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 MARCH 31, 1998

                                       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 May 6, 1998.

Common Stock,  $1.00 par value                                16,254,990
------------------------------                                ----------
          Class                                            Number of Shares


<PAGE>
<TABLE>
<CAPTION>

                             WATSON WYATT & COMPANY
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              (Thousands of U.S. Dollars, Except Per Share Amounts)

                                                           Quarters Ended March 31,                Nine Months Ended March 31,
                                                         ------------------------------           ------------------------------
                                                            1998              1997                    1998              1997
                                                         ------------      ------------           ------------      ------------
                                                                  (Unaudited)                              (Unaudited)
<S>                                                      <C>               <C>                    <C>               <C>
Fees                                                     $    124,558      $    119,278           $    377,828      $    361,008

Costs of providing services:
    Salaries and employee benefits                             70,293            63,715                199,959           183,345
    Occupancy and communications                               15,422            15,493                 46,229            55,956
    Professional and subcontracted services                    11,626             8,278                 37,699            36,979
    Other                                                       6,666             6,243                 21,290            18,260
                                                         ------------      ------------           ------------      ------------
                                                              104,007            93,729                305,177           294,540

General and administrative expenses                            12,849            12,472                 36,556            33,005
Depreciation and amortization                                   5,576             5,140                 14,797            14,932
                                                         ------------      ------------           ------------      ------------
                                                              122,432           111,341                356,530           342,477

Income from operations                                          2,126             7,937                 21,298            18,531

Other:
    Interest income                                               119               701                    605             1,158
    Interest expense                                           (1,168)             (573)                (2,594)           (1,340)

Loss from affiliates                                             (215)             (376)                  (219)             (208)
                                                         ------------      ------------           ------------      ------------


Income before income taxes and minority interest                  862             7,689                 19,090            18,141

Provision for income taxes:
    Current                                                       470             3,345                  8,953             7,854
    Deferred                                                        -                 -                      -                 -
                                                         ------------      ------------           ------------      ------------
                                                                  470             3,345                  8,953             7,854
                                                         ------------      ------------           ------------      ------------


Income before minority interest                                   392             4,344                 10,137            10,287


Minority interest in net (income) loss of
consolidated subsidiaries                                          86                (2)                   (55)              (86)
                                                         ------------      ------------           ------------      ------------

Net income from continuing operations                             478             4,342                 10,082            10,201

Discontinued operations:

Loss from operations of discontinued Outsourcing
Business (less applicable income tax benefit of 
$1,895, $2,425 and $4,772, $5,872 respectively)                (1,664)           (3,586)                (7,102)           (8,599)

Loss on disposal of Outsourcing Business, including
provision of $12,100 for operating losses during
phaseout period (less applicable income tax benefit
of $48,148)                                                   (71,652)                -                (71,652)                -

                                                         ============      ============           ============      ============
Net (loss) income                                        $    (72,838)     $        756           $    (68,672)     $      1,602
                                                         ============      ============           ============      ============



Earnings per share, continuing operations                $       0.03      $       0.26           $       0.58   $          0.59
                                                         ============      ============           ============      ============

(Loss) earnings per share, net (loss) income             $      (4.30)     $       0.04           $      (3.92)     $       0.09
                                                         ============      ============           ============      ============
</TABLE>



                             See accompanying notes
                                       -2-

<PAGE>

                             WATSON WYATT & COMPANY
                           CONSOLIDATED BALANCE SHEETS
                           (Thousands of U.S. Dollars)

                                                     March 31,        June 30,
                                                       1998             1997
                                                    ----------       ---------
                                                    (Unaudited)
                                    ASSETS

Cash and cash equivalents                           $   11,004       $  26,257
Receivables from clients:

   Billed, net of allowances of $4,082 and $2,525       72,984          67,393
   Unbilled                                             64,171          56,368
                                                    ----------       ---------
                                                       137,155         123,761

Income taxes receivable                                 45,590               -
Other current assets                                     6,658           7,287
                                                    ----------       ---------
   Total current assets                                200,407         157,305

Investment in affiliates                                17,654          52,516
Fixed assets                                            35,251          37,045
Deferred income taxes                                   39,095          39,025
Deferred software and development costs                  8,070          32,869
Other intangible assets                                  2,524           2,661
Other assets                                             9,466          10,357
                                                    ----------       ---------

                                                    $  312,467       $ 331,778
                                                    ==========       =========

   LIABILITIES, REDEEMABLE COMMON STOCK, AND PERMANENT SHAREHOLDERS' EQUITY

Accounts payable and accrued liabilities            $  112,797       $ 103,415
Note payable and book overdrafts                        28,637             408
Income taxes payable                                         -           3,563
Deferred income taxes                                   28,536          28,612
                                                    ----------       ---------
   Total current liabilities                           169,970         135,998

Accrued retirement benefits                             83,096          86,697
Deferred rent and accrued lease losses                  11,957          14,938
Other noncurrent liabilities                            44,226           9,908

Minority interest in subsidiaries                          273             351

Redeemable Common Stock - $1 par value:
   25,000,000 shares authorized;
   16,476,915 and 18,130,429 issued
   and outstanding; at redemption value                 87,328          96,091

Permanent shareholders' equity:
Adjustment for redemption value greater than 
amounts paid in by shareholders                        (34,074)        (37,674)
Retained (deficit) earnings                            (48,025)         24,633
Cumulative translation (loss) gain                      (2,284)            836

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

                                                    $  312,467       $ 331,778
                                                    ==========       =========


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

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


                                                                                           Nine Months Ended March 31,
                                                                                          ------------------------------
                                                                                             1998               1997
                                                                                          ------------       -----------
                                                                                                   (Unaudited)

<S>                                                                                       <C>                <C> 
Cash flows from operating activities:
    Net (loss) income                                                                     $   (68,672)       $    1,602
    Adjustments to reconcile net (loss) income to net cash
    (used in) provided by operating activities:
        Non-cash charge for loss on disposal of Outsourcing Business                          119,800                 -
        Tax effect of non-cash charge for loss on disposal of Outsourcing Business            (48,148)                -
        Provision for doubtful receivables from clients                                        (2,867)            6,800
        Depreciation                                                                           11,357            10,181
        Amortization of deferred software and development costs
            and other intangible assets                                                         9,230             7,371
        Change in deferred income taxes                                                          (147)                -
        Loss from affiliates                                                                    1,637             5,076
        Minority interest in net income of consolidated subsidiaries                               55                86
        Other                                                                                    (154)              (59)
        (Increase) decrease in assets:
            Receivables from clients                                                          (10,527)          (13,192)
            Income taxes receivable                                                             2,558                 -
            Other current assets                                                                  629              (309)
            Other assets                                                                          590            (3,573)
        (Decrease) increase in liabilities:
            Accounts payable and accrued liabilities                                           (9,355)           (5,648)
            Income taxes payable                                                               (3,563)          (10,672)
            Accrued retirement benefits                                                        (3,601)            4,935
            Deferred rent and accrued lease losses                                             (2,981)            5,935
            Other noncurrent liabilities                                                       (3,693)             (950)
                                                                                          -----------        ----------
        Net cash (used) provided by operating activities                                       (7,852)            7,583
                                                                                          -----------        ----------

Cash flows from investing activities:
    Purchases of fixed assets                                                                  (8,854)          (10,213)
    Investment in software and development costs                                               (2,506)           (5,535)
    Investment in affiliates                                                                  (12,001)          (11,570)
                                                                                          -----------       -----------
        Net cash used in investing activities                                                 (23,361)          (27,318)
                                                                                          -----------       -----------

Cash flows from financing activities:
    Net borrowings and bank overdrafts                                                         28,229             5,700
    Issuances of Redeemable Common Stock                                                          525            15,098
    Repurchases of Redeemable Common Stock                                                     (9,674)          (14,689)
                                                                                          -----------       -----------
        Net cash provided by financing activities                                              19,080             6,109
                                                                                          -----------       -----------

Cumulative translation (loss) gain                                                             (3,120)               56
                                                                                          -----------       -----------

Decrease in cash and cash equivalents                                                         (15,253)          (13,570)

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

Cash and cash equivalents at end of period                                                $    11,004       $     8,124
                                                                                          ===========       ===========
</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
                                                            Retained            Cumulative         Value Over Amounts
                                                            Earnings            Translation            Paid in by
                                                            (Deficit)           Gain (Loss)           Shareholders
                                                          ------------         -------------         --------------
<S>                                                       <C>                  <C>                  <C>
Balance at June 30, 1997                                  $     24,633         $         836         $      (37,674)

Net loss                                                       (68,672)                    -                      -
Effect of repurchases of 1,759,767 shares of
     common stock (various prices per share)                    (3,986)                    -                  3,986
Foreign currency translation adjustment                              -                (3,120)                     -
Adjustment of redemption value for change
     in formula book value per share                                 -                     -                   (386)
                                                          ------------         -------------         --------------

Balance at March 31, 1998 (unaudited)                     $    (48,025)        $      (2,284)        $      (34,074)
                                                          ============         =============         ==============
</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  ("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 Form 10-K for the year ended June 30, 1997.

   The  results of operations  for the  nine  months  ended  March 31, 1998  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.  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 March 31, 1998 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 nine  months  ended  March  31,  1998,  the  Company  repurchased
   1,759,767  shares of common stock at various prices per share  depending upon
   the date of redemption.  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  16,935,000  and
   16,841,000 for the three months ended March 31, 1998 and 1997,  respectively,
   and  17,503,000  and  17,197,000 for the nine months ended March 31, 1998 and
   1997,  respectively.  The Company has no  convertible  debt or stock  options
   outstanding that would dilute earnings per share.

4. The annual  sale of common  stock to eligible  purchasers  (as defined in the
   Company's  bylaws),  which in recent years has been announced in December and
   completed in March,  was deferred until current  important issues of business
   strategy and financial investments were resolved.

5. During fiscal year 1997, the Company recorded  sublease and lease termination
   losses of $12.1 million,  of which $10.3 million related to the relocation of
   the  corporate  office  space.  The  corporate  office  relocation  to a less
   expensive  suburban  location results in a reduction of occupancy  expense in
   future years.

6. On April 6, 1998, the Company entered into a Redemption,  Restructuring,  and
   Indemnity  Agreement ("the  Restructuring  Agreement") with State Street Bank
   and Trust Co. ("State Street") and Wellspring  Resources,  LLC ("Wellspring")
   by which  Wellspring  redeemed  the  Company's  50%  interest  in  Wellspring
   effective  April  1,  1998.  The  restructuring   effected  pursuant  to  the
   Restructuring  Agreement  implements a  Discontinuation  Plan approved by the
   Company's Board of Directors on

                                      -6-
<PAGE>

February 18, 1998 which  provided for the Company's exit from the total Benefits
Administration Outsourcing Business ("Outsourcing Business").

Following the  redemption of the Company's  interest in  Wellspring,  Wellspring
will continue to operate as a wholly-owned  subsidiary of State Street.  Certain
outsourcing  contracts  retained by the Company when  Wellspring  was  initially
formed in 1996  ("Retained  Clients"),  will  continue  to be  performed  by the
Company until their respective contract  expirations.  Two of the three Retained
Clients'  contracts  expire  within the next year.  The Company  has  identified
alternative resolutions for the contractual  relationship with the third client.
The Company and the client are in discussion as to which alternative is mutually
advantageous.  The  Company  will  continue  to  provide  services  under  these
agreements  using  facilities and personnel  provided by Wellspring  until these
arrangements expire.

In connection  with the  restructuring  transactions,  the Company has agreed to
indemnify  Wellspring  for  certain  costs and  losses  incurred  as a result of
services  provided by Wellspring on the Company's behalf.  Further,  the Company
has been released from certain  liabilities  relating to the Wellspring business
in connection with the redemption.

The  discontinuation  of  the  Company's  Outsourcing  Business  results  in the
write-off of the Company's  investment in Wellspring,  which had a book value at
the disposal  date of $45.2  million.  In addition,  the Company has written off
$14.0 million in  unamortized  deferred  software and  development  costs net of
related deferred revenues related to the Retained Clients.  Further, a provision
of $60.6  million has been  recorded for contract  termination  expenses,  lease
guarantees, potential severance and other expenses related to the Company's exit
from the Outsourcing Business.

The  Company  reported  this  transaction  on Form 8-K with the SEC on April 21,
1998.


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,  provides  human  resource and employee  benefits  consulting  and
administrative/recordkeeping  services. The Company also 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
third  quarter of fiscal  year 1998  (March  31,  1998) 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 and nine months ended March 31, 1998 and 1997.

                                      -7-
<PAGE>

RESULTS OF  OPERATIONS--NINE  MONTHS  ENDED  MARCH 31,  1998  COMPARED TO NINE
MONTHS ENDED MARCH 31, 1997.

For the first nine months of fiscal year 1998 the Company produced a net loss of
$68.7  million  which  includes  an  after  tax loss of  $78.8  million  for the
discontinuation of the Outsourcing Business. Without this impact of discontinued
operations,  the Company's income from operations increased $2.8 million for the
nine  month  period  compared  to 1997,  driven by  revenue  increases  of $16.8
million.  These revenue increases are offset by increasing  interest expense and
taxes such that net income from  continuing  operations  decreased $0.1 million.
Fiscal year 1997 results include a sublease and lease  termination  loss of $4.7
million  ($10.3  million  before taxes)  associated  with the  relocation of the
corporate offices in Washington,  D.C. to a less expensive suburban facility and
$0.8 million ($1.8 million before taxes) in other lease losses.

Fees for the first nine months of fiscal year 1998 total $377.8 million compared
to $361.0  million for the first nine months of fiscal year 1997, an increase of
$16.8  million,  or 5%. This increase is due  primarily to the  Company's  North
American and Latin American consulting offices. In addition,  the Human Capital,
HR Technology and Retirement practices are experiencing strong revenue growth.

The Company incurred salaries and employee benefit expenses of $200.0 million in
the first nine months of fiscal year 1998, an increase of $16.6 million,  or 9%,
from $183.3  million in the prior fiscal year.  Similar  growth  occurred in the
third  quarter of fiscal year 1998  compared to the same  quarter in fiscal year
1997. The increase in costs is  attributable  to normal annual salary  increases
effective in October and a 6% increase in the number of associates from the same
period in fiscal year 1997.

Occupancy  and  communication  expenses  during the third quarter of fiscal year
1998 totaled $15.4 million, a decrease of $0.1 million from the third quarter of
the prior year.  For the first nine months of fiscal  year 1998,  occupancy  and
communication  expenses  totaled $46.2 million,  a decrease of $9.7 million,  or
17%, from the first nine months of the prior year. Fiscal year 1997 includes the
$12.1  million in  sublease  and lease  termination  losses  primarily  from the
relocation of the corporate office to lower cost space in a suburban location in
the first half of the fiscal year.  Excluding these lease losses,  occupancy and
communications  expenses increased by $2.4 million from last year, due primarily
to normal facility and office expense increases.

Professional  and  subcontracted  services were $11.6  million  during the third
quarter of fiscal year 1998,  an increase of $3.3 million over the third quarter
of the prior  fiscal  year.  For the first  nine  months  of fiscal  year  1998,
professional and subcontracted  services were $37.7 million, an increase of $0.7
million,  or 2%,  over $37.0  million  for the first nine  months of fiscal year
1997. The quarterly  increase in expenditures is related to timing  differences,
as the year to year comparisons for the nine month periods are similar.

Other costs of providing  services  were $6.7  million for the third  quarter of
fiscal year 1998,  up $0.4 million  from the third  quarter of fiscal year 1997.
For the first nine months of fiscal year 1998, other costs of providing services
increased by $3.0  million,  or 17%, to $21.3  million from $18.3 million in the
prior year. The expense growth includes a general  increase in travel expense of
$1.6 million, office promotional expense of $1.2 million, and the remainder from
increased publications expense.

General and administrative ("G&A") expenses for the third quarter of fiscal year
1998 were $12.8 million, a $0.4 million,  or 3%, increase from the third quarter
of fiscal year 1997. For the first nine months of fiscal year 1998, G&A expenses
were $36.6  million,  a $3.6 million  increase  from $33.0  million in the prior

                                      -8-
<PAGE>

fiscal  year.  The  increase  in  expense  is  primarily  attributable  to costs
associated  with  our  business   strategy   initiatives  and  higher  corporate
advertising and promotional expense.

Depreciation  and  amortization  expense  increased  $0.4  million  in the third
quarter of fiscal  year 1998 over the third  quarter of fiscal  year 1997 due to
the completion of new software  products released in the third quarter of fiscal
year 1998.  In the nine month period  ending March 31,  1998,  depreciation  and
amortization expense was equivalent to the same period in fiscal year 1997.

Interest  expense in 1998 has increased due to higher,  sustained debt levels in
the nine month period and the third quarter of 1998 compared to the same periods
in 1997.  Increased  borrowings  occurred  due to the delay of the annual  stock
sale.

Income before income taxes and minority  interest of $19.1 million for the first
nine months of fiscal year 1998 resulted in a tax provision of $9.0 million,  or
an  effective  tax rate of 47%,  compared  to 43% in 1997.  The  change in rates
year-to-date  reflects changes in income in various tax jurisdictions  where the
Company does business.

Loss from affiliates was unchanged year to year at $0.2 million.

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,  support  ongoing  operations  and
finance the discontinuance of the Outsourcing  Business.  The Company's cash and
cash  equivalents  at March 31, 1998 totaled  $11.0  million,  compared to $26.3
million at June 30, 1997. The Company had borrowings  outstanding under its line
of credit of $24.9 million at March 31, 1998 and no borrowings at June 30, 1997.
Borrowings  have increased due to the cash needs of the Company and the delay of
the annual stock sale.

CASH FROM OPERATIONS.  Cash outflows from operating activities were $7.9 million
for the nine  months  ended  March 31,  1998  compared  to cash  inflows of $7.6
million in the first nine months of the previous year.  The major  components of
the $15.5 million change are a reduction in the provision for doubtful  accounts
of $2.9 million in 1998 compared  with a $6.8 million  increase in the provision
for the same period in 1997. The change in the provision  reflects lower reserve
requirements  in 1998 than in 1997.  Income taxes  payments used $3.6 million in
cash in 1998  compared with $10.7 million in 1997 due to smaller tax payments in
1998  compared to 1997.  Accrued  retirement  benefits used $8.5 million more in
cash in 1998 primarily due to higher payments of non-qualified  benefits in 1998
compared with 1997.

Deferred  rent used $8.9 million more cash in 1998 than 1997 as amounts  accrued
in 1997 were partially paid in 1998.

The remaining  changes in uses or provision of cash between 1998 and 1997 net to
$4.9 million and are individually  portrayed on the  consolidated  statements of
cash flows.

CASH FROM INVESTING ACTIVITIES.  Investing activities required $4.0 million less
cash in 1998 than 1997 primarily due to lower software development costs through
the first nine months of 1998 compared to the same period in 1997.

                                      -9-
<PAGE>

Anticipated  commitments  of  funds  are  estimated  at  $11.3  million  for the
remainder of fiscal year 1998, primarily related to purchases of capital assets.

The Company's  existing  revolving credit line matures on January 5, 2001. As of
March 31, 1998,  $27.4  million  dollars of the credit line was available to the
Company as revolving  credit for operating  needs,  compared to $30.0 million on
March 31, 1997. The Company has a signed letter of commitment to renegotiate and
increase the  revolving  credit line to levels  sufficient to fund the Company's
working  capital  needs  including  the  Company's  exit  from  the  Outsourcing
Business.  Pending the  renegotiation of the Company's  existing line of credit,
certain bank covenants have been waived.

CASH FROM FINANCING  ACTIVITIES.  The $15.5 million difference in operating cash
was financed by $22.5  million in  additional  borrowings as the deferral of the
stock sale  eliminated  the normal cash  generation  which was $15.0  million in
1997. The Company also redeemed $5.0 million less stock in 1998 than in 1997 due
to changes in requests from retiring and terminating associates.

The Company's  ratio of current  assets to current  liabilities  was 1.2 at both
March 31, 1998 and June 30, 1997.


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

Amendment to Article 9 of the Restated Bylaws

On April 2, 1998 the shareholders voted to approve an amendment to the Company's
Bylaws.  This amendment  authorized  modifying the formula for  determining  the
price of the  Company's  Redeemable  Common Stock to eliminate the effect on the
share value of the  discontinuation  of the Outsourcing  Business.  The modified
formula,  which  is  called  "Modified  Formula  Book  Value,"  will  be used to
determine share price for stock  transactions  in periods  beginning on June 30,
1998.

                                      -10-
<PAGE>

The  amendment  was  approved  by the  affirmative  vote of more than 80% of the
Company's  outstanding  stock  (as  required  per  Section 9 of the  Bylaws)  as
follows:

    For:            15,552,357
    Against:           168,768
    Abstain:           154,962

In January 1998, the Company  deferred the annual sale of Common Stock until the
resolution of important issues of business  strategy and financial  investments.
The  Company  does not expect to conduct an annual  stock sale before the end of
Fiscal Year 1998.


ITEM 5. OTHER INFORMATION

The Company's Chief  Operating  Officer,  Mr. Paul R. Daoust,  has announced his
intention to retire from the Company after nearly  twenty-nine years of service,
effective June 30, 1998.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a.  Exhibits

    None

b.  Reports on Form 8-K

    The Company filed a Form 8-K with the SEC on April 21, 1998,  describing the
    discontinuation of the Company's Outsourcing  Business.  The filing included
    pro forma financial statements.

                                      -11-
<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.                                  May 6, 1998
-----------------------                               ------------
Name:      A. W. Smith, Jr.                           Date
Title:     President and Chief
           Executive Officer

/S/ Barbara L. Landes                                 May 6, 1998
---------------------                                 ------------
Name:      Barbara L. Landes                          Date
Title:     Vice President, Finance and
           Chief Financial Officer






                                     -12-