Wyatt.

ITEM 2.     CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

                                      -9-
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.  Exhibits

    None

b.  Reports on Form 8-K

    None





                                      -10-
<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/ A. W. Smith, Jr.                                  November 14, 1997
---------------------                                 ----------------- 
Name:      A. W. Smith, Jr.                           Date
Title:     President and Chief
           Executive Officer



/S/ Barbara L. Landes                                 November 14, 1997
---------------------                                 -----------------
Name:      Barbara L. Landes                          Date
Title:     Vice President, Finance and
           Chief Financial Officer
















                                     -11-