UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

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

For the fiscal year ended September 30, 2007

OR

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

Commission File Number 001-31351

HEWITT ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)

Delaware	47-0851756
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

100 Half Day Road; Lincolnshire, Illinois	60069
(Address of principal executive offices)	(Zip Code)

847-295-5000

(Telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each Class	Name of each exchange on which registered
Class A Common Stock - $0.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
Title of each Class	Name of each exchange on which registered
None	None

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  x

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate market value of the common stock of Hewitt Associates, Inc. outstanding shares estimated to be held by non-affiliates was $3,403,577,989 as of October 31, 2007, based on an October 31, 2007 closing price of $35.28. While it is difficult to determine the number of shares owned by affiliates (within the meaning of the term under the applicable regulations of the Securities and Exchange Commission), the registrant believes this estimate is reasonable.

Class	Outstanding as of October 31, 2007
Class A Common Stock - $0.01 par value	107,040,850

DOCUMENTS INCORPORATED BY REFERENCE

Certain specified portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference in response to Part III (Items 10 – 14) of this Annual Report to the extent described herein.

HEWITT ASSOCIATES, INC.

FORM 10-K

For The Fiscal Year Ended

September 30, 2007

INDEX

			PAGE
PART I.
	ITEM 1.	Business	3
	ITEM 1A.	Risk Factors	10
	ITEM 1B.	Unresolved Staff Comments	18
	ITEM 2.	Properties	18
	ITEM 3.	Legal Proceedings	18
	ITEM 4.	Submission of Matters to a Vote of Security Holders	18
PART II.
	ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	19
	ITEM 6.	Selected Financial Data	21
	ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
	ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	37
	ITEM 8.	Financial Statements and Supplementary Data	38
	ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
	ITEM 9A.	Controls and Procedures	38
	ITEM 9B.	Other Information	38
PART III.
	ITEM 10.	Directors, Executive Officers and Corporate Governance	38
	ITEM 11.	Executive Compensation	38
	ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
	ITEM 13.	Certain Relationships and Related Transactions and Director Independence	39
	ITEM 14.	Principal Accounting Fees and Services	39
PART IV.
	ITEM 15.	Exhibits, Financial Statement Schedules	39
		SIGNATURES	40
		INDEX TO EXHIBITS	87

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PART I

Disclosure Regarding Forward-Looking Statements

This report contains forward-looking statements relating to our operations that are based on our current expectations, estimates and projections. Words such as “anticipates”, “believes”, “continues”, “estimates”, “expects”, “goal”, “intends”, “may”, “opportunity”, “plans”, “potential”, “projects”, “forecasts”, “should”, “will”, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. Actual results may differ from the forward-looking statements for many reasons, including those discussed in Item 1A. “Risk Factors” appearing elsewhere in this Annual Report on Form 10-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or for any other reason.

Website Access to Company Reports and Other Information

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

We have adopted a Code of Conduct that applies to all employees as well as our Board of Directors; a Code of Ethics for Senior Executive Financial Officers that applies to our principal executive officer, principal financial and accounting officer and certain other senior employees; and corporate governance guidelines for our Board of Directors. The Code of Conduct, Code of Ethics and corporate governance guidelines, as well as the Charters for the three committees of our Board of Directors, the Audit Committee, the Compensation and Leadership Committee and the Nominating and Corporate Governance Committee, are posted on our website www.hewitt.com. We intend to post on our web site any amendments to or waivers of the Code of Ethics for Senior Executive Financial Officers. Copies of these documents will be provided free of charge upon written request directed to Investor Relations, Hewitt Associates, Inc. 100 Half Day Road, Lincolnshire, IL 60069.

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

Item 1. Business

Overview

Hewitt is a leading global provider of human resource benefits, outsourcing and consulting services, with more than 23,000 employees based in 33 countries. We help our clients generate greater value from their employees by helping them address challenges presented by their people, workforce performance, and human resources operations. We believe that few organizations provide either the breadth or depth of total human capital management services that we provide.

Our business has evolved from our founding in 1940 as a provider of actuarial services for sponsors of retirement plans and executive compensation consulting. Over the last six decades we have extended, expanded, and created new human resources services that anticipate our clients’ changing workforce-related business needs and that help them with solutions to their challenges. Today our three business segments, Benefits Outsourcing, Human Resource Business Process Outsourcing (HR BPO) and Consulting, help clients develop, implement, and deliver strategies and programs that ensure effective human resources business process design, administration, and technologies as well as help manage the complex human elements necessary to acquire, develop, motivate, and retain the talent required to meet business objectives.

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Clients benefit from the global human capital management strategies, programs, and process expertise we’ve developed over more than 65 years in this business. We employ this expertise in our Consulting segment to develop and implement human capital solutions within our clients’ environments, and in our Benefits Outsourcing and HR BPO segments to manage, streamline, automate, and administer part or all of our clients’ human resources programs, processes, and functions. Of our $2.9 billion of net revenues in 2007, approximately 50% was generated by our Benefits Outsourcing business, approximately 30% was generated by our Consulting segment, and approximately 20% was generated by our HR BPO segment. See Note 23 to the consolidated financial statements for additional information on Segments and Geographic Data.

A primary driver of our historical growth has been our deep, long-term client relationships. Our impressive client portfolio reflects our long-term success at providing quality services to exceptional companies, and serves as a catalyst for discussions with both prospective and existing clients about how we can deliver value in new or expanded ways. As a result, we believe that the quality of our relationships with more than 300 Benefits Outsourcing clients, 32 significant multi-service clients as well as a number of smaller single-service clients within HR BPO, and over 3,000 Consulting clients, many of which are Global 1000 companies, is a competitive advantage.

Hewitt Associates, Inc. was formed in 2002 in connection with the Company’s transition to a corporate structure and its related initial public offering. Hewitt Associates, Inc. is a Delaware corporation with no material assets other than its ownership interest in Hewitt Associates LLC, an Illinois limited liability company that serves as Hewitt’s operating entity in the U.S. and also holds ownership interests in the Company’s subsidiaries.

Benefits Outsourcing Segment

Our human resources outsourcing innovation and leadership accelerated in the late 1980’s when we developed our proprietary Total Benefit Administration™ (“TBA”) system to go beyond recordkeeping for clients’ flexible benefits and retirement programs. Our Benefits Outsourcing client base grew as our services expanded to include integrated, single-system administration with the flexibility of multiple access channels (call centers, interactive voice response, and the internet) for employees to execute transactions and manage their benefit programs for both primary types of retirement programs, defined contribution and defined benefit, as well as health and welfare programs.

We continue to extend and expand services to address clients’ benefits and broader human resources challenges through an integrated combination of standardized proprietary technologies and external technologies to meet both our clients’ needs and our requirements. This combination of technologies, coupled with our best practice processes and expertise provides economy of scale and balance of customization versus standardization to adapt to a broad range of program complexity and to accommodate the needs of clients ranging in size from less than 1,000 to over 500,000 employees.

Benefits Outsourcing is the largest part of our business in terms of revenues and profits and continues to be an important part of our growth strategy. We are re-centering Hewitt’s business to focus on improving our Benefit Outsourcing growth. Efforts to execute on this strategy have included hiring a new sales leader, increasing the sales force and investing in our product features and functions. As companies look for ways to control benefit costs while meeting employees’ expectations for enhanced benefit services, such as information and decision support tools, we help them by providing management tools to make decisions that improve quality and reduce the cost of their health care and retirement. We provide benefits administration services primarily to companies with more than 10,000 employees through contracts that average three to five years. Our annual client retention rate in this business exceeds 95%.

In September 2007, we acquired RealLife HR, which is focused on Health and Welfare administration services, particularly focused on generally smaller companies than those serviced on our current platform. We believe we are in a strong position to leverage our Consulting client base to rapidly grow in this market. Historically, this market has been underserved and we consider it to be an important part of our Benefits Outsourcing growth strategy.

In October 2006, we established an Enhanced Shared Services (ESS) division which focuses on providing standalone solutions that compliment our current core Benefits Outsourcing offers: Defined Benefits, Defined Contribution and Health and Welfare services.

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There are currently twelve standalone solutions in the portfolio - standalone connections; data, documents & disposition; advocacy; leave administration; your spending account administration, self-directed brokerage; personal finance center; form 5500 processing; financial statement preparation; benefit determination review team; qualified domestic relations order, and qualified child support orders. We expect this division to sell and deliver incremental standalone solutions to our existing base of Benefits Outsourcing and Consulting clients, sell stand alone offers to new prospects, and identify new product solutions. We believe this will allow us to grow the business and expand our overall client base. Growing our ESS division is another important part of achieving our growth strategy objective.

• Health and Welfare Plan Administration. Administering health and welfare benefit programs is an important and complex task for our clients who must manage both the rising cost of providing health insurance and employees’ demands for increased choice of health and welfare benefit options. Companies must provide employees with information explaining available health and welfare options, answering their questions regarding alternatives, and providing them with mechanisms for making their choices and managing their plans. In addition, ongoing health and welfare administration requires managing payroll deductions and eligibility status data for health plans and providers.

Through our TBA™ system, we manage clients’ annual enrollment processes, communicate to employees their available options, and support employee health and welfare decision-making. Whether through our web-based tools, automated voice response system, or call centers, employees can obtain information about available options and model health and welfare benefit costs under different assumptions. Additionally, our ProviderDirect tool helps employees select in-network medical providers by criteria such as specialty, location, and gender, and our Participant Advocacy service assists employees in resolving health plan eligibility, access, and claim issues. Your Spending Account™ health care spending account administration service gives employees a paperless way to pay their health care expenses, manage their health care spending accounts, and file claims for reimbursement.

For ongoing health and welfare plan administration, our Hewitt Associates Connections™ service connects with more than 230 insurance companies and other health plan providers in the United States, Canada, and Puerto Rico to facilitate data transfer, resolve quality issues, validate participant eligibility and pay premiums. Additionally, we offer automatic payment of employees’ portion of program costs, providing clients with efficiencies and helping to ensure that contributions to health plans for inactive employees and retirees are appropriately credited.

• Defined Contribution Plan Administration. Defined contribution administration requires management of participant, payroll, and investment fund data and transactions, daily transaction data transmissions between companies and their defined contribution plan trustees and asset managers and daily posting of investment results to individual defined contribution accounts.

Unlike many of our competitors who provide defined contribution outsourcing services in order to accumulate plan assets in their proprietary investment funds, we do not manage investments. Our focus is to provide reliable services to both the plan sponsor and to the employee, regardless of the funds clients choose to include in their plans or their employees’ investment elections. We also work with researchers at leading academic institutions to analyze the volumes of data we accumulate in order to identify trends in participant behavior to help our clients improve their strategies for addressing employees’ financial needs.

• Defined Benefit Plan Administration. Defined benefit or pension plans are subject to numerous laws and regulations that have historically made administration of these programs complex and paper-intensive, and have created risks of significant adverse consequences for inaccurate or improper plan administration.

We have re-engineered, streamlined, and automated defined benefit plan administration to make plan administration more consistent and accurate, so that employees can model their retirement options, initiate and process retirement transactions through our internet-based tools or through our automated voice response system. Through our call centers, we provide access to pension counselors who are knowledgeable about employees’ pension programs and options and who can explain how their pension plans work.

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HR BPO Segment

Since the early 2000’s, we have devoted considerable attention to our HR BPO capabilities, first through the establishment of the Workforce Management business group, then through the development and expansion of our payroll capabilities and technologies, continuing with the 2005 merger with Exult, Inc.

Companies engage us for HR BPO services for reasons similar to why they outsource Benefits Administration: to reduce costs and focus on core business while gaining expertise, innovation, and access to current technology and processes through the economies of scale created by using repeatable processes and standardized technologies. While companies generally have similar objectives for HR BPO, they often have different business strategies and objectives that cause them to approach the experience differently, with different priorities, different scopes and at different paces.

We provide web-based tools for self-management of the full range of human resources programs by employees, managers, and HR professionals. In addition, we employ call centers for those interactions and transactions that require personal assistance. We transmit and transfer data between the client and both their employees and outside parties, such as health plans, trustees, and investment managers. We also provide clients with web-based tools that enable them to report on and analyze the effectiveness of, and the return on investments in, benefits, compensation, and human resources programs, and to facilitate communication and project management with us.

Our comprehensive approach provides clients with secure, leading-practice solutions to manage employee data, administer benefits, payroll, and other human resources processes, and record and manage transactions across talent management, workforce management, and core process management.

Talent Management: Effectively acquiring, training and retaining a company’s most valuable asset, people, is challenging. We offer the following services to help our clients successfully build upon their most valuable asset:

• Recruiting services, including need identification, sourcing and attraction, screening, interviewing, and selection, offer management, reporting, and compliance.

• Learning and development services, including learning paths and certificates, course catalog administration, event scheduling and logistics, evaluation and assessments, accounting, and content development and sourcing.

• Performance management services, including planning and evaluation support, feedback collection, and individual profile maintenance.

• Succession planning services, including maintenance of succession trees, tracking and monitoring of high potential employees, and development of incumbent and candidate profiles.

Workforce Management: We provide a portfolio of services that allow clients to manage their workforce more effectively and cost efficiently. The portfolio includes the following services:

• Compensation administration, services including administration of salary, bonus, and stock options, administration of salary surveys, and total reward communications.

• Total rewards services, including strategy, design, implementation, and communication of benefits and compensation programs.

• Workforce administration services, including employee records management, life events, employment events, reduction in force, organization structure changes, and leave management.

• Domestic relocation services, including relocation initiation, policy briefing and administration, expense processing and accounting, and inventory management.

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• Leave management services, including leave initiation, leave tracking and management, and coordination with third parties for compliance with the Family and Medical Leave Act, and disability and personal leave policies.

• Global mobility services including assignment planning, candidate selection support, pre-departure planning and support, on-assignment support, and repatriation planning and support.

Core Process Management: Day to day transactional processes related to employee events requires solid procedures, knowledge of regulations and efficient systems. We help our clients in this regard by offering the following services:

• Payroll services, including time and attendance, on- and off-cycle pay, garnishments, and taxes and accounting.

• Benefits services, including program delivery and administration, recordkeeping and reconciliation, benefit accounting, invoice review and payment, and supplier sourcing and management for health and welfare, defined contribution, and defined benefit programs, as discussed earlier.

• Payments services, including accounts payable/receivable, travel and expense, fixed assets and general ledger, cash, and banking/treasury.

Consulting Segment

We developed our human resources expertise over more than 65 years of helping clients develop strategies and design human resources programs to solve the challenges of acquiring, managing, motivating, and retaining the pivotal talent needed to create and sustain a competitive advantage. Companies around the globe work with our consultants to develop and implement people-related business strategies and program designs for retirement and health care benefits, compensation and total rewards, performance management, and change management that will lower costs while increasing their ability to meet business objectives.

Today, the Consulting segment is organized around two lines of business: Benefits Consulting and Talent and Organization Consulting. In addition, our Consulting segment provides tailored communication services to enhance the success of client solutions in all of our service areas including Benefits Outsourcing and HR BPO.

Benefits Consulting. Benefits Consulting is comprised of Retirement and Financial Management Consulting and Health Care Consulting.

• Retirement and Financial Management Consulting. Virtually all large companies sponsor employee retirement plans—either defined benefit plans, defined contribution plans, or both—and many large companies also offer retiree medical and life insurance benefits. Sponsors of these plans must deal with the challenges of the costs and risks created by the volatility of financial markets, the increasing complexity of the regulatory and accounting standards governing retirement plans, and significant corporate events or changes such as workforce reductions, early retirement programs, mergers and acquisitions.

Our retirement and financial management consultants assist clients in three primary activities: (i) developing overall retirement program strategies and designs aligned with the needs of companies and their employees; (ii) providing actuarial analysis and financial strategies to support clients in their management of pension issues; and (iii) consulting on asset allocation, investment policies and investment manager evaluation. Our consultants work to understand their clients’ business and workforce strategies, define their retirement program philosophies and design programs that meet business objectives and comply with applicable governmental regulations.

Our actuarial consultants help clients meet the requirement for the quantification of a plan’s funded status, the annual cash contribution requirements, the expense impact under applicable accounting standards, and other benefit-related information required for a company’s annual financial statements. They also assist clients in due diligence investigations and analyses of proposed mergers, acquisitions, asset sales, and other corporate restructurings to help our clients understand the implications of such transactions on the liabilities and funded status of benefit plans, as well as on future cash contribution and expense trends.

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Actuarial relationships tend to be long-standing, ongoing engagements. As a result, actuarial services represent a significant portion of our Consulting business.

• Health Care Consulting. Increasing health care costs present a challenge for many companies at a time when employees expect broader and more cost-effective health care choices. Our health care consultants help employers manage these escalating costs and take advantage of the transformation of health and welfare benefits from a managed care to a consumer-driven program in which employees are provided with cost and quality information to help select health care choices and effectively manage their use of the health care system.

Our health care consultants help clients design comprehensive health and welfare strategies, from the initial philosophical approach to specific benefit plan changes that support our clients’ people-related business strategies. We assist our clients in the selection of health plans that balance cost and value and improve employee satisfaction. We also help clients determine which funding approaches (i.e., insured, self-insured or risk adjusted insured) and employee contribution strategies will best meet their objectives.

Our Benefits Consulting services are closely aligned with our Benefits Outsourcing services in order to offer employers total end-to-end solutions in the retirement and health care areas.

Talent and Organization Consulting. Companies around the world face increasing challenges in finding, managing, developing, engaging, and rewarding talented employees and leaders needed to meet their business objectives due to increased competition, demographic shifts creating a shortage of skilled talent, and many complex issues arising from managing workforces in a global and fast-moving marketplace. Talent and Organization consulting provides clients with strategy and design advice for meeting their people- and workforce-related business challenges in the following areas:

• Acquiring, managing and motivating talent needed to meet business objectives.

• Recommending effective and competitive compensation and performance management programs that align leaders and the broader workforce with business objectives.

• Resolving people-related issues that determine the success or failure of organizational changes and business restructuring, such as mergers, acquisitions, divestitures, initial public offerings, and joint ventures.

• Analyzing the activities and costs of the human resources function in order to improve efficiencies, reduce costs and enhance effectiveness of the function.

Our Talent and Organization Consulting services are also closely aligned with our HR BPO services in order to develop comprehensive solutions to help clients improve efficiency and transform their human resources processes. Our consultants provide change management services to implement recommended changes and enable this transformation.

Competition

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

• Benefits Outsourcing. The principal competitors in our Benefits Outsourcing segment are outsourcing divisions of large financial institutions such as CitiStreet, Fidelity Investments, Merrill Lynch, T. Rowe Price and JP Morgan Chase, in addition to consulting firms or technology outsourcing and consulting firms such as Mercer, Affiliated Computer Services, EDS/ExcellerateHRO, Watson Wyatt Worldwide, and Aon.

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• HR BPO. The principal competitors in our HR BPO segment are technology consultants and integrators such as Accenture, Affiliated Computer Services, EDS/ExcellerateHRO and IBM and; companies that have extended their services into human resources outsourcing such as Automatic Data Processing and Convergys.

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

We believe the principal competitive advantage strengthening our Benefits Outsourcing, HR BPO and Consulting businesses is our ability to create total human resources solutions for clients by demonstrating the depth and value of our experience and expertise in the full range of integrated strategy, design, administration, communication and delivery of human resources services. Also important are our deep, long-term client relationships, our technology infrastructure, including underlying proprietary platforms that give us the flexibility to either take over our clients’ existing processes and systems or to transition clients directly to our proprietary technologies and processes, our ability to add value in a cost-effective manner, our employees’ technical and industry expertise, and our professional reputation.

Seasonality and Inflation

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

Technology Innovation

We believe that our technological capabilities are an essential component of our strategy to grow our Benefits Outsourcing and HR BPO businesses and create new service offerings. Our strategy is to develop proprietary, custom solutions through open industry standards when we believe we can develop a better solution than is available in the market, and to integrate existing best-in-class systems when we believe these solutions best meet our clients’ needs. Expenditures relating to the acquisition and internal development of software totaled approximately $72 million and $96 million in fiscal years 2007 and 2006, respectively.

We develop systems that are adaptable across multiple delivery channels (internet, automated voice response and call center). It was this technology strategy that led us to innovations such as Total Benefit Administration™, the first system for administering all three primary benefits programs through a single, integrated database and that enabled real-time interactions over multiple customer channels, including interactive voice response, call centers and internet websites. Examples of other technology-based tools and service enhancements include:

• myHR®, a comprehensive human resources portal presenting policies, resources and data personalized by role and by each individual’s eligibility and participation in applicable compensation, benefits and other human resources programs.

• AccessDirect™, a personalized navigation system for the web or telephone that connects employees to benefits providers.

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

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

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

Intellectual Property

Our success has resulted, in part, from our proprietary methodologies, tools, processes, databases and other intellectual property. We recognize the value of intellectual property in the marketplace and vigorously create, harvest and protect our intellectual property.

To protect our proprietary rights, we rely primarily on a combination of copyright, trade secret and trademark laws, confidentiality agreements with employees and third parties and protective contractual provisions such as those contained in licenses and other agreements with consultants, suppliers, strategic partners and clients.

We hold no patents and our licenses are ordinary course licenses of software and data. We also have a number of trademarks.

Contracts and Insurance

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

Employees

As of September 30, 2007, we had approximately 23,000 employees serving our clients through 93 offices in 33 countries, excluding joint ventures and minority investments.

Item 1A. Risk Factors

The outsourcing and consulting markets are highly competitive, and if we are not able to compete effectively our revenues and profit margins will be adversely affected.

The outsourcing and consulting markets in which we operate include a large number of service providers and are highly competitive. Many of our competitors are expanding the services they offer in an attempt to gain additional business. Additionally, some competitors have established and are likely to continue to establish cooperative relationships among themselves or with third parties to increase their ability to address client needs. Some of our competitors have greater financial, technical and marketing resources, larger customer bases, greater name recognition, stronger international presence and more established relationships with their customers and suppliers than we have. Additional competitors have entered some of the marketplaces in which we compete. In addition, new competitors or alliances among competitors could emerge and gain significant market share and some of our competitors may have or may develop a lower cost structure, adopt more aggressive pricing policies or provide services that gain greater market acceptance than the services that we offer or develop. Large and well capitalized competitors may be able to respond to the need for technological changes faster, price their services more aggressively, compete for skilled professionals, finance acquisitions, fund internal growth and compete for market share more effectively than we do. In order to respond to increased competition and pricing pressure, we may have to lower our prices, which would have an adverse effect on our revenues and profit margin.

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A significant or prolonged economic downturn could have a material adverse effect on our revenues and profit margin.

Our results of operations are affected directly by the level of business activity of our clients, which in turn are affected by the level of economic activity in the industries and markets that they serve. Economic slowdowns in some markets, particularly in the United States, may cause reductions in technology and discretionary spending by our clients, which may result in reductions in the growth of new business as well as reductions in existing business. If our clients enter bankruptcy or liquidate their operations, our revenues could be adversely affected. Our revenues under many of our Outsourcing contracts depend upon the number of our clients’ employees or the number of participants in our clients’ employee benefit plans and could be adversely affected by layoffs. We may also experience decreased demand for our services as a result of postponed or terminated outsourcing of human resources functions or reductions in the size of our clients’ workforce. Reduced demand for our services could increase price competition.

The profitability of our engagements with clients may not meet our expectations due to unexpected costs, cost overruns, early contract terminations, unrealized assumptions used in our contract bidding process and the inability to maintain our prices.

Our profitability is a function of our ability to control our costs and improve our efficiency. As we adapt to change in our business, enter into new engagements, acquire additional businesses, and take on new employees in new locations, we may not be able to manage our large, diverse and changing workforce, control our costs or improve our efficiency.

Most new outsourcing arrangements undergo an implementation process whereby our systems and processes are customized to match a client’s plans and programs. The cost of this process is estimated by us and often partially funded by our clients. If our actual implementation expense exceeds our estimate or if the ongoing service cost is greater than anticipated, the client contract may be less profitable than expected.

Even though outsourcing clients typically sign long-term contracts, these contracts may be terminated at any time, with or without cause, by our client upon 90 to 180 days written notice. Our outsourcing clients are required to pay a termination fee; however, this amount may not be sufficient to fully compensate us for the profit we would have received if the contract had not been cancelled. Consulting contracts are typically on an engagement-by-engagement basis versus a long-term contract. A client may choose to delay or terminate a current or anticipated project as a result of factors unrelated to our work product or progress, such as the business or financial condition of the client or general economic conditions. When any of our engagements are terminated, we may not be able to eliminate associated costs or redeploy the affected employees in a timely manner to minimize the impact on profitability. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements, including delays caused by factors outside our control, could have an adverse effect on our profit margin.

Our profit margin, and therefore our profitability, is largely a function of the rates we are able to charge for our services and the staffing costs for our personnel. Accordingly, if we are not able to maintain the rates we charge for our services or appropriate staffing costs of our personnel, we will not be able to sustain our profit margin and our profitability will suffer. The prices we are able to charge for our services are affected by a number of factors, including competitive factors, cost of living adjustment provisions (COLA’s), the extent of ongoing clients’ perception of our ability to add value through our services and general economic conditions. Our profitability in providing HR BPO services is largely based on our ability to drive cost efficiencies during the term of our contracts for such services. If we cannot drive suitable cost efficiencies, our profit margins will suffer.

We might not be able to achieve the cost savings required to sustain and increase our profit margins.

Our outsourcing business model inherently places ongoing pressure on our profit margins. We provide our outsourcing services over long terms for variable or fixed fees that generally are less than our clients’ historical costs to provide for themselves the services we contract to deliver. Also, clients’ demand for cost reductions may increase over the term of the agreement. As a result, we bear the risk of increases in the cost of delivering HR BPO services to our clients, and our margins associated with particular contracts will depend on our ability to control our costs of performance under those contracts and meet our service commitments cost-effectively.

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Over time, some of our operating expenses will increase as we invest in additional infrastructure and implement new technologies to maintain our competitive position and meet our client service commitments. We must anticipate and respond to the dynamics of our industry and business by using quality systems, process management, improved asset utilization and effective supplier management tools. We must do this while continuing to grow our business so that our fixed costs are spread over an increasing revenue base. If we are not effective at this, our ability to sustain and increase profitability will be jeopardized.

Our accounting for our long-term contracts requires using estimates and projections that may change over time. Such changes may have a significant or adverse effect on our reported results of operations or consolidated balance sheet.

Projecting contract profitability on our long-term outsourcing contracts requires us to make assumptions and estimates of future contract results. All estimates are inherently uncertain and subject to change. In an effort to maintain appropriate estimates, we review each of our long-term outsourcing contracts, the related contract reserves and intangible assets on a regular basis. If we determine that we need to change our estimates for a contract, we will change the estimates in the period in which the determination is made. These assumptions and estimates involve the exercise of judgment and discretion, which may also evolve over time in light of operational experience, regulatory direction, developments in accounting principles, and other factors. In particular, HR BPO is a relatively immature industry and we have limited experience in estimating implementation and ongoing costs compared to our more mature Benefits Outsourcing business. Further, initially foreseen effects could change over time as a result of changes in assumptions, estimates or developments in the business or the application of accounting principles related to long-term outsourcing contracts. Application of, and changes in, assumptions, estimates and policies may adversely affect our financial results.

The loss of a significantly large client or several clients could have a material adverse effect on our revenues and profitability.

Although no one client comprised more than ten percent of our net revenues in any of the three years ended September 30, 2007, the loss of a significantly large client or several clients could adversely impact our revenues and profitability. Our largest clients employ us for Benefits Outsourcing and HR BPO services. As a result, given the amount of time needed to implement new outsourcing clients, there is no assurance that we would be able to promptly replace the revenues or income lost if a significantly large client or several clients terminated our services or decided not to renew their contracts with us.

We may have difficulty integrating or managing acquired businesses, which may harm our financial results or reputation in the marketplace.

Our expansion and growth may be dependent in part on our ability to make acquisitions. The risks we face related to acquisitions include that we could overpay for acquired businesses, face integration challenges, have difficulty finding appropriate acquisition candidates, and any acquired business could significantly under-perform relative to our expectations. If acquisitions are not successfully integrated, our revenues and profitability could be adversely affected as well as adversely impact our reputation.

We may pursue additional acquisitions in the future, which may subject us to a number of risks, including;

• diversion of management attention;

• inability to retain key personnel, other employees and clients of the acquired business;

• potential dilutive effect on our earnings;

• inability to establish uniform standards, controls, procedures and policies;

• entry into new markets or service areas;

• exposure to legal claims for activities of the acquired business prior to acquisition; and

• inability to effectively integrate the acquired company and its employees.

Any excess of the purchase price paid by Hewitt in an acquisition over the fair value of the net tangible and identifiable intangible assets acquired will be accounted for as goodwill. Hewitt is not required to amortize goodwill against income but goodwill will be subject to periodic reviews for impairment. Refer to Critical Accounting Policies and Estimates in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. If an impairment charge is required in the future, the charge would negatively impact reported earnings in the period of the charge.

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Our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in government regulations or if government regulations decrease the need for our services or increase our costs.

The areas in which we provide outsourcing and consulting services are the subject of government regulation which is constantly evolving. Changes in government regulations in the United States, our principal geographic market, affecting the value, use or delivery of benefits and human resources programs, including changes in regulations relating to health and welfare (such as medical) plans, defined contribution (such as 401(k)) plans, defined benefit (such as pension) plans or payroll delivery, may adversely affect the demand for or profitability of our services. In addition, our growth strategy includes a number of global expansion objectives which further subject us to applicable laws and regulations of countries outside the United States. If we are unable to adapt our services to applicable laws and regulations, our ability to grow our business or to provide effective outsourcing and consulting services in these areas will be negatively impacted. Recently, we have seen regulatory initiatives in both the United States and certain European countries result in companies either discontinuing their defined benefit programs or de-emphasizing the importance such programs play in the overall mix of their benefit programs with a trend toward increased use of defined contribution plans. If organizations shift to defined contribution plans more rapidly than we anticipate, our results of operation of our business could be adversely affected.

If we are unable to satisfy regulatory requirements relating to internal controls over financial reporting, our business could suffer.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, both our reputation in the marketplace and our financial results could suffer. We have spent considerable resources reviewing and implementing improvements to our internal controls. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could harm our operating results or cause us to fail to meet our reporting obligations. Inadequate internal controls could also cause our clients or our investors to lose confidence in our services delivery or reported financial information, which could have a negative effect on the trading price of our common stock.

Our business performance and growth plans will be negatively affected if we are not able to effectively apply technology in driving value for our clients through technology-based solutions or gain internal efficiencies through the effective application of technology and related tools.

Our future success depends, in part, on our ability to develop and implement technology solutions that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely and cost-effective basis, and our ideas may not be accepted in the marketplace. Additionally, the effort to gain technological expertise and develop new technologies in our business requires us to incur significant expenses. If we cannot offer new technologies as quickly as our competitors or if our competitors develop more cost-effective technologies, it could have a material adverse effect on our ability to obtain and complete client engagements.

Our business is also dependent, in part, upon continued growth in the use of technology in business by our clients and prospective clients and their employees and our ability to deliver the efficiencies and convenience afforded by technology. If growth in the use of technology does not continue, demand for our services may decrease. Use of new technology for commerce generally requires understanding and acceptance of a new way of conducting business and exchanging information. Companies that have already invested substantial resources in traditional means of conducting commerce and exchanging information may be particularly reluctant or slow to adopt a new approach that would not utilize their existing personnel and infrastructure.

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

We depend, to a large extent, on our relationships with our clients and our reputation for high-quality outsourcing and consulting services. As a result, if a client is not satisfied with our services, it may be more damaging in our business than in other businesses. Moreover, if we fail to meet our contractual obligations, we could be subject to legal liability or loss of client relationships. The nature of our work, especially our actuarial services, involves assumptions and estimates concerning future events, the actual outcome of which we cannot know with certainty in advance. In addition, we could make computational, software programming or data management errors. Further, a client may claim it suffered losses due to reliance on our consulting advice. Defending lawsuits arising out of any of our services could require substantial amounts of management attention, which could adversely affect our financial performance. Our exposure to liability on a particular engagement may be greater than the profit opportunity of the engagement. In addition to client liability, governmental authorities may impose penalties with respect to our errors or omissions and may preclude us from doing business in relevant jurisdictions. In addition to the risks of liability exposure and increased costs of defense and insurance premiums, claims arising from our professional services may produce publicity that could hurt our reputation and business.

Improper disclosure of personal data could result in liability and harm our reputation.

One of our significant responsibilities is to maintain the security and privacy of our clients’ confidential and proprietary information and the personal data of their employees and plan participants. We have established several policies and procedures to help protect the security and privacy of this information. Although we continue to review and improve our policies and procedures, it is possible that our security controls over personal data, our training of employees and vendors on data security, and other practices we follow may not prevent the improper access to or disclosure of personally identifiable information. Such disclosure could harm our reputation and subject us to liability under our contracts and laws that protect personal data, resulting in increased costs or loss of revenue. Further, data privacy is subject to frequently changing rules and regulations, which sometimes conflict among the various jurisdictions and countries in which we provide services. Our failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to our reputation in the marketplace.

We depend on our employees; the inability to attract new talent or the loss of key employees could damage or result in the loss of client relationships and adversely affect our business.

Our success and ability to grow are dependent, in part, on our ability to hire and retain large numbers of talented people. In particular, our employees’ personal relationships with our clients are an important element of obtaining and maintaining client engagements. The inability to attract qualified employees in sufficient numbers to meet demand or losing employees who manage substantial client relationships or possess substantial experience or expertise could adversely affect our ability to secure and complete engagements, which would adversely affect our results of operations.

Since our initial public offering, we have made, and anticipate making in the future, equity-based awards to many of our employees to serve, in part, as an incentive to remain employed with the Company. Our ability to provide equity-based incentives in the future is dependent, in part, on obtaining approval of our shareholders of any new equity-based incentive plans. Should we not obtain such approval and be unable to provide equity-based awards, our ability to continue to attract new talent and retain new employees will likely be adversely affected. In addition, should we obtain continued approval and issue equity-based awards, the incentives provided by these awards may not be effective in attracting new talent or causing then-current employees to stay with our organization.

Our global operations and expansion strategy pose complex management, foreign currency, legal, tax and economic risks, which we may not adequately address.

As of September 30, 2007, we had a total of 93 offices in 33 countries and 5 additional offices in 3 additional countries through joint ventures and minority investments. In fiscal 2007, approximately 76% of our total revenues were attributable to activities in the United States and approximately 24% of our revenues were attributable to our activities in Europe, Canada, the Asia-Pacific region

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and Latin America. Our ability to provide services from global locations having lower cost structures than the United States and continued penetration of markets beyond the United States are important components of the our growth strategy. A number of risks may inhibit our international operations and global sourcing efforts, preventing us from realizing our global expansion objectives, including:

• insufficient demand for our services in foreign jurisdictions, which may be due to applicable laws and regulations or benefit practices in such jurisdictions;

• ability to execute effective and efficient cross-border sourcing of services on behalf of our clients;

• the burdens of complying with a wide variety of foreign laws and regulations, and U.S. laws, regulating operations outside the U.S., including but not limited to regulations regarding the flow and transfer of data and other information between countries;

• multiple and possibly overlapping and conflicting tax laws;

• restrictions on the movement of cash;

• political instability and international terrorism;

• currency fluctuations;

• longer payment cycles;

• restrictions on the import and export of technologies;

• price controls or restrictions on exchange of foreign currencies; and

• trade barriers.

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

We continue to devote significant attention to our HR BPO services offering. The market for HR BPO services continues to develop, and we continue to modify our service offering to meet market need and provide the quality of services our clients expect of us at acceptable margins. Our offering may not be well received by our clients, or the demand for human resources business process outsourcing may not grow as rapidly as we anticipate, which could have an adverse impact on our revenues and profit margins.

In addition, the growth for certain Benefits Outsourcing services has slowed, particularly in the large plan market (over 20,000 participants). Most companies have already outsourced their defined contribution plans, many companies have frozen their defined benefit plans and few new defined benefit plans are being adopted. Some larger companies that have not previously outsourced some of their benefit programs may wish to continue to administer such programs themselves rather than outsource a larger portion of their human resources function. If a greater percentage of such organizations than we anticipate determine not to outsource such programs, it could also have an adverse impact on our revenues and profit margins.

If we fail to establish and maintain alliances for developing, marketing and delivering our services, our ability to increase our revenues and profitability may suffer.

Our growth depends, in part, on our ability to develop and maintain alliances with businesses such as brokerage firms, financial services companies, health care organizations, insurance companies, other business process outsourcing organizations and other companies in order to develop, market and deliver our services. If our strategic alliances are discontinued or we have difficulty developing new alliances, our ability to increase or maintain our client base may be substantially diminished.

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

As part of providing services to clients, we rely on a number of third-party service providers. These providers include, but are not limited to, plan trustees and payroll service providers responsible for transferring funds to employees or on behalf of employees, and providers of data and information, such as software vendors, health plan providers, investment managers and investment advisers, that we work with to provide information to clients’ employees. Those providers also include providers of human resource functions such as recruiters and trainers employed by us in connection with our human resources business processing services delivered to our clients. Failure of third party service providers to perform in a timely manner could result in contractual or regulatory penalties, liability claims from clients and/or employees, damage to our reputation and harm to our business.

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

Our future success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property. Existing laws of some countries in which we provide or intend to provide services or products may offer only limited protection of our intellectual property rights. We rely upon a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements and copyright and trademark laws to protect our intellectual property rights. The steps we take in this regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights. Protecting our intellectual property rights may also consume significant management time and resources.

We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or against our clients. These claims may harm our reputation, result in financial liabilities and prevent us from offering some services or products. We have generally agreed in our outsourcing contracts to indemnify our clients for any expenses or liabilities resulting from claimed infringements of the intellectual property rights of third parties. In some instances, the amount of these indemnities may be greater than the revenues we receive from the client. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, injure our reputation or require us to enter into royalty or licensing arrangements. We may not be able to enter into these royalty or licensing arrangements on acceptable terms. Any limitation on our ability to provide a service or product could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future projects.

We rely heavily on our computing and communications infrastructure and the integrity of these systems in the delivery of services for our clients, and our operational performance and revenue growth depends, in part, on the reliability and functionality of this infrastructure as a means of delivering human resources services.

The internet is a key mechanism for delivering our services to our clients efficiently and cost effectively. Our clients may not be receptive to human resource services delivered over the internet due to concerns regarding transaction security, user privacy, the reliability and quality of internet service and other reasons. Our clients’ concerns may be heightened by the fact we use the internet to transmit extremely confidential information about our clients and their employees, such as compensation, medical information and other personally identifiable information. In addition, the internet has experienced, and is expected to continue to experience, significant growth in the number of users and volume of traffic. As a result, its performance and reliability may decline. In order to maintain the level of security, service and reliability that our clients require, we may be required to make significant investments in our on-line means of delivering human resources services. In addition, websites and proprietary on-line services have experienced service interruptions and other delays occurring throughout their infrastructure. If these outages or delays occur frequently in the future, internet usage as a medium of exchange of information could grow more slowly or decline and the internet might not adequately support our web-based tools. The adoption of additional laws or regulations with respect to the internet may impede the efficiency of the internet as a medium of exchange of information and decrease the demand for our services. If we cannot use the internet effectively to deliver our services, our revenue growth and results of operation may be impaired.

We may lose client data as a result of major catastrophes and other similar problems that may materially adversely impact our operations. We have multiple processing centers around the globe which use various commercial methods for disaster recovery capabilities. Our main data processing center, located in Lincolnshire, Illinois is in a dual (separate) data center configuration to provide back-up capabilities. In the event of a disaster, we have developed business continuity plans; however, they may not be sufficient, and the data recovered may not be sufficient for the administration of our clients’ human resources programs and processes.

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Our quarterly revenues, operating results and profitability will vary from quarter to quarter, which may result in volatility of our stock price.

Our quarterly revenues, operating results and profitability have varied in the past and are likely to vary significantly from quarter to quarter. This may lead to volatility in our stock price. The factors that are likely to cause these variations are:

• the rate at which we obtain new outsourcing engagements since our outsourcing engagements often require substantial implementation costs that are recovered over the term of the engagements;

• seasonality of certain services, including annual benefit enrollment processes;

• timing of consulting projects and their termination;

• timing of commencement of new outsourcing engagements;

• changes in estimates of profitability of outsourcing engagements;

• the introduction of new products or services by us or our competitors;

• pricing pressure on new client services and renewals;

• the timing, success and costs of sales, marketing and product development programs;

• the success of strategic acquisitions, alliances or investments;

• changes in estimates, accruals and payments of variable compensation to our employees; and

• general economic factors.

In addition, our operating results in future periods may be below the expectations of securities analysts and investors which may materially adversely affect the market price of our Class A common stock.

There are significant limitations on the ability of any person or company to buy Hewitt without the approval of the Board of Directors, which may decrease the price of our Class A common stock.

Our amended and restated certificate of incorporation and by-laws contain provisions that may make the acquisition of Hewitt more difficult without the approval of our Board of Directors, including the following:

• our Board of Directors is classified into three classes, each of which serves for a staggered three-year term;

• a Director may be removed by our stockholders only for cause and then only by the affirmative vote of two-thirds of the outstanding stock entitled to vote generally in the election of Directors;

• only the Board of Directors or the Chairman of the Board may call special meetings of our stockholders;

• our stockholders may take action only at a meeting of the stockholders and not by written consent;

• our stockholders must comply with advance notice procedures in order to nominate candidates for election to the Board of Directors or to place stockholders’ proposals on the agenda for consideration at meetings of the stockholders;

• the Board of Directors may consider the impact of any proposed change of control transaction on constituencies other than the stockholders in determining what is in the best interest of Hewitt;

• business combinations involving one or more persons that own or intend to own at least 15% of the voting stock must be approved by the affirmative vote of holders of at least 75% of the voting stock, unless the consideration paid in the business combination is generally the highest price paid by these persons to acquire the voting stock or a majority of the directors unaffiliated with these persons who were directors prior to the time these persons acquired their shares approve the transaction; and

• the stockholders may amend or repeal the provisions of the certificate of incorporation and the by-laws regarding change of control transactions and business combinations only by a vote of holders of two-thirds of the outstanding common stock at that time.

Section 203 of the Delaware General Corporation Law may delay, defer or prevent a change in control that our stockholders might consider to be in their best interest.

We are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits certain “business combinations” between a Delaware corporation and an “interested stockholder” (generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock) for a three-year period following the date that such stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that the stockholders might consider to be in their best interest.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located in Lincolnshire, Illinois with a mailing address of 100 Half Day Road, Lincolnshire, Illinois 60069. Our Lincolnshire complex comprises 11 buildings on two campuses and approximately 2.2 million square feet. As of September 30, 2007, we had a total of 93 offices in 33 countries and 5 additional offices in 3 additional countries through joint ventures and minority investments. We do not own any significant real property, but lease office space, typically, under long-term leases. We believe that our existing facilities are adequate for our current needs.

Item 3. Legal Proceedings

The Company is involved in disputes arising in the ordinary course of its business relating to outsourcing or consulting agreements, professional liability claims, vendors or service providers or employment claims. We are also routinely audited and subject to inquiries by governmental and regulatory agencies. The Company evaluates estimated losses under SFAS 5, Accounting for Contingencies. Management considers such factors as the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss and records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can reasonably be estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded.

The Company is in active discussions with a number of HR BPO clients to renegotiate the terms of their contracts. Through September 30, 2007, the Company has recorded a $15 million contingent liability related to an ongoing dispute with one of these clients.

The Company does not believe that any unresolved disputes will have a material adverse effect on its financial condition or results of operation. However, litigation in general and the outcome of any matter in particular cannot be predicted with certainty. An unfavorable resolution of one or more pending matters could have a material adverse impact on the Company’s results of operations for one or more reporting periods.

On May 8, 2007, the House Committee on Oversight and Government Reform chaired by Henry A. Waxman issued letters to the Company and five other executive compensation consulting firms requesting that they identify all Fortune 250 companies for which they provided both executive compensation consulting services and other services during the past five years and disclose annual revenue for each of those two categories for the year 2002 through 2006. The Company has been responding to the requests and continues to cooperate with the Committee.

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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2007.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Market Information

Our Class A common stock is traded on the New York Stock Exchange (NYSE) under the symbol “HEW”. The following table sets forth the range of high and low sales price for each quarter for the last two fiscal years.

	Fiscal 2006
	High		Low
1st Quarter	$	28.15	$	24.50
2nd Quarter	$	29.75	$	24.76
3rd Quarter	$	30.23	$	20.60
4th Quarter	$	24.30	$	19.01
	Fiscal 2007
	High		Low
1st Quarter	$	26.03	$	23.54
2nd Quarter	$	30.77	$	25.40
3rd Quarter	$	32.20	$	28.42
4th Quarter	$	35.05	$	29.40

Holders of Record

As of October 31, 2007, there were 806 stockholders of record of our Class A common stock as furnished by our Stock Transfer Agent and Registrar, Computershare. Several brokerage firms, banks and other institutions (“nominees”) are listed once on the stockholders of record listing. However, in most cases, the nominees’ holdings represent blocks of our stock held in brokerage accounts for a number of individual stockholders. As such, our actual number of stockholders is difficult to estimate with precision, but would be higher than the number of registered stockholders of record.

Dividend Policy

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

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Share Repurchases

The following table provides information about Hewitt’s share repurchase activity for the three months ended September 30, 2007:

Period	Total Number of Shares Purchased	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2)
July 1 - 31, 2007 (1)
Class A	1,296,025	$	31.08	1,118,600	$	589,021,475
August 1 - 31, 2007 (1)
Class A	648,283	$	30.20	639,000	$	569,746,492
September 1, – 30, 2007 (1) (3)
Class A	254,464	$	34.90	95,680	$	566,429,687
Total Shares Purchased:
Class A	2,198,772	$	31.26	1,853,280	$	566,429,687

(1) The shares purchased relate to the Company’s share repurchase program and also shares employees have elected to have withheld to cover their minimum withholding requirements for personal taxes related to the vesting of restricted stock or restricted stock units. The average price paid per share for July 1, 2007 through September 30, 2007 represents a weighted average of the closing stock prices on the dates the shares were repurchased or withheld.

(2) During the second quarter of fiscal year 2007, the board of directors authorized the Company to repurchase up to $750 million of its outstanding common shares through January 31, 2009.

(3) On August 8, 2007 the Company announced an offer to purchase up to 15,625,000 shares of its outstanding Class A common stock by means of a tender offer at a purchase price not greater than $32.00 nor less than $28.75 per share. The tender offer, which was originally due to expire on September 5, 2007, was extended until September 12, 2007. The Company purchased 5,480 Class A shares pursuant to that offer.

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Item 6. Selected Financial Data

The selected financial data should be read in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere herein.

	2007 (1)			2006 (2)			2005 (3)		2004		2003 (4)
	(In millions except per share amounts)
Fiscal Year ended September 30:
Total revenues	$	2,990		$	2,857		$	2,890	$	2,257	$	2,030
Operating (loss) income		(143	)		(64	)		234		223		178
Net (loss) income		(175	)		(116	)		135		123		94
(Loss) income per share
Basic	$	(1.62	)	$	(1.08	)	$	1.21	$	1.28	$	0.99
Diluted	$	(1.62	)	$	(1.08	)	$	1.19	$	1.25	$	0.97
As of September 30:
Cash and cash equivalents and short-term investments	$	595		$	449		$	218	$	313	$	228
Working capital		535			429			300		425		284
Total assets		2,756			2,768			2,657		1,808		1,604
Long-term portion of debt and capital lease obligations		233			255			287		201		219
Stockholders’ equity		1,038			1,256			1,311		859		690

(1) In fiscal 2007 we recorded non-cash charges of $329 million related to impairment of goodwill, intangible assets, and contract loss provisions; a pre-tax severance charge of $32 million resulting from ongoing productivity initiatives across the business; a pre-tax charge of $29 million related to the review of our real estate portfolio; a pre-tax charge of $15 million related to the anticipated restructuring of an HR BPO contract; and a pre-tax charge of $5 million resulting from the second-quarter resolution of a legal dispute with a vendor.

(2) In fiscal 2006 we recorded non-cash charges of $264 million related to our HR BPO business.

(3) On October 1, 2004, we completed a merger with Exult, Inc. and its results are included in our results from that date.

(4) On June 5, 2003, we acquired Cyborg Worldwide, Inc., and on June 15, 2003, we acquired substantially all of the assets of Northern Trust Retirement Consulting LLC. Their results are included in our results from the respective acquisition dates.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with our consolidated financial statements and related notes, included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis may contain forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from management’s expectations. Please see additional risks and uncertainties described above, in “Disclosure Regarding Forward-Looking Statements” which appears in Part 1 and in Item 1A.”Risk Factors” which appears elsewhere in this Annual Report.

We use the terms “Hewitt”, “the Company”, “we”, “us”, and “our” to refer to the business of Hewitt Associates, Inc. and its subsidiaries. All references to years, unless otherwise noted, refer to our fiscal years, which end on September 30. For example, a reference to “2007”or “fiscal 2007” means the twelve-month period that ends September 30, 2007. References to and adjustments for “foreign currency translation” are made within our discussion of results so that the financial results can be viewed without the impact of fluctuating foreign currency exchange rates used in reporting results in one currency (U.S. Dollar) and helps facilitate a comparative view of business results. Financial results described within this section, except for share and per share information, are

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stated in thousands of U.S. Dollars unless otherwise noted. Certain prior-period amounts have been reclassified to conform to the current-year presentation.

Overview

Fiscal 2007 was a year of transition. During the year, we began to focus on re-centering the business in order to capitalize on the growth and margin opportunities that exist in our more established Benefits Outsourcing and Consulting businesses. We also introduced four key strategic priorities that will help us achieve our objectives. These priorities have been identified as fundamental to our future success and ongoing health of our business. Following is a brief discussion of these four priorities and the progress made during the year against these priorities.

• Keep Clients First. Our intense focus on the needs of our clients has earned us the strong reputation that we enjoy in the marketplace, and will be key to our future growth and success. This includes understanding what creates the most value for our clients and also meeting the expectations of our clients. Reinvesting in quality by re-engineering our processes, improving our product service delivery and increasing our resourcing levels in some key areas will be underlying themes in our go-forward strategies. In addition, our recently created Client and Market Leadership organization is dedicated to ensuring that we remain focused on driving the right solutions for our clients across the full array of our service offerings.

• Create a Rewarding Work Experience. Engaged employees are critical to our success. We are focused on revitalizing our culture and creating a rewarding work environment for our associates around the world. During the year we appointed a new Senior Vice President of Human Resources, who has begun to partner with our other senior leaders to create a truly high-performance organization.

• Grow With Intention. We believe Benefits Outsourcing and Consulting hold opportunities for growth for the foreseeable future. We continue to pursue new growth strategies, particularly in leveraging our Benefits Outsourcing and Consulting businesses as we focus on re-centering the business. Additionally, increased discipline is being exercised in allocating the use of our capital when evaluating these growth opportunities. We are also seeking to evolve and expand our offers by organic growth and through acquisitions. In keeping with this priority, we announced during the fiscal fourth quarter the acquisition of RealLife HR. RealLife HR oversees health and welfare benefits for 35 companies, each of which has fewer than 15,000 employees and retirees. We believe the middle market represents a large growth opportunity for us and through this acquisition we will be more able to more effectively serve middle market companies.

• Get Lean. Our objectives are to reshape our operating model to improve efficiency and create the fuel to invest in our future growth. Maintaining aggressive focus on our cost structure will continue to be a top priority. During the year we implemented several productivity initiatives across our business. In conjunction with an ongoing review of our real estate portfolio, we also announced in the third quarter our intention to consolidate facilities, and in some cases, exit certain properties. We recorded a pre-tax charge of $29 million in the fourth quarter related to this real estate restructuring.

There were a number of specific items that negatively impacted results in fiscal 2007, including:

• Non-cash pre-tax charges of $329 million related to impairment of goodwill, intangible assets and contract loss provisions;

• A pre-tax severance charge of $32 million resulting from ongoing productivity initiatives across the business;

• A pre-tax charge of $29 million related to the review of our real estate portfolio including $18 million of expenses for recognition of the fair value of lease vacancy obligations and lease termination charges related to exit of certain locations and $11 million for related acceleration of depreciation of leasehold improvements and equipment and other charges;

• A pre-tax charge of $15 million related to the anticipated restructuring of an HR BPO contract; and

• A pre-tax charge of $5 million resulting from the second-quarter resolution of a legal dispute with a vendor.

Fiscal 2007 also included a pre-tax non-operating gain of $6 million related to the sale of an investment.

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The non-cash pre-tax charges of $329 million related to impairment of goodwill, intangible assets and contract loss provisions were as follows:

• During the fourth quarter, we performed our annual impairment review of goodwill. This review resulted in the impairment of $280 million of goodwill in the HR BPO segment due to reduced growth expectations for the overall business, partially due to a revised strategy. The reduced growth expectations were driven by a reduction in the likely number of future engagements and reduced contract value of each engagement, as we focus on identifying potential customers seeking a more standardized set of platforms and services. The $280 million non-cash charge is reflected in the accompanying consolidated statements of operations within the goodwill and asset impairment caption.

• A non-cash charge of $39 million for the impairment of intangibles assets and capitalized software primarily resulted from lower than expected utilization of certain acquired software assets, and is reflected in the accompanying consolidated statements of operations within the goodwill and asset impairment caption.

• Loss provisions of $10 million reflecting our revised profitability expectations for certain European Benefits Outsourcing contracts. During the fourth quarter, we undertook an in-depth review of profitability of contracts related to the European Benefits Outsourcing business. This review established that some of the existing multi-year contracts are no-longer expected to achieve the levels of profitability previously anticipated and resulted in the need for additional loss provisions. Of this charge, $7 million is reflected in the accompanying consolidated statements of operations as a component of compensation and related expenses and $3 million within goodwill and asset impairment.

Finally, as discussed in the second quarter, we made changes to our reportable segments and the costs that are delivered to them as we continue to strive for increased transparency into our results. The changes include:

• The realignment of cost structures and allocation of costs. Improved data and analytical capabilities have provided us with increased visibility into shared service costs that were previously not attributable to specific business segment activity. As a result, we have been able to quantify and distribute previously unallocated shared service costs to the appropriate business segment. These costs include charges associated with management, finance, general counsel and corporate relations as well as insurance and other taxes. Further, we are now allocating costs based on usage and consumption factors. The realignment has impacted the costs reported within each segment and the level of unallocated shared service costs. These enhancements will provide greater visibility to controllable costs further enhancing our ability to analyze the profitability of each business segment.

• Reporting of Benefits Outsourcing and HR BPO. The HR BPO business has become an increasingly important focus for management. Management has realigned organizational resources in a way that focuses specific resources to the HR BPO and Benefits Outsourcing businesses. In addition, improved data and analytical tools have enhanced our ability to identify consumption drivers between each distinct business segment and provide additional insight into business profitability. As a result of these changes, effective the second quarter of this fiscal year, we began reporting Outsourcing as two business segments: Benefits Outsourcing and HR BPO.

For further discussion of how these items impacted our results across the Company, please see our discussion of Consolidated and Segment results below.

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CONSOLIDATED RESULTS

The following table sets forth our historical results of operations.

	Year Ended September 30,								% of Net Revenues
(in thousands)	2007			2006			% Change		2007		2006
Revenues:
Revenues before reimbursements (net revenues) (1)	$	2,921,076		$	2,788,722		4.7	%
Reimbursements		69,250			68,439		1.2
Total revenues		2,990,326			2,857,161		4.7
Operating expenses:
Compensation and related expenses		1,906,158			1,799,743		5.9		65.3		64.5
Goodwill and asset impairment		326,615			255,873		27.6		11.2		9.2
Reimbursable expenses		69,250			68,439		1.2		2.4		2.5
Other operating expenses		636,698			642,803		(0.9	)	21.8		23.1
Selling, general and administrative expenses		194,572			154,564		25.9		6.6		5.5
Total operating expenses		3,133,293			2,921,422		7.3		107.3		104.8
Operating loss		(142,967	)		(64,261	)	(122.5	)	(4.9	)	(2.3	)
Other income (expense), net		18,249			4,691		289.0		0.6		0.2
Loss before income taxes		(124,718	)		(59,570	)	(109.4	)	(4.3	)	(2.1	)
Provision for income taxes		50,362			56,368		(10.7	)	1.7		2.1
Net loss	$	(175,080	)	$	(115,938	)	(51.0	)%	(6.0	)%	(4.2	)%

(1) Net revenues include $66,267 and $113,399 of third party supplier revenues for the year ended September 30, 2007 and 2006, respectively. The third party supplier arrangements are generally marginally profitable. The related third party supplier expenses are included in operating expenses.

Net Revenues

The increase in net revenues was primarily driven by revenue growth in the Consulting segment. Revenue strength was attributed to an increased demand in Consulting for Retirement and Financial Management and Talent and Organizational Consulting services. HR BPO also contributed to the revenue growth due to an increase in the number of clients who went live with contract services over the last twelve months and growth in revenue from existing clients including an increase in project work. Net revenues, excluding third party supplier revenues and the favorable effects of foreign currency translation and acquisitions of approximately $48.3 million and $10.3 million, respectively, increased 4.4% as compared to the prior-year. Segment results are discussed in greater detail later in this section.

Compensation and Related Expenses

The increase in expense over the prior year includes $60.4 million of increased performance-based compensation and $45.4 million of higher salaries and wages partially offset by $12.7 million of lower share-based compensation related to lower IPO restricted stock award expense and an increase to the forfeiture rate. The increase in performance-based compensation reflects an overall increase in the expected payout compared to the prior year due to the improvement in underlying performance results in fiscal 2007. The increase in salaries and wages is primarily attributable to increases in compensation, higher labor costs related to servicing live clients, and an increase in severance expense. Partially offsetting the increase in salaries and wages is lower contractor expense due to the Company’s continued efforts to optimize resources.

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Goodwill and Asset Impairment

During the year ended September 30, 2007, the Company evaluated certain intangible assets related to the HR BPO and Benefits Outsourcing segments for impairment. This review resulted in non-cash impairment charges of $327 million including $280 million of goodwill impairment and $47 million of asset impairment, which includes capitalized software and core technology of $33 million, customer relationships of $6 million, and $8 million of anticipated losses on certain contracts.

Other Operating Expenses

The decrease in other operating expense is due to a reduction in third party supplier costs of $47.8 million, offset by $29.3 million pre-tax real estate-related charges primarily due to recognition of the fair value of lease vacancy obligations and lease termination charges related to exit of certain locations, and related acceleration of depreciation of leasehold improvements and equipment and other charges. Also offsetting the decrease is an increase in client service delivery charges, net of deferrals, of $7.5 million primarily related to the increased number of HR BPO clients who are live with ongoing services.

Selling, General and Administrative Expense (SG&A)

The increase in SG&A expense is primarily due to a $15 million charge associated with the anticipated restructuring of one of our HR BPO contracts and a $5 million charge, recorded within Benefits Outsourcing, associated with the resolution of a legal dispute with a vendor. Also contributing to the increase is higher amortization of intangible assets resulting from the shortening of the remaining useful life of a customer relationship and higher consulting charges related to the Company’s assessment of its longer-term strategy.

Other Income (Expense), Net

Other income increased by $14 million over the prior year due to higher interest income derived from significantly higher average investment balances and rising interest rates yielding higher returns. In addition, in fiscal 2007 we sold an investment that was accounted for using the cost basis method of accounting and recognized a gain of $6 million. In fiscal 2006 we recognized a $7 million gain in connection with a contribution of our German Retirement and Financial Management business in exchange for an increased investment in a German actuarial business.

Income Tax Provision

Our consolidated effective income tax rate was 40.4% for the year ended September 30, 2007, as compared to 94.6% for the comparable prior-year period. We identify items which are not normal and recurring in nature and treat these as discrete events. The tax effect of discrete items is booked entirely in the period in which the discrete event occurs. Additionally, tax legislation and tax examinations in the jurisdictions in which we do business may change our effective tax rate in future periods. While such changes cannot be predicted, if they occur, the impact on our tax assets, obligations and liquidity will need to be measured and recognized in the financial statements.

In fiscal 2007 a number of significant items including a non-deductible goodwill impairment charge, as well as a reduction of deferred tax assets related to certain foreign entities impacted the current year rate.

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 (our fiscal year 2008) and the provisions of FIN 48 will be applied to all tax positions under Statement No. 109 upon initial adoption. The cumulative effect of applying the provisions of this

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interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Company is currently evaluating the potential impact of FIN 48 on its consolidated financial statements.

Fiscal Years Ended September 30, 2006 and 2005

	Year Ended September 30,								% of Net Revenues
(in thousands)	2006			2005			% Change		2006		2005
Revenues:
Revenues before reimbursements (net revenues) (1)	$	2,788,722		$	2,831,507		(1.5	)%
Reimbursements		68,439			58,143		17.7
Total revenues		2,857,161			2,889,650		(1.1	)
Operating expenses:
Compensation and related expenses, including initial public offering restricted stock awards		1,799,743			1,646,304		9.3		64.5		58.1
Goodwill and asset impairment		255,873			9,615		2561.2		9.2		0.3
Reimbursable expenses		68,439			58,143		17.7		2.5		2.1
Other operating expenses		642,803			781,579		(17.8	)	23.1		27.6
Selling, general and administrative expenses		154,564			160,175		(3.5	)	5.5		5.7
Total operating expenses		2,921,422			2,655,816		10.0		104.8		93.8
Operating (loss) income		(64,261	)		233,834		(127.5	)	(2.3	)	8.3
Other income (expense), net		4,691			(13,319	)	135.2		0.2		(0.5	)
(Loss) income before income taxes		(59,570	)		220,515		(127.0	)	(2.1	)	7.8
Provision for income taxes		56,368			85,783		(34.3	)	2.1		3.0
Net (loss) income	$	(115,938	)	$	134,732		(186.1	)%	(4.2	)%	4.8	%

(1) Net revenues include $113,399 and $244,006 of third party supplier revenues for the year ended September 30, 2006 and 2005, respectively. The third party supplier arrangements are generally marginally profitable. The related third party supplier expenses are included in other operating expenses.

Net Revenues

The decrease in net revenues was primarily driven by a significant decline in third party supplier revenues resulting from the termination of an HR BPO client contract in the prior year. Excluding third party supplier revenue, direct revenue grew 3.4%. This increase is primarily due to Consulting growth in both the Talent and Organization Consulting services in North America as well as the Asia Pacific Regions and Benefits Consulting particularly in Europe. Direct revenues also improved as a result of increased services to existing clients as well as increased one-time project work in Benefits Outsourcing. Net revenues, excluding third party supplier revenues and after adjusting for foreign currency translation losses of approximately $5 million and the net effects of acquisitions and dispositions of approximately $8 million, increased 3.3% as compared to the prior-year period.

Compensation and Related Expenses

The increase over prior year primarily relates to $79 million of higher performance-based compensation and related incentives than in the prior year, $48 million of higher wages due to headcount and cost of living increases, $31 million incremental stock-based compensation expense, including expense related to the fiscal 2006 grants of restricted stock and the expensing of stock options under SFAS 123 (R), as well as $11 million of expense related to anticipated losses on

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certain HR BPO contracts. These increases were partially offset by higher levels of deferred contract costs related to the HR BPO segment in the current year.

In connection with our initial public offering on June 27, 2002, we granted approximately 5.8 million shares of Class A restricted stock and restricted stock units to our employees. Compensation and related payroll tax expenses of approximately $110 million were recorded as initial public offering restricted stock award expense from June 27, 2002 through September 30, 2006. The grants fully vested on June 27, 2006.

Goodwill and Asset Impairment

During the year the Company recognized $256 million of impairment charges related to HR BPO. The non-cash charges consisted of $172 million of goodwill impairment, $62 million of asset impairment for certain existing contracts due to higher than expected costs to be incurred over the life of the contracts, $13 million of asset impairment resulting from the termination of a client contract and $9 million of long-lived asset impairment primarily due to lower than expected utilization of an acquired asset.

Other Operating Expenses

The decrease in other operating expenses is primarily driven by a significant decrease in the third party supplier costs due to a terminated client contract in the prior year.

Selling, General and Administrative Expense (SG&A)

As a percentage of net revenues, SG&A expenses were consistent period over period.

Other Income (Expense), Net

In fiscal 2006, we recognized a gain of $7 million in connection with a contribution of our German retirement and financial management business in exchange for an increased investment in a German actuarial business. This gain as well as higher interest income, due to increased operating cash flows, accounted for the majority of the year-over-year increase.

Income Tax Provision

Our consolidated effective income tax rate was 94.6% for the year ended September 30, 2006, as compared to 38.9% for the comparable prior-year period. We identify items which are not normal and recurring in nature and treat these as discrete events. The tax effect of discrete items is booked entirely in the period in which the discrete event occurs. Additionally, tax legislation and tax examinations in the jurisdictions in which we do business may change our effective tax rate in future periods. While such changes cannot be predicted, if they occur, the impact on our tax assets, obligations and liquidity will need to be measured and recognized in the financial statements.

In fiscal 2006 a number of significant items including a non-deductible goodwill impairment charge, the net impact of reserve activity as well as a reduction of deferred tax assets related to certain foreign entities impacted the current year rate. In addition, we provided $3 million of additional deferred tax assets associated with acquisitions. This deferred tax asset was recorded as a reduction to goodwill.

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SEGMENT RESULTS

The following table sets forth unaudited historical segment results for the periods presented. Prior year results have been recast to reflect new allocation methodologies and distribution of additional shared service costs adopted in the second quarter of fiscal year 2007. In addition, beginning with the second quarter, the Company began reporting three segments: Benefits Outsourcing, HR BPO and Consulting.

	Year Ended September 30,
($ in thousands)	2007			2006			% Change
Benefits Outsourcing
Segment revenues before reimbursements	$	1,475,332		$	1,465,710		0.7	%
Segment income		306,199			321,735		(4.8	)%
Segment income as a percentage of segment revenues		20.8	%		22.0	%
HR BPO
Segment revenues before reimbursements (1)	$	539,407		$	517,502		4.2	%
Segment loss		(495,219	)		(423,407	)	(17.0	)%
Segment loss as a percentage of segment revenues		(91.8	)%		(81.8	)%
Consulting
Segment revenues before reimbursements	$	945,905		$	842,616		12.3	%
Segment income		147,261			137,028		7.5	%
Segment income as a percentage of segment revenues		15.6	%		16.3	%
Total Company
Segment revenues before reimbursements (1)	$	2,960,644		$	2,825,828		4.8	%
Intersegment revenues		(39,568	)		(37,106	)	6.6	%
Revenues before reimbursements (net revenues)		2,921,076			2,788,722		4.7	%
Reimbursements		69,250			68,439		1.2	%
Total revenues	$	2,990,326		$	2,857,161		4.7	%
Segment (loss) income	$	(41,759	)	$	35,356		(218.1	)%
Charges not recorded at the segment level:
Initial public offering restricted stock awards		—			9,397		(100.0	)%
Unallocated shared service costs		101,208			90,220		12.2	%
Operating loss	$	(142,967	)	$	(64,261	)	(122.5	)%

(1) HR BPO net revenues include $66,267 and $113,399 of third party supplier revenues for the year ended September 30, 2007 and 2006, respectively. The third party supplier arrangements are generally marginally profitable. The related third party supplier expenses are included in other operating expenses.

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Benefits Outsourcing

Benefits Outsourcing net revenue, adjusting for the impact of foreign currency translation of $7.6 million, essentially was unchanged as compared to the year ended September 30, 2006. An increase in services to new and existing clients, organic growth of existing clients, and an increase in project work, was offset by the impact of lost clients and longer implementation cycles required for some of the Company’s large, complex clients.

Benefits operating income decreased 4.8% as compared to the prior-year. The current year reflects charges of $22 million related to the real estate restructurings, $13 million related to severance charges, $10 million of additional loss reserves for anticipated losses on certain European contracts, and $5 million resulting from the resolution of a legal dispute with a vendor. Asset impairment charges of $7.6 million primarily related to the write-off of customer relationship intangibles and capitalized software, as well as increased client service delivery expense, also contributed to the decrease in segment income. Partially offsetting the decrease were efficiencies driven by global sourcing and other cost management efforts.

HR BPO

HR BPO net revenue, excluding third party revenue and adjusting for the impact of foreign currency translation of $7.8 million, increased 15.2% during the year ended September 30, 2007 as compared to the prior-year period. The increase is primarily related to an increase in the number of clients who went live with contract services over the last twelve months and growth in revenue from existing clients including an increase in project work.

HR BPO operating loss increased 17% as compared to the prior-year. The current year results reflect charges of $280 million for goodwill impairment and $30 million for intangible asset impairment relating to the impairment of capitalized software, core technology intangible, and customer relationship intangibles. The current year also reflects charges of $5 million related to the real estate restructurings, $15 million associated with the anticipated restructuring of a client contract and an increase in severance charges of $11 million. The prior year results reflected charges of $172 million for goodwill impairment, $73 million for anticipated losses on certain contracts, $10 million net asset impairment as the result of the termination of a client in the first quarter of fiscal 2006 and $9 million for impairment of long-lived assets. Excluding these fiscal 2007 and fiscal 2006 charges, the segment loss improved primarily due to the stabilization of the existing client base, as well as overall cost management efforts, offset in part by the impact of new contract implementations and increased intangible asset amortization.

Consulting

Consulting net revenues, adjusting for the favorable effects of foreign currency translation of $32.8 million and acquisitions of approximately $9.4 million, increased 7.2%. The majority of this growth resulted from increased demand in North America and Europe for Retirement and Financial Management consulting, in particular, driven by the new funding legislation in the U.S. and upcoming pension accounting changes. Also contributing to the revenue growth is increased demand for Talent and Organizational Consulting services, particularly in the Asia-Pacific region.

Segment income increased 7.5% as compared to the same prior-year period due to revenue growth, partially offset by higher compensation expense driven by increased wages and performance-based incentives.

Unallocated Shared Service Costs

Unallocated shared service costs are global expenses that are incurred on behalf of the entire Company and are not specific to a business segment. These costs include finance, legal, management and corporate relations and other related costs. Prior to the second quarter, unallocated shared service costs also included various costs specific to individual business segments. During the second quarter, the Company performed a detailed review of shared service costs and how they are consumed. The review identified shared service costs that could be attributed to a business segment either directly, by embedding the cost in the business segment, or through assignment of costs based upon usage. Prior period results were adjusted to reflect this change.

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Unallocated cost increased 12.2% primarily due to increased professional services related to the Company’s strategic initiatives, increased performance-based compensation expense, offset by productivity savings resulting from restructuring activities.

Fiscal Years Ended September 30, 2006 and 2005

The following table sets forth unaudited historical segment results for the periods presented. Prior year results have been recast to reflect new allocation methodologies and distribution of additional shared service costs adopted in the second quarter of fiscal 2007.

The Company has recast the fiscal 2006 results for comparative purposes however; fiscal 2005 segment results have not been recast as it was not practical to do so. As a result, the fiscal 2005 segment results do not reflect the new allocation methodologies associated with shared service costs nor the distribution of certain unallocated shared service costs into segment results adopted in the second quarter of fiscal 2007 and are not comparable to fiscal 2006.

	Year Ended September 30,
($ in thousands)	2006			2005			% Change
Benefits Outsourcing
Segment revenues before reimbursements	$	1,465,710		$	1,418,414		3.3	%
Segment income		321,735			293,546		9.6	%
Segment income as a percentage of segment revenues		22.0	%		20.7	%
HR BPO
Segment revenues before reimbursements (1)	$	517,502		$	632,230		(18.1	)%
Segment loss		(423,407	)		(116,542	)	263.3	%
Segment loss as a percentage of segment revenues		(81.8	)%		(18.4	)%
Consulting
Segment revenues before reimbursements	$	842,616		$	802,810		5.0	%
Segment income		137,028			196,388		(30.2	)%
Segment income as a percentage of segment revenues		16.3	%		24.5	%
Total Company
Segment revenues before reimbursements (1)	$	2,825,828		$	2,853,454		(1.0	)%
Intersegment revenues		(37,106	)		(21,947	)	69.1	%
Revenues before reimbursements (net revenues)		2,788,722			2,831,507		(1.5	)%
Reimbursements		68,439			58,143		17.7	%
Total revenues	$	2,857,161		$	2,889,650		(1.1	)%
Segment income	$	35,356		$	373,392		(90.5	)%
Charges not recorded at the segment level:
Initial public offering restricted stock awards		9,397			17,355		(45.9	)%
Unallocated shared service costs		90,220			122,203		(26.2	)%
Operating (loss) income	$	(64,261	)	$	233,834		(127.5	)%

(1) HR BPO net revenues include $113,399 and $244,006 of third party supplier revenues for the year ended September 30, 2006 and 2005, respectively. The third party supplier arrangements are generally marginally profitable. The related third party supplier expenses are included in other operating expenses.

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Benefits Outsourcing

Benefits Outsourcing net revenue, adjusting for the unfavorable impact of foreign currency translation of $2 million and the effects of acquisitions of approximately $11 million, increased 2.7% during the year ended September 30, 2006 as compared to the prior year. The growth in revenue was primarily due to an increase in services to new and existing clients and an increase in project work.

Fiscal 2006 operating income as a percentage of Benefits Outsourcing net revenues increased 1.3% as compared to the prior year primarily due to revenue growth, partially offset by increases in compensation and related costs associated with higher performance based compensation and related incentives of $20 million and share-based compensation of $7 million related to the fiscal 2006 grants of restricted stock awards and the expensing of stock options under SFAS123(R), as well as $6.1 million of severance expense.

HR BPO

HR BPO net revenue, excluding third party revenue and adjusting for the impact of foreign currency translation of $2 million increased 3.4% during the year ended September 30, 2006 as compared to the prior year. The growth in revenue was primarily due to contracts that went live within the twelve month period, partially offset by a decrease in revenue related to the termination of a client contract in the prior year.

Fiscal 2006 operating loss as a percentage of HR BPO net revenues increased as a result of the non-cash charges of $172 million for goodwill impairment, $73 million for anticipated losses on certain contracts, $10 million net asset impairment as the result of the termination of a client in the first quarter of fiscal 2006 and $9 million for impairment of long-lived assets. Fiscal 2006 also included higher performance-based compensation and related incentives of $19 million and share-based compensation expense of $7 million related to the fiscal 2006 grants of restricted stock awards and the expensing of stock options under SFAS123(R). Fiscal 2006 also reflected cost savings from a significant reduction in marginally profitable third party supplier revenue and related expenses. In addition, the year-over-year comparison was favorably impacted by a $10 million customer relationship intangible asset impairment recorded in the prior year.

Consulting

Consulting net revenues increased by 5.0% during the year ended September 30, 2006 as compared to the prior year. Adjusting for foreign currency translation losses of approximately $5 million and the net effects of acquisitions and dispositions of approximately $3 million, Consulting net revenues increased 6.0%. The majority of the increase was driven by increased demand for Benefits Consulting due to higher actuarial consulting and pension administration services as well as Talent and Organization Consulting services, particularly compensation consulting, corporate restructuring and change services. Communication consulting services also grew due to increased support for the implementation and ongoing management of outsourcing programs, as well as increased client demand for communications support of their employee benefit plans.

Fiscal 2006 segment income as a percentage of Consulting net revenues decreased due to higher compensation resulting primarily from $39 million of higher performance based compensation and related incentives in the current year as well as $17 million incremental stock-based compensation this year related to the fiscal 2006 grants of restricted stock awards and the expensing of stock options under SFAS 123(R). These items were partially offset by higher revenues in fiscal 2006.

Critical Accounting Policies and Estimates

Conforming with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements and this Annual Report. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, known facts, current and expected economic conditions and, in some cases, actuarial techniques. We periodically reevaluate these significant factors and make adjustments when facts and circumstances change; however, actual results may differ from estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include certain aspects of accounting for revenue recognition and client contract loss reserves, deferred contract costs and revenues, performance-based compensation, accounts receivable and unbilled work in process, goodwill and other intangible assets, retirement plans and income taxes.

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Revenue Recognition

Revenues include fees generated from outsourcing contracts and from consulting services provided to our clients. Outsourcing contract terms typically range from three- to five-years for benefits contracts and seven- to ten-years for HR BPO contracts, while consulting arrangements are generally of a short-term nature.

In connection with the Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, we have contracts with multiple elements primarily in our Benefits Outsourcing and HR BPO segments. Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. EITF Issue 00-21 establishes the following criteria, all of which must be met, in order for a deliverable to qualify as a separate unit of accounting:

• The delivered items have value to the client on a stand-alone basis

• There is objective and reliable evidence of the fair value of the undelivered items

• If the arrangement includes a general right of return relative to the delivered items, delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.

If these criteria are not met, deliverables included in an arrangement are accounted for as a single unit of accounting and revenue is deferred until the period in which the final deliverable is provided or a predominant service level has been attained. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value. Revenue is then recognized using a proportional performance method such as recognizing revenue based on transactional services delivered or on a straight-line basis (as adjusted primarily for volume changes), as appropriate.

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

Contract losses on outsourcing or consulting arrangements are recognized in the period in which the loss becomes probable and the amount of the loss is reasonably estimable. Contract losses are determined to be the amount by which the estimated direct costs, including any remaining deferred contract costs, exceed the estimated total revenues that will be generated by the contract. When a loss is identified, it is first recorded as an impairment of deferred contract costs related to the specific contract, if applicable, with the remaining amount recorded as a loss reserve. Estimates are monitored during the term of the contract and any changes to the estimates are recorded in the period the change is identified and may result in either an additional increase or decrease to the loss reserve.

Deferred Contract Costs and Deferred Contract Revenues

For long-term outsourcing service agreements, implementation efforts are often necessary to set up clients and their human resource or benefit programs on the Company’s systems and operating processes. For outsourcing services sold separately or accounted for as a separate unit of accounting; specific, incremental and direct costs of implementation incurred prior to the services going live are deferred and amortized over the period the related ongoing services revenue is recognized. Such costs may include internal and external costs for coding or creating customizations of systems, costs for conversion of client data and costs to negotiate contract terms. For outsourcing services that are accounted for as a combined unit of accounting; specific, incremental and direct costs of implementation, as well as ongoing service delivery costs incurred prior to revenue recognition commencing are deferred and amortized over the remaining contract services period. Implementation fees are also generally received from our clients either up-front or over the ongoing services period in the fee per participant. Lump sum implementation fees received from a client are initially deferred and then recognized as revenue evenly over the contract ongoing services period. If a client terminates an outsourcing services arrangement prior to the end of the contract, a loss on the contract may be recorded if necessary and any remaining deferred implementation revenues and costs would then be recognized into earnings through the termination date.

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Performance-Based Compensation

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

Client Receivables and Unbilled Work In Process

We periodically evaluate the collectibility of our client receivables and unbilled work in process based on a combination of factors. In circumstances where we become aware of a specific client’s difficulty in meeting its financial obligations to us (e.g., bankruptcy, failure to pay amounts due to us or to others), we record an allowance for doubtful accounts to reduce the client receivable or unbilled work in process to what we reasonably believe will be collected. For all other clients, we recognize an allowance for doubtful accounts based on past write-off history and the length of time the receivables are past due or unbilled work in process is not billed. Facts and circumstances may change, which would require us to alter our estimates of the collectibility of client receivables and unbilled work in process. A key factor mitigating this risk is our diverse client base. For the years ended September 30, 2007, 2006 and 2005, no single client accounted for more than 10% of our total revenues.

Goodwill and Other Intangible Assets

In applying the purchase method of accounting for business combinations, amounts assigned to identifiable assets and liabilities acquired have been based on estimated fair values as of the date of the acquisitions, with the remainder recorded as goodwill. Estimates of fair value have been based primarily upon future cash flow projections for the acquired businesses and net assets, discounted to present value using a risk adjusted discount rate. We evaluate our goodwill for impairment annually and whenever indicators of impairment exist. The evaluation is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities for that reporting unit. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the reporting unit. Our estimate of future cash flows is based on our experience, knowledge and typically third-party advice or market data. However, these estimates can be affected by other factors and economic conditions that can be difficult to predict. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. The evaluation of impairment is based upon a comparison of the carrying amount of the intangible asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset is considered impaired. The impairment expense is determined by comparing the estimated fair value of the intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period.

Retirement Plans

We provide pension benefits to certain of our employees outside of North America and other postretirement benefits to certain of our employees in North America. The valuation of the funded status and net periodic pension and other postretirement benefit costs are calculated using actuarial assumptions, which are reviewed annually. The assumptions include rates of increases in employee compensation, interest rates used to discount liabilities, the long-term rate of return on plan assets, anticipated future health-care costs, and other assumptions involving demographic factors such as retirement, mortality and turnover. The selection of assumptions is

33

based on both short-term and long-term historical trends and known economic and market conditions at the time of the valuation. The use of different assumptions would have resulted in different measures of the funded status and net periodic pension and other postretirement benefit expenses. Actual results in the future could differ from expected results. We are not able to estimate the probability of actual results differing from expected results, but believe our assumptions are appropriate. Our assumptions are listed in Note16. The most critical assumptions pertain to the plans covering employees outside North America, as these plans are the most significant to our consolidated financial statements.

Income Taxes

We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide income tax provision. In the ordinary course of global business, there are many transactions and calculations where the ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that qualify for preferential tax treatment, and segregation of foreign and domestic income and expense to avoid double taxation. To the extent that the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax provision in the period in which such determination is made. We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance will not need to be increased to cover additional deferred tax assets that may not be realizable. Any increase in the valuation allowance could have a material adverse impact on our income tax provisions and net income in the period in which such determination is made.

Share-based Compensation

Our employees and directors may receive awards of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and cash-based awards, and employees can also receive incentive stock options.

Restricted stock awards, including restricted stock and restricted stock units, are measured using the fair market value of the stock as of the grant date. The Company recognizes compensation expense, net of estimated forfeitures on a straight-line basis annually over the vesting period. Estimated forfeitures are reviewed periodically and changes to the estimated forfeitures are adjusted through current period earnings. Employer payroll taxes are also recorded as expense when they become due over the vesting period. The remaining unvested shares are subject to forfeiture and restrictions on sale or transfer, generally for four years from the grant date.

The Company also grants nonqualified stock options at an exercise price equal to the fair market value of the Company’s stock on the grant date. The Company applies the Black-Scholes valuation method to compute the estimated fair value of the stock options and recognizes compensation expense, net of estimated forfeitures on a straight-line basis so that the award is fully expensed at the vesting date. Generally, stock options vest 25 percent on each anniversary of the grant date, are fully vested four years from the grant date, and have a term of ten years.

New Accounting Pronouncements

The information required by this Item is provided in Note 2 of the notes to the consolidated financial statements contained in Item 8. Financial Statements and Supplementary Data.

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Liquidity and Capital Resources

We have historically funded our growth and working capital requirements with internally generated funds, credit facilities and term notes. We believe we have broad access to debt and equity capital markets.

Summary of Cash Flows	Year Ended September 30,
(in thousands)	2007			2006			2005
Cash provided by operating activities	$	435,230		$	381,018		$	338,252
Cash (used in) provided by investing activities		(32,502	)		(387,274	)		54,203
Cash used in financing activities		(174,579	)		(16,660	)		(358,520	)
Effect of exchange rates on cash and cash equivalents		11,666			3,916			(688	)
Net increase (decrease) in cash and cash equivalents		239,815			(19,000	)		33,247
Cash and cash equivalents at beginning of year		138,928			157,928			124,681
Cash and cash equivalents at end of year	$	378,743		$	138,928		$	157,928

The Company believes it will be able to meet its cash requirements for operations, anticipated growth and capital expansion. Cash, cash equivalents and short-term investments were $595 million, $449 million and $218 million as of September 30, 2007, 2006 and 2005, respectively. The Company intends to fund working capital requirements, principal and interest payments, acquisitions (if any) and other liabilities with cash provided by operations, to the extent available, supplemented by short-term and long-term borrowing under new and existing credit facilities.

Operating activities: The increase in cash provided by operating activities in fiscal 2007 was primarily due to an increase in cash collected on accounts receivable and proceeds from contracts where revenue is deferred until future periods. These were partially offset by a higher level of performance-based compensation, severance payments, and tax payments, net of refunds. The increase in cash provided by operating activities in fiscal 2006 was primarily due to a lower level of performance-based compensation paid in fiscal 2006 for prior-year results than was paid in the prior year partially offset by a decrease in accounts payable.

Investing activities: The decrease in cash used in investing activities in fiscal 2007 is due to increased proceeds from the sale of short-term investments and a decrease in capital expenditures. These were partially offset by an increase in the purchase of short-term investments and an increase in acquisitions. The short-term investments were utilized to fund the higher performance-based compensation and the Company’s share repurchase program. The increase in cash used in investing activities in fiscal 2006 resulted from approximately $463 million of proceeds received from the sale of short-term investments in the prior year primarily to fund the Company’s share repurchases in 2005 as well as an increase in the purchase of short-term investments in the current year as a result of higher cash balances. These activities were partially offset by lower capital expenditures, primarily on computer equipment in fiscal 2006.

Financing activities: The increase in cash used in financing activities in fiscal 2007 was primarily due to an increase in share repurchases relating to the Company’s share repurchase program, partially offset by an increase in proceeds from the exercise of stock options. The Company repurchased approximately 6.1 million of its outstanding shares at an average price of $30.24, for a total of approximately $183.6 million, during the fiscal year. The decrease in cash used in financing activities in fiscal 2006 was primarily due to the higher share repurchases in the prior year as a result of the Company’s share repurchase program and tender offer in the first half of 2005, offset in part by higher net repayments of short-term borrowings and other debt in the current year.

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

At September 30, 2007 the Company had available credit facilities with domestic and foreign banks for various purposes. The amount of unused credit facilities as of September 30, 2007 was approximately $229.2 million. Additional information on the Company’s borrowings and available credit is included in Note 10 and Note 11 to the consolidated financial statements.

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Contractual Obligations

Significant ongoing commitments consist primarily of leases, debt, purchase commitments and other long-term liabilities. The following table shows the minimum payments required under existing agreements which have initial or remaining non-cancelable terms in excess of one year as of September 30, 2007.

Contractual Obligations

	Payments Due in Fiscal Year
	Total		2008		2009- 2010		2011- 2012		Thereafter
	(in millions)
Operating leases (1)	$	723	$	95	$	169	$	142	$	317
Capital leases (2):
Principal		73		5		11		14		43
Interest		29		5		9		7		8
		102		10		20		21		51
Debt (3):
Principal		215		49		26		140		—
Interest		13		5		7		1		—
		228		54		33		141		—
Purchase commitments (4)		168		67		90		8		3
Other long-term obligations (5)		72		8		16		10		38
Total contractual obligations	$	1,293	$	234	$	328	$	322	$	409

(1) We have various third party operating leases for office space, furniture and equipment such as copiers, servers and disk drives with terms ranging from one to twenty years. Refer to Note 12 to the consolidated financial statements for additional information on operating leases.

(2) We have various telecommunications equipment installment notes under capital lease which are payable over three to five years and are secured by the related equipment. Refer to Note 12 to the consolidated financial statements for additional information on capital leases.

(3) The amounts for long-term debt assume that the respective debt instruments will be outstanding until their scheduled maturity dates. Convertible debt is included at its face value. The amounts include interest on both fixed and variable interest rate debt. The current rate as of September 30, 2007 is assumed for the variable rate debt. See Note 10 and Note 11 to the consolidated financial statements for additional information regarding our debt.

(4) Purchase commitments include, among other things, telecommunication usage, software licenses, consulting services and insurance coverage obligations as well as other obligations in the ordinary course of business that we cannot cancel or where we would be required to pay a termination fee in the event of cancellation.

(5) Other long-term obligations consist primarily of payments for pension plans, post retirement benefit plans, and other long-term obligations. As part of our merger with Exult, we acquired certain software licenses for resale totaling approximately $11 million under a long-term arrangement which requires periodic payments through June 2009.

Off-Balance Sheet Arrangement

We do not have any obligations that meet the definition of an off-balance sheet arrangement and that have or are reasonably likely to have a material effect on our consolidated financial statements.

Self-Insurance

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

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates. Historically, we have not entered into hedging transactions, such as foreign currency forward contracts or interest rate swaps, to manage this risk due to our low percentage of foreign debt and restrictions on our fixed rate debt. However, we may initiate a foreign currency management program involving the uses of financial derivatives in the future should business conditions require. We do not hold or issue derivative financial instruments for trading purposes. At September 30, 2007, we were not a party to any hedging transaction or derivative financial instrument.

Interest rate risk

We are exposed to interest rate risk primarily through our portfolio of cash and cash equivalents, short-term investments and variable interest rate debt.

Our portfolio of cash and cash equivalents and short-term investments is designed for safety of principal and liquidity. We invest in highly rated money market investments and debt securities and regularly monitor the investment ratings. The investments are subject to inherent interest rate risk as investments mature and are reinvested at current market interest rates. The investment portfolio consists primarily of fixed income securities such as commercial paper, corporate notes, asset-backed securities, U.S. treasuries and agencies and auction rate municipal bonds. Our portfolio earned interest at an average rate of 5.76% during the year ended September 30, 2007. A one percentage point change would have impacted our interest income by approximately $4.1 million for the year ended September 30, 2007.

Our short-term debt with a variable rate consists of our unsecured lines of credit and a term credit loan facility. Our variable interest rate debt had an effective interest rate of 5.74% during the year ended September 30, 2007. A one percentage point increase would have increased our interest expense related to all outstanding variable rate debt, by approximately $0.5 million for the year ended September 30, 2007.

Foreign exchange risk

For the year ended September 30, 2007, revenues from U.S. operations as a percent of total revenues were approximately 76%. Unrealized foreign currency translation gains were $49.8 million for the year ended September 30, 2007, and were primarily due to the changes in the value of the British pound sterling relative to the U.S. dollar over the prior year. We have not entered into any foreign currency derivative transactions.

Operating in international markets means that we are exposed to movements in foreign exchange rates, primarily the British pound sterling and more recently, the Canadian dollar and the Indian rupee. Approximately 12% of our net revenues for the year ended September 30, 2007, were from the United Kingdom. Approximately 5% of our net revenues for the year ended September 30, 2007, were from Canada. Changes in these foreign exchange rates can have a significant impact on our translated international results of operations in U.S. dollars. A 10% change in the average exchange rate for the British pound sterling for the year ended September 30, 2007, would have impacted our operating loss by approximately $8.5 million for the year ended September 30, 2007. In recent years, the Company has utilized India as a back office support location for both technology infrastructure and in some limited cases customer call center activities. A 10% change in the average exchange rate for the Indian rupee for the year ended September 30, 2007, would have impacted our operating loss by approximately $4.5 million for the year ended September 30, 2007. A 10% change in the average exchange rate for the Canadian dollar would have impacted our operating loss by approximately $0.1 million for the year ended September 30, 2007.

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Item 8. Financial Statements and Supplementary Data

The financial information required by Item 8 is contained in Item 15 of Part IV.

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

There have been no changes in or disagreements with our independent registered public accounting firm on accounting and financial disclosure.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

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

As required under this Item 9A, the management report titled “Management’s Assessment of Internal Control Over Financial Reporting” and the auditor’s attestation report titled “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting” appear on pages 42 and 43 of this Annual Report.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2007 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

The Company has no information to report pursuant to Item 9B.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Reference is made to the Proxy Statement under the headings “Election of Directors”, “Directors and Officers” and “Corporate Governance” (hereby incorporated by reference) for this information.

Item 11. Executive Compensation

Reference is made to the Proxy Statement under the headings “Executive Compensation” and “Director Compensation” (hereby incorporated by reference) for this information.

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

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

Item 13. Certain Relationships, Related Transactions and Director Independence

There were no transactions with related persons requiring disclosure during this period. Reference is made to the Proxy Statement under the heading “Director Independence” (hereby incorporated by reference) for information related to director independence.

Item 14. Principal Accounting Fees and Services

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

PART IV

Item 15. Exhibits, Financial Statement Schedules

1. Financial Statements

The financial statements listed on the Index to Financial Statements (page 41) are filed as part of this Annual Report.

2. Financial Statement Schedules

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

3. Exhibits

The exhibits listed on the Index to Exhibits (pages 87 through 89) are filed as part of this Annual Report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HEWITT ASSOCIATES, INC.
	By:	/s/ JOHN J. PARK
		John J. Park
		Chief Financial Officer
		(Principal financial and accounting officer)
	Date:	November 16, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 16th day of November 2007:
/s/ RUSSELL P. FRADIN	/s/ MICHELE M. HUNT
Russell P. Fradin	Michele M. Hunt
Chairman and Chief Executive Officer	Director
(Principal executive officer)
/s/ JOHN J. PARK	/s/ ALEX J. MANDL
John J. Park	Alex J. Mandl
Chief Financial Officer	Director
(Principal financial and accounting officer)
/s/ STEVEN A. DENNING	/s/ CARY D. McMILLAN
Steven A. Denning	Cary D. McMillan
Director	Director
/s/ CHERYL A. FRANCIS	/s/ THOMAS J. NEFF
Cheryl A. Francis	Thomas J. Neff
Director	Director
/s/ JULIE S. GORDON	/s/ STEVEN P. STANBROOK
Julie S. Gordon	Steven P. Stanbrook
Director	Director
/s/ MICHAEL E. GREENLEES
Michael E. Greenlees
Director

40

INDEX TO FINANCIAL STATEMENTS

	PAGE
Management’s Assessment of Internal Control Over Financial Reporting	42
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting	43
Report of Independent Registered Public Accounting Firm	44
Consolidated Balance Sheets as of September 30, 2007 and 2006	45
Consolidated Statements of Operations for the Fiscal Years Ended September 30, 2007, 2006 and 2005	47
Consolidated Statements of Stockholders’ Equity for the Fiscal Years Ended September 30, 2007, 2006 and 2005	48
Consolidated Statements of Cash Flows for the Fiscal Years Ended September 30, 2007, 2006 and 2005	50
Notes to the Consolidated Financial Statements	51

41

MANAGEMENT’S ASSESSMENT OF

INTERNAL CONTROL OVER FINANCIAL REPORTING

The financial statements were prepared by management, which is responsible for their integrity and objectivity and for establishing and maintaining adequate internal controls over financial reporting.

The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that:

i. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

ii. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

iii. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal controls may vary over time.

Management assessed the design and effectiveness of the Company’s internal control over financial reporting as of September 30, 2007. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework. Based on management’s assessment using those criteria, as of September 30, 2007, management believes that the Company’s internal controls over financial reporting are effective.

Ernst & Young, LLP, independent registered public accounting firm, has audited the financial statements of the Company for the fiscal years ended September 30, 2007, 2006 and 2005 and the Company’s internal control over financial reporting as of September 30, 2007. Their reports are presented on the following pages. The independent registered public accountants and internal auditors advise management of the results of their audits, and make recommendations to improve the system of internal controls. Management evaluates the audit recommendations and takes appropriate action.

HEWITT ASSOCIATES, INC.

42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

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

We have audited Hewitt Associates, Inc.’s (the Company) internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Hewitt Associates, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying report on Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Hewitt Associates, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated financial statements of Hewitt Associates, Inc. as of September 30, 2007 and 2006, and for each of the three years in the period ended September 30, 2007, and our report dated November 12, 2007, expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Chicago, Illinois

November 12, 2007

43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Hewitt Associates, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of September 30, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles.

As disclosed in Note 2 in the notes to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 123(R) during the first quarter of fiscal 2006 and SFAS No. 158 effective September 30, 2007.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Hewitt Associates, Inc.’s internal control over financial reporting as of September 30, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 12, 2007 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Chicago, Illinois

November 12, 2007

44

HEWITT ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except for share and per share amounts)

	September 30,
	2007		2006
ASSETS
Current Assets:
Cash and cash equivalents	$	378,743	$	138,928
Short-term investments		216,726		310,527
Client receivables and unbilled work in process, less allowances of $18,933 and $25,333 at September 30, 2007 and 2006, respectively		632,011		622,270
Prepaid expenses and other current assets		86,683		72,986
Funds held for clients		133,163		83,026
Deferred income taxes, net		32,533		17,096
Total current assets		1,479,859		1,244,833
Non-Current Assets:
Deferred contract costs		372,363		289,654
Property and equipment, net		355,907		411,205
Other intangible assets, net		196,133		242,108
Goodwill		319,314		544,922
Other non-current assets, net		31,962		34,956
Total non-current assets		1,275,679		1,522,845
Total Assets	$	2,755,538	$	2,767,678
LIABILITIES
Current Liabilities:
Accounts payable	$	21,304	$	31,256
Accrued expenses		212,097		194,736
Funds held for clients		133,163		83,026
Advanced billings to clients		170,131		176,563
Accrued compensation and benefits		353,265		263,143
Short-term debt		30,369		32,246
Current portion of long-term debt and capital lease obligations		24,222		34,742
Total current liabilities		944,551		815,712
Non-Current Liabilities:
Deferred contract revenues		271,359		193,638
Debt and capital lease obligations, less current portion		233,465		254,852
Other non-current liabilities		165,264		148,794
Deferred income taxes, net		102,887		98,313
Total non-current liabilities		772,975		695,597
Total Liabilities	$	1,717,526	$	1,511,309

45

HEWITT ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS - Continued

(In thousands except for share and per share amounts)

	September 30,
	2007			2006
STOCKHOLDERS’ EQUITY
Stockholders’ Equity:
Class A common stock, par value $0.01 per share, 750,000,000 shares authorized, 127,672,253 and 124,932,189 shares issued, 107,126,309 and 110,822,409 shares outstanding, as of September 30, 2007 and 2006, respectively	$	1,277		$	1,249
Additional paid-in capital		1,472,409			1,368,189
Cost of common stock in treasury, 20,545,944 and 14,109,780 shares of Class A common stock as of September 30, 2007 and 2006, respectively		(597,200	)		(401,365	)
Retained earnings		38,144			213,224
Accumulated other comprehensive income, net		123,382			75,072
Total stockholders’ equity		1,038,012			1,256,369
Total Liabilities and Stockholders’ Equity	$	2,755,538		$	2,767,678

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

46

HEWITT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except for share and per share amounts)

	Year Ended September 30,
	2007			2006			2005
Revenues:
Revenues before reimbursements (net revenues)	$	2,921,076		$	2,788,722		$	2,831,507
Reimbursements		69,250			68,439			58,143
Total revenues		2,990,326			2,857,161			2,889,650
Operating expenses:
Compensation and related expenses		1,906,158			1,799,743			1,646,304
Goodwill and asset impairment		326,615			255,873			9,615
Reimbursable expenses		69,250			68,439			58,143
Other operating expenses		636,698			642,803			781,579
Selling, general and administrative expenses		194,572			154,564			160,175
Total operating expenses		3,133,293			2,921,422			2,655,816
Operating (loss) income		(142,967	)		(64,261	)		233,834
Other income (expense), net		18,249			4,691			(13,319	)
(Loss) income before income taxes		(124,718	)		(59,570	)		220,515
Provision for income taxes		50,362			56,368			85,783
Net (loss) income	$	(175,080	)	$	(115,938	)	$	134,732
(Loss) earnings per share:
Basic	$	(1.62	)	$	(1.08	)	$	1.21
Diluted	$	(1.62	)	$	(1.08	)	$	1.19
Weighted average shares:
Basic		107,866,281			107,642,383			111,340,261
Diluted		107,866,281			107,642,383			113,105,722

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

47

HEWITT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands except for share and per share amounts)

	Class A Common Shares					Class B Common Shares					Class C Common Shares					Restricted Stock Units					Additional Paid-in			Treasury Stock, at Cost				Retained Earnings		Unearned			Other Accumulated Comprehensive
	Shares		Amount			Shares		Amount			Shares		Amount			Shares		Amount			Capital			Shares	Amount			(Deficit)		Compensation			Income (Loss)			Total
Balance at September 30, 2004	32,480,669		$	325		61,707,114		$	617		4,391,862		$	44		118,363		$	2,166		$	633,934		526,518	$	(13,414	)	$	194,430	$	(27,799	)	$	69,050		$	859,353
Comprehensive income:
Net income	—			—		—			—		—			—		—			—			—		—		—			134,732		—			—			134,732
Other comprehensive income:
Minimum pension liability adjustment	—			—		—			—		—			—		—			—			—		—		—			—		—			(2,397	)		(2,397	)
Unrealized losses on short-term investments	—			—		—			—		—			—		—			—			—		—		—			—		—			(135	)		(135	)
Foreign currency translation adjustments	—			—		—			—		—			—		—			—			—		—		—			—		—			3,270			3,270
Total other comprehensive income																																		738
Total comprehensive income																																					135,470
Acquisition of Exult	22,159,921			222		—			—		—			—		—			—			653,162		—		—			—		(2,014	)		—			651,370
Acquisition of Exult Warrant	—			—		—			—		—			—		—			—			973		—		—			—		—			—			973
Acquisition of Exult – issuance of restricted stock	689,823			7		—			—		—			—		15,386			412			18,492		—		—			—		(18,911	)		—			—
Restricted stock award grant	3,200			—		—			—		—			—		2,000			54			79		—		—			—		(133	)		—			—
Amortization of unearned compensation	—			—		—			—		—			—		—			—			—		—		—			—		25,895			—			25,895
Tax benefits from stock plans	—			—		—			—		—			—		—			—			3,353		—		—			—		—			—			3,353
Restricted stock unit vesting	37,946			—		—			—		—			—		(37,946	)		(703	)		703		—		—			—		—			—			—
Purchase of Class A common shares for treasury	3,681,872			37		(3,681,872	)		(37	)	—			—		—			—			—		12,987,877		(375,224	)		—		—			—			(375,224	)
Issuance of Class A common shares:
Employee stock options	445,528			4		—			—		—			—		—			—			9,859		—		—			—		—			—			9,863
Outside Directors	13,932			—		—			—		—			—		10,908			320			430		—		—			—		(446	)		—			304
Rule 144 share conversions and other share conversions	13,694,794			137		(12,843,393	)		(128	)	(851,401	)		(9	)	—			—			—		—		—			—		—			—			—
Net forfeiture of restricted common stock pursuant to the global stock plan and other	(236,725	)		(2	)	—			—		—			—		(9,744	)		(214	)		(5,866	)	—		—			—		6,082			—			—
Balance at September 30, 2005	72,970,960			730		45,181,849			452		3,540,461			35		98,967			2,035			1,315,119		13,514,395		(388,638	)		329,162		(17,326	)	$	69,788			1,311,357

HEWITT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands except for share and per share amounts)

	Class A Common Shares					Class B Common Shares					Class C Common Shares					Restricted Stock Units					Additional Paid-in			Treasury Stock, at Cost				Retained Earnings			Unearned		Accumulated Other Comprehensive
	Shares		Amount			Shares		Amount			Shares		Amount			Shares		Amount			Capital			Shares	Amount			(Deficit)			Compensation		Income (Loss)			Total
Comprehensive loss:
Net loss	—			—		—			—		—			—		—			—			—		—		—			(115,938	)		—		—			(115,938	)
Other comprehensive income:
Minimum pension liability adjustment	—			—		—			—		—			—		—			—			—		—		—			—			—		2,397			2,397
Unrealized gains on short-term investments	—			—		—			—		—			—		—			—			—		—		—			—			—		127			127
Foreign currency translation adjustments	—			—		—			—		—			—		—			—			—		—		—			—			—		2,760			2,760
Total other compre- hensive income																																		5,284
Total comprehensive loss																																					(110,654	)
Restricted stock award grant	2,750,481			28		—			—		—			—		—			—			(28	)	—		—			—			—		—			—
Stock-based compensation expense	—			—		—			—		—			—		—			—			55,126		—		—			—			—		—			55,126
Cumulative effect of a change in accounting principle	—			—		—			—		—			—		—			—			(119	)	—		—			—			—		—			(119	)
Tax benefits from stock plans	—			—		—			—		—			—		—			—			(1,151	)	—		—			—			—		—			(1,151	)
Restricted stock unit vesting	121,520			1		—			—		—			—		—			—			(1	)	—		—			—			—		—			—
Purchase of Class A common shares for treasury	—			—		—			—		—			—		—			—			—		595,385		(12,727	)		—			—		—			(12,727	)
Issuance of Class A common shares:
Employee stock options	647,740			6		—			—		—			—		—			—			14,531		—		—			—			—		—			14,537
Outside Directors	17,089			—		—			—		—			—		—			—			—		—		—			—			—		—			—
Rule 144 share conversions and other share conversions	48,722,310			487		(45,181,849	)		(452	)	(3,540,461	)		(35	)	—			—			—		—		—			—			—		—			—
Net forfeiture of restricted common stock pursuant to the global stock plan and other	(297,911	)		(3	)	—			—		—			—		—			—			—		—		—			—			—		—			(3	)
Adoption of SFAS 123(R) – Adjustment to remove restricted stock units and unearned compensation	—			—		—			—		—			—		(98,967	)		(2,035	)		(15,288	)	—		—			—			17,326		—			3
Balance at September 30, 2006	124,932,189			1,249		—			—		—			—		—			—			1,368,189		14,109,780		(401,365	)		213,224			—		75,072			1,256,369
Comprehensive loss:
Net loss	—			—		—			—		—			—		—			—			—		—		—			(175,080	)		—		—			(175,080	)
Other comprehensive income:
Unrealized gains on short-term investments	—			—		—			—		—			—		—			—			—		—		—			—			—		8			8
Foreign currency translation adjustments	—			—		—			—		—			—		—			—			—		—		—			—			—		49,827			49,827
Total other compre- hensive income																																		49,835
Total comprehensive loss																																					(125,245	)
Stock-based compensation expense	—			—		—			—		—			—		—			—			40,925		—		—			—			—		—			40,925
Tax benefits from stock plans	—			—		—			—		—			—		—			—			9,140		—		—			—			—		—			9,140
Restricted stock unit vesting	613,678			6		—			—		—			—		—			—			(6	)	—		—			—			—		—			—
Purchase of Class A common shares for treasury	—			—		—			—		—			—		—			—			—		6,436,164		(195,835	)		—			—		—			(195,835	)
Issuance of Class A common shares:
Employee stock options	2,377,618			24		—			—		—			—		—			—			54,159		—		—			—			—		—			54,183
Outside Directors	3,508			—		—			—		—			—		—			—			—		—		—			—			—		—			—
Net forfeiture of restricted common stock pursuant to the global stock plan and other	(254,740	)		(2	)	—			—		—			—		—			—			2		—		—			—			—		—			—
Adoption of SFAS 158 (net of tax)	—			—		—			—		—			—		—			—			—		—		—			—			—		(1,525	)		(1,525	)
Balance at September 30, 2007	127,672,253		$	1,277		—		$	—		—		$	—		—		$	—		$	1,472,409		20,545,944	$	(597,200	)	$	38,144		$	—	$	123,382		$	1,038,012

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

49

HEWITT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended September 30,
	2007			2006			2005
Cash flows from operating activities:
Net (loss) income	$	(175,080	)	$	(115,938	)	$	134,732
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization, including amortization of deferred contract revenues and costs		190,393			166,603			166,089
Goodwill and asset impairment		326,615			255,873			9,615
Share-based compensation		40,937			55,007			26,199
Deferred income taxes		(19,147	)		17,906			75,260
Gain on contribution of business		—			(7,127	)		—
Gain on sale of investment		(5,982	)		—			—
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Client receivables and unbilled work in process		13,342			(14,634	)		11,678
Prepaid expenses and other current assets		(4,581	)		21,072			(1,834	)
Deferred contract costs		(143,619	)		(170,309	)		(147,545	)
Other assets		(5,102	)		1,244			(7,349	)
Accounts payable		(11,183	)		(27,324	)		14,545
Accrued compensation and benefits		82,024			89,864			(73,800	)
Accrued expenses		30,842			2,513			3,441
Advanced billings to clients		(7,525	)		18,361			43,817
Deferred contract revenues		111,930			95,189			64,884
Other long-term liabilities		11,366			(7,282	)		18,520
Net cash provided by operating activities		435,230			381,018			338,252
Cash flows from investing activities:
Purchases of short-term investments		(400,794	)		(356,365	)		(224,742	)
Proceeds from sales of investments		502,331			105,678			462,951
Additions to property and equipment		(88,477	)		(129,936	)		(177,280	)
Cash paid for acquisitions and transaction costs, net of cash acquired		(45,562	)		(6,651	)		(6,726	)
Net cash (used in) provided by investing activities		(32,502	)		(387,274	)		54,203
Cash flows from financing activities:
Proceeds from the exercise of stock options		54,183			14,537			9,863
Excess tax benefits from share-based payment compensation		4,912			1,084			—
Short-term borrowings		103,771			140,154			129,048
Repayments of short-term borrowings, capital leases and long-term debt		(141,610	)		(159,708	)		(122,207	)
Purchase of Class A common shares for treasury		(195,835	)		(12,727	)		(375,224	)
Net cash used in financing activities		(174,579	)		(16,660	)		(358,520	)
Effect of exchange rate changes on cash and cash equivalents		11,666			3,916			(688	)
Net increase (decrease) in cash and cash equivalents		239,815			(19,000	)		33,247
Cash and cash equivalents, beginning of year		138,928			157,928			124,681
Cash and cash equivalents, end of year	$	378,743		$	138,928		$	157,928

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

50

HEWITT ASSOCIATES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 2007, 2006 and 2005

(In thousands except for share and per share amounts)

1. Description of Business

Hewitt Associates, Inc., a Delaware corporation, and its subsidiaries (“Hewitt” or the “Company”) provide global human resources benefits, outsourcing and consulting services. Benefits Outsourcing includes administrative services for health and welfare, defined contribution and defined benefit plans. Human Resource Business Process Outsourcing (HR BPO) includes workforce administration, rewards management, recruiting and staffing, payroll processing, performance management, learning and development, talent management, relocation services, time and attendance, accounts payable, procurement expertise and vendor management. Hewitt’s Consulting business provides a wide array of consulting and actuarial services covering the design, implementation, communication and operation of health and welfare, compensation and retirement plans, and broader human resources programs and processes.

2. Summary of Significant Accounting Policies

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

Principles of Consolidation and Combination

The accompanying consolidated financial statements reflect the operations of the Company and its majority owned subsidiaries after elimination of intercompany accounts and transactions. Investments in affiliated companies in which the Company does not have control, but has the ability to exercise significant influence over governance and operations (generally 20-50 percent ownership), are accounted for by the equity method.

Use of Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used for, but not limited to, the accounting for contract and project loss reserves, performance-based compensation, the allowance for doubtful accounts, depreciation and amortization, asset impairment, taxes, and any contingencies. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates.

Revenue Recognition

Revenues include fees generated from outsourcing contracts and from consulting services provided to the Company’s clients. Revenues from sales or licensing of software are not material. The Company recognizes revenue when persuasive evidence of an arrangement exists, services have been rendered, our fee is determinable and collectibility is reasonably assured.

The Company’s outsourcing contracts typically have three to five year terms for benefits services and seven to ten year terms for HR BPO services. The Company recognizes revenues for non-refundable, up-front implementation fees evenly over the period the related ongoing service revenues are recognized. Services provided outside the scope of the Company’s outsourcing contracts are recognized on a time-and-material or fixed-fee basis.

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

51

Contract losses on outsourcing or consulting arrangements are recognized in the period in which the loss becomes probable and the amount of the loss is reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and certain indirect costs, including any remaining deferred contract costs, exceed the estimated total revenues that will be generated by the contract. When a loss is identified, it is first recorded as an impairment of deferred contract costs related to the specific contract, if applicable, with the remaining amount recorded as a loss reserve. Estimates are monitored during the term of the contract and any changes to the estimates are recorded in the period the change is identified and may result in either an additional increase or decrease to the loss reserve.

During fiscal 2007, the Company recorded a $10,146 pre-tax non-cash charge related to certain European Benefits Outsourcing contracts. This charge is reflected as a $3,140 impairment of deferred contract costs and a $7,006 loss reserve provision included in compensation and related expenses.

During fiscal 2006, the Company recorded a $72,641 pre-tax non-cash charge related to certain HR BPO contracts resulting from higher than expected implementation and future ongoing costs to be incurred over the life of the contract. This charge was reflected as a $61,614 impairment of deferred contract costs and a $11,027 loss reserve provision included in compensation and related expenses.

In connection with the Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, the Company has contracts with multiple elements primarily in its Benefits Outsourcing and HR BPO segments. Multiple-element arrangements are assessed to determine whether they can be separated into more than one unit of accounting. EITF Issue 00-21 establishes the following criteria, all of which must be met, in order for a deliverable to qualify as a separate unit of accounting:

• The delivered items have value to the client on a stand-alone basis,

• There is objective and reliable evidence of the fair value of the undelivered items, and

• The arrangement includes a general right of return relative to the delivered items, and delivery or performance of the undelivered items is considered probable and substantially in the control of the Company.

If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, the arrangement consideration is allocated to the separate units of accounting based on each unit’s relative fair value. Revenue is then recognized using a proportional performance method such as recognizing revenue based on transactional services delivered or on a straight-line basis (as adjusted primarily for volume changes), as appropriate. If these criteria are not met, deliverables included in an arrangement are accounted for as a single unit of accounting and revenue and cost is deferred until the period in which the final deliverable is provided or a predominant service level has been attained.

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

The Company considers the criteria established by EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, in determining whether revenue should be recognized on a gross versus a net basis. In consideration of these criteria, the Company recognizes revenue primarily on a gross basis. Factors considered in determining if gross or net recognition is appropriate include whether the Company is primarily responsible to the client for the delivery of services, changes to the delivered product, performs part of the service delivered, has discretion on vendor selection, or bears credit risk.

In accordance with EITF Issue No. 01-14, Income Statement Characterization of Reimbursements Received for “Out-of-Pocket” Expenses Incurred, reimbursements received for out-of–pocket expenses incurred are characterized as revenues and are shown as a separate component of total revenues. Similarly, related reimbursable expenses are also shown separately within operating expenses.

52

Deferred Contract Costs and Deferred Contract Revenues

For long-term outsourcing service agreements, implementation efforts are often necessary to set up clients and their human resource or benefit programs on the Company’s systems and operating processes. For outsourcing services sold separately or accounted for as a separate unit of accounting, specific, incremental and direct costs of implementation incurred prior to the services going live are deferred and amortized over the period the related ongoing services revenue is recognized. Such costs may include internal and external costs for coding or creating customizations of systems, costs for conversion of client data and costs to negotiate contract terms. For outsourcing services that are accounted for as a combined unit of accounting; specific, incremental and direct costs of implementation, as well as ongoing service delivery costs incurred prior to revenue recognition commencing are deferred and amortized over the remaining contract services period. Implementation fees are also generally received from our clients either up-front or over the ongoing services period in the fee per participant. Lump sum implementation fees received from a client are initially deferred and then recognized as revenue evenly over the ongoing contract services period. If a client terminates an outsourcing services arrangement prior to the end of the contract, a loss on the contract may be recorded if necessary and any remaining deferred implementation revenues and costs would then be recognized into earnings through the termination date.

Performance-Based Compensation

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

Income Taxes

The Company applies the asset and liability method described in Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are recognized to reduce the deferred tax assets to the amount that is more likely than not to be realized. In assessing the likelihood of realization, management considers estimates of future taxable income.

Foreign Currency Translation

The Company’s foreign operations use local currency as their functional currency. Accordingly, assets and liabilities of foreign subsidiaries are translated into U.S. Dollars at exchange rates in effect at year-end, while revenues and expenses are translated at average exchange rates prevailing during the year. Translation adjustments are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Gains or losses resulting from foreign exchange transactions are recorded in earnings within other income (expense), net. Expense totaled $3,589 and $94 in fiscal 2007 and 2006, respectively and income totaled $447 in fiscal 2005.

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Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist of cash equivalents, client receivables and unbilled work in process. Hewitt invests its cash equivalents in the highest rated money market and similar investments and continuously monitors the investment ratings. Concentrations of credit risk with respect to unbilled revenues and receivables are limited as no client makes up a significant portion of the Company’s billings. Credit risk itself is limited due to the Company’s large number of Fortune 500 clients, its clients’ strong credit histories, and their dispersion across many different industries and geographic regions. For each of the years ended September 30, 2007, 2006 and 2005, no single client represented ten percent or more of the Company’s total revenues.

Fair Value of Financial Instruments

Cash and cash equivalents, marketable securities and client receivables are financial assets with carrying values that approximate fair value. Accounts payable and the Company’s variable rate debt are financial liabilities with carrying values that approximate fair value. As of September 30, 2007 and 2006, the carrying value of the Company’s fixed rate unsecured senior term notes was $70,000 and $98,000, respectively, and the fair value was estimated to be approximately $74,955 and $105,194, respectively. The estimate of fair value was calculated by discounting the future cash flows of the senior term notes at rates currently offered to the Company for similar debt instruments with comparable maturities. At September 30, 2007 and 2006, the carrying value of the Company’s unsecured convertible senior notes with a face value of $110,000 was $106,080 and $104,805, respectively, and the fair value was estimated to be $106,563 and $102,850, respectively based on the current market value of this publicly traded security.

Cash and Cash Equivalents

The Company defines cash and cash equivalents as cash and investments with maturities of 90 days or less when purchased. At September 30, 2007 and 2006, cash and cash equivalents included cash in checking and money market accounts as well as corporate tax-advantaged money market investments maturing in 90 days or less. At September 30, 2007, $803 of the Company’s cash was restricted in connection with a prior year acquisition. The restricted cash will be paid out under the terms of an Escrow Agreement and no later than October 30, 2008.

Funds Held for Clients

Some of the Company’s outsourcing agreements require the Company to hold funds on behalf of clients. Funds held on behalf of clients are segregated from Hewitt corporate funds. There is usually a short period of time between when we receive funds and when we pay obligations on behalf of clients.

Short-term Investments

Short-term investments include marketable equity and debt securities that are classified as available-for-sale and recorded at fair value. Marketable debt securities include auction rate securities with contractual maturities of up to 30 years. The auction rate securities have interest re-set dates that occur every 28-30 days or less and can be actively marketed at ongoing auctions that occur every 28-30 days or less. Unrealized gains or losses are reported as a component of accumulated other comprehensive income (loss). Realized gains or losses are reported in other income (expense), net on the consolidated statements of operations.

Client Receivables and Unbilled Work in Process

The Company periodically evaluates the collectibility of its client receivables and unbilled work in process based on a combination of factors. In circumstances where the Company becomes aware of a specific client’s difficulty in meeting its financial obligations (e.g., bankruptcy filings, failure to pay amounts due to the Company or to others), the Company records an allowance for doubtful accounts to reduce the client receivable or unbilled work in process to what the Company reasonably believes will be collected. For all other clients, the Company recognizes an allowance for doubtful accounts based on past write-off history and the length of time the receivables are past due or unbilled work in process is not billed. Facts and circumstances may change that would require the

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Company to alter its estimates of the collectibility of client receivables and unbilled work in process. Accounts are written off against the allowance when the Company determines that the receivable will not be collected.

Property and Equipment

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

Asset Description	Asset Life
Computer equipment	3 to 5 years
Capitalized software	3 to 5 years
Telecommunications equipment	5 years
Furniture and equipment	5 to 15 years
Buildings	15 to 39 years
Leasehold improvements	Lesser of estimated useful life or lease term

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

Software Development Costs

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

Costs that are incurred in the preliminary project stage are expensed as incurred. Once the capitalization criteria of SOP 98-1 have been met, external direct costs of materials and services consumed in developing or obtaining internal-use computer software; payroll and payroll-related costs for employees who are directly associated with and who devote time to the internal-use computer software project (to the extent of the time spent directly on the project); and interest costs incurred when developing computer software for internal use are capitalized.

Goodwill and Intangible Assets

Goodwill is not amortized but is reviewed for impairment annually or more frequently if indicators of impairment arise. The evaluation is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities for that reporting unit. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the reporting unit. These cash flow projections are based upon a number of estimates and assumptions. Intangible assets are initially valued at fair market value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. The evaluation of impairment is based upon a comparison of the carrying amount of the intangible asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset is considered impaired. The impairment expense is determined by comparing the estimated fair value of the intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period.

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

Asset Description	Asset Life
Trademarks and tradenames	3 to 10 years
Core technology	10 years
Customer relationships	10 to 30 years

Share-Based Compensation

On October 1, 2005 the Company adopted SFAS 123(R), “Share-Based Payment” (“SFAS 123(R)”), using the modified prospective method. Upon the adoption of SFAS 123(R), the Company recognized an immaterial one-time gain in compensation and related expenses related to the requirement to apply an estimated forfeiture rate to unvested awards. Previously, the Company recorded forfeitures as incurred. The Company has also elected to recognize the compensation cost of all share-based awards other than those with performance conditions on a straight-line basis over the vesting period of the award. Compensation cost of all share-based awards with performance conditions are recognized on a straight-line basis over the requisite service period or the implicit service period if it is probable that the performance conditions will be met. Under SFAS 123(R), benefits of tax deductions in excess of recognized compensation expense are now reported as a financing cash flow, rather than an operating cash flow as prescribed under the prior accounting rules.

Restricted stock awards, including restricted stock and restricted stock units, are measured using the fair market value of the stock as of the grant date. The Company recognizes compensation expense, net of estimated forfeitures on a straight-line basis over the vesting period. Estimated forfeitures are reviewed periodically and changes to the estimated forfeitures are adjusted through current period earnings. Employer payroll taxes are also recorded as expense when they become due over the vesting period. The remaining unvested shares are subject to forfeiture and restrictions on sale or transfer based on vesting dates.

The Company also granted nonqualified stock options at an exercise price equal to the fair market value of the Company’s stock on the grant date. The Company applies the Black-Scholes valuation method to compute the estimated fair value of the stock options and recognizes compensation expense, net of estimated forfeitures on a straight-line basis so that the award is fully expensed at the vesting date. Generally, stock options vest 25 percent on each anniversary of the grant date, are fully vested four years from the grant date, and have a term of ten years.

Prior to October 1, 2005, the Company accounted for stock-based compensation under SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, which allowed companies to apply the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”). Under APB 25, no compensation expense was recognized for non-qualified stock option awards as the exercise price of the awards on the date of grant was equal to the current market price of the Company’s stock. However, the Company did recognize compensation expense in connection with the issuance of restricted stock and restricted stock units. Restricted stock awards, including restricted stock and restricted stock units were initially recorded as unearned compensation on the balance sheet. The unearned compensation was amortized to compensation expense on a straight-line basis over the vesting period. Forfeitures of restricted stock awards were recognized as they occurred.

New Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. This Statement is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 (our fiscal year 2009). The Company is currently evaluating the potential impact, if any, of SFAS No. 159 on its consolidated financials statements.

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In September 2006, the SEC issued Staff Accounting Bulletin (SAB)No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, (“SAB No. 108”). SAB No. 108 addresses the process and diversity in practice of quantifying financial statement misstatements resulting in the potential build up of improper amounts on the balance sheet. The adoption of SAB No. 108, effective September 30, 2007, did not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The Statement is effective for fiscal years beginning after November 15, 2007 (our fiscal year 2009) and interim periods within those fiscal years. We do not believe that the adoption of the provisions of SFAS No. 157 will materially impact our financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No.87, 88, 106, and 132(R), (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. SFAS No. 158 also requires an employer to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end. The provisions of this Statement are effective for an employer with publicly traded equity securities and are required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006 (our fiscal year 2007); the measurement requirements are effective for fiscal years ending after December 15, 2008 (our fiscal year 2009). The Company adopted the recognition and disclosure requirements of SFAS No. 158 as of September 30, 2007. Adoption of SFAS No. 158 resulted in a decrease to accumulated other comprehensive income of approximately $1,525, net of $1,202 deferred income tax.

The following table summarizes the incremental effects of the initial adoption of SFAS No. 158 on our consolidated balance sheet at September 30, 2007:

	Before Application of SFAS No. 158		SFAS No. 158 Adjustments			After Application of SFAS No. 158
Current assets – deferred income taxes, net	$	31,795	$	738		$	32,533
Other non-current liabilities		162,537		2,727			165,264
Non-current liabilities – deferred income taxes, net		103,351		(464	)		102,887
Accumulated other comprehensive income, net		124,907		(1,525	)		123,382

For further discussion on our retirement plans, see Note 16.

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes. FIN 48 prescribes detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. Tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized upon the adoption of FIN 48 and in subsequent periods. FIN 48 will be effective for fiscal years beginning after December 15, 2006 (our fiscal year 2008) and the provisions of FIN 48 will be applied to all tax positions under Statement No. 109 upon initial adoption. The cumulative effect of applying the provisions of this interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. The Company is currently evaluating the potential impact of FIN 48 on its consolidated financial statements.

In June 2006, the FASB ratified the Emerging Issues Task Force (“EITF”) consensus on EITF Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits Pursuant to FASB Statement No. 43 (“EITF 06-2”). EITF 06-2 requires companies to accrue the cost of such compensated absences over the requisite service period.

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The Company currently accounts for the cost of compensated absences for sabbatical programs when the eligible employee completes the requisite service period. The Company is required to apply the provisions of EITF 06-2 at the beginning of fiscal year 2008. EITF 06-02 allows for adoption through retrospective application to all prior periods or through a cumulative effect adjustment to retained earnings if it is impracticable to determine the period-specific effects of the change on prior periods presented. The Company is currently evaluating the financial impact of this guidance and the method of adoption which will be used.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. The prior year Statement of Cash Flows reflects the inclusion of amortization of deferred contract revenues and costs as well as asset impairments within Adjustments to reconcile net (loss) income to net cash provided by operating activities, with the corresponding offset within Changes in operating assets and liabilities. In addition, as discussed in Note 23, segment results for 2006 have been recast to conform to the 2007 presentation.

3. Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding. Diluted EPS includes the components of basic EPS and also gives effect to dilutive common stock equivalents. Treasury stock is not considered outstanding for either basic or diluted EPS as weighted from the date the shares were placed into treasury. For purposes of calculating basic and diluted earnings per share, vested restricted stock awards are considered outstanding. Under the treasury stock method, diluted EPS reflects the potential dilution that could occur if securities or other instruments that are convertible into common stock were exercised or could result in the issuance of common stock. Potentially dilutive common stock equivalents include unvested restricted stock and restricted stock units, unexercised stock options and warrants that are “in-the-money” and outstanding convertible debt securities which would have a dilutive effect if converted from debt to common stock. Restricted stock awards generally vest 25 percent on each anniversary of the grant date and are not considered outstanding in basic earnings per share until the vesting date.

In July 2006, the Company’s Class B stockholders who were parties to a Stockholders’ Agreement agreed to terminate that agreement which provided for, among other things, block voting of Class B common stock. In connection with the termination of the Stockholders’ Agreement, effective July 31, 2006 an aggregate of 34,703,814 shares of Class B common stock and 2,892,943 shares of Class C common stock were converted into an aggregate of 37,596,757 shares of Class A common stock. As a result, effective that date, the Company had no Class B or Class C shares outstanding. Prior to that date, each share of the Company’s Class B and Class C common stock was convertible into Class A common stock on a one-for-one basis, subject to certain restrictions, and has been included in both basic and diluted outstanding shares for the year ended September 30, 2005. The Company has amended its Certificate of Incorporation to eliminate the Class B and Class C common stock.

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

	Year Ended September 30,
	2007			2006			2005
Net (loss) income as reported	$	(175,080	)	$	(115,938	)	$	134,732
Weighted average number of common stock for basic		107,866,281			107,642,383			111,340,261
Incremental effect of dilutive common stock equivalents:
Unvested restricted stock awards		—			—			687,104
Unexercised in-the-money stock options		—			—			1,078,357
Weighted average number of common stock for diluted		107,866,281			107,642,383			113,105,722
Earnings per share – basic	$	(1.62	)	$	(1.08	)	$	1.21
Earnings per share – diluted	$	(1.62	)	$	(1.08	)	$	1.19

During fiscal 2007 and 2006, the Company reported a consolidated net loss. As a result of the net loss, unvested restricted stock awards and unexercised in-the-money stock options were antidilutive for these years and were not included in the computation of diluted weighted average shares.

Debt securities convertible into 1,870,748 weighted average shares of Class A common stock were outstanding in the years ended September 30, 2007, 2006 and 2005, but were not included in the computation of diluted earnings per share because the effect of including the convertible debt securities would be antidilutive, as the effect of the assumed discontinuation of interest expense, net of tax would be greater than the addition of assumed converted shares. Warrants to purchase 200,000 weighted average shares of Class A common stock, which the Company assumed in the 2005 merger with Exult, Inc. (“Exult”), were outstanding in the years ended September 30, 2007, 2006 and 2005, but were not included in the computation of diluted earnings per share because the exercise price of the warrants, which is formula based with a minimum price of $37.75 per share, was greater than the average market price of the Class A common stock. Stock options to purchase 888,494 weighted average shares in 2007, 9,822,136 weighted average shares in 2006 and 958,995 weighted average shares in 2005 of Class A common stock, were outstanding but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater than the average market price of the Class A common stock.

4. Acquisitions and Dispositions

The Company continually assesses strategic acquisitions to complement its current business or to expand related services. During fiscal 2007, 2006 and 2005, the Company completed the following acquisitions and dispositions:

2007 Acquisitions

RealLife HR Acquisition

On September 4, 2007, the Company purchased 100% of the outstanding shares of RealLife HR (“RealLife”) for $42,000. The purchase price was paid in cash with $4,000 of the consideration paid to an Escrow Fund to be utilized to settle purchase price adjustments. RealLife is a health and welfare administration firm located in the U.S. RealLife historically has focused on outsourcing services for middle market entities. The Company has made preliminary purchase price allocations resulting in goodwill of approximately $30,859 being recorded in the Benefits Outsourcing segment and anticipates finalizing the purchase price allocations within one year of the acquisition date. The results of operations for RealLife have been included in the Consolidated Statements of Operations since its acquisition.

2006 Acquisitions and Dispositions

On September 20, 2006, the Company purchased 100% of the outstanding shares of an analytical consultancy business focused on pay and benefits benchmarking in Sweden for approximately $6,400. The purchase price is subject to certain contingent payments of

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approximately $835, held as restricted cash, if the acquired entity achieves specific operating targets. Payments will be made no later than October 30, 2008 and will be accounted for as additional purchase price. In September 2006, the Company made the initial scheduled escrow payment of approximately $140.

On October 1, 2005 the Company contributed its retirement and financial management business within Germany in exchange for an increased investment in a German actuarial business (“investee”). The Company had acquired a minority interest in investee on July 13, 2005 for approximately $5,400 and currently has a 28% non-controlling interest in the investee. The investment is accounted for under the equity method of accounting. At the end of year six from the original investment date, the Company has an option to purchase the remaining interest in the investee and the investee stockholders have an option to put their remaining interest in the investee to the Company. The final purchase price will be subject to a third party independent appraiser.

2005 Acquisitions

On September 5, 2005, the Company purchased 100% of the outstanding shares of a pension management business in The Netherlands for approximately $11,400. The purchase price was subject to certain contingent payments based on the final opening balance sheet which were resolved in fiscal 2006 and an additional $422 was paid out and accounted for as additional purchase price.

5. Short-Term Investments

As of September 30, 2007 and 2006, short-term investments are comprised of available-for-sale securities as follows:

	September 30, 2007				September 30, 2006
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Short-term investments:
Corporate notes	$	—	$	—	$	1,000	$	1,001
Asset-backed securities		—		—		1,063		1,057
U.S. Treasuries and Agencies		—		—		997		994
Auction rate municipal bonds		216,726		216,726		307,475		307,475
Total	$	216,726	$	216,726	$	310,535	$	310,527

Based on the contractual maturities of the available-for-sale debt securities as of September 30, 2007 and 2006, the amortized cost and estimated fair market value of the securities were as follows:

	September 30, 2007				September 30, 2006
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Short-term investments:
Due in less than one year	$	—	$	—	$	2,046	$	2,043
Due after one year through five years		—		—		6,014		6,009
Due after five years through ten years		5,000		5,000		5,000		5,000
Due after ten years		211,726		211,726		297,475		297,475
Total	$	216,726	$	216,726	$	310,535	$	310,527

As of September 30, 2007, there were no gross unrealized holding gains and losses.

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6. Client Receivables and Unbilled Work in Process

Client receivables and unbilled work in process, net of allowances, at September 30, 2007 and 2006, consisted of the following:

	2007		2006
Client receivables	$	401,282	$	408,638
Unbilled work in process		230,729		213,632
	$	632,011	$	622,270

As of September 30, 2007 and 2006, $4,552 and $10,498, respectively, of long-term unbilled work in process is classified within other non-current assets, net.

The activity in the client receivable and unbilled work in process allowances for the years ended September 30, 2007, 2006 and 2005, consisted of the following:

	2007			2006			2005
Balance at beginning of year	$	25,333		$	23,922		$	21,732
Increase in allowances		8,667			8,360			15,157
Use of allowances		(15,067	)		(6,949	)		(12,967	)
Balance at end of year	$	18,933		$	25,333		$	23,922

7. Property and Equipment

As of September 30, 2007 and 2006, net property and equipment, which includes assets under capital leases, consisted of the following:

	2007			2006
Property and equipment:
Buildings	$	93,930		$	93,397
Capitalized software		311,741			340,613
Computer equipment		283,888			347,081
Telecommunications equipment		136,418			136,086
Furniture and equipment		148,088			134,305
Leasehold improvements		160,354			142,594
Total property and equipment		1,134,419			1,194,076
Less accumulated depreciation and amortization		(778,512	)		(782,871	)
Balance at end of year	$	355,907		$	411,205

As of September 30, 2007 and 2006, buildings under capital leases were $88,944.

Long-lived assets with definite useful lives are depreciated or amortized over their estimated useful lives and are tested for impairment whenever indicators of impairment arise.

During the years ended September 30, 2007 and 2006, the Company evaluated certain long-lived assets for impairment. For the years ended September 30, 2007 and 2006, the Company recorded $13,645 and $5,718, respectively, of non-cash charges related to the impairment of capitalized software, shown within goodwill and asset impairment in the accompanying consolidated statements of operations and is reflected as a decrease to the gross carrying value of the asset. Fiscal 2007 impairment charges were recorded within the HR BPO, Benefits Outsourcing, and Consulting segment results in the amounts of $9,521, $3,237, and $887, respectively. Fiscal 2006 impairment charges were recorded within the HR BPO segment results. The impairment charges were primarily due to lower than expected utilization of certain assets. Fair value was calculated using estimated discounted future cash flows and a third-party valuation firm.

For the years ended September 30, 2007, 2006 and 2005, the Company recognized depreciation and amortization expense on its property and equipment, which includes assets under capital leases, of $135,700, $124,240 and $124,372, respectively. The Company recognized $8,166 of accelerated depreciation related to the leased real estate restructuring activities. Refer to Note 15 for a discussion on leased real estate restructuring activities.

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8. Goodwill and Other Intangible Assets

In conformity with SFAS No. 142, Goodwill and Other Intangible Assets, the Company tests goodwill for impairment annually or whenever indicators of impairment arise.

During the fourth quarter of fiscal 2007, the Company performed its annual impairment review of goodwill. This review resulted in an impairment charge of $279,843 related to the HR BPO segment recorded as a component of operating results in the accompanying consolidated statements of operations, due to reduced growth expectations for the overall business, partially due to a revised strategy. The reduced growth expectations were driven by a reduction in the likely number of future engagements and reduced contract value of each engagement, as we focus on identifying potential customers seeking a more standardized set of platforms and services. The impairment charge is non-cash in nature. The Company engaged a third-party valuation firm to assist in determining the fair value of the reporting unit. The valuation was based on estimates of future cash flows developed by management. In determining the amount of goodwill impairment, the Company also used the outside valuation firm to assist in valuing the significant intangible assets of the reporting unit.

During fiscal 2006, the Company performed an interim impairment review of goodwill allocated to its HR BPO segment. This review was triggered by lower than expected performance of some of the Company’s HR BPO contracts. This review resulted in a charge of $172,000 recorded as a component of operating results in the accompanying consolidated statements of operations. The impairment charge was non-cash in nature. The Company engaged a third-party valuation firm to assist in determining the fair value of the reporting unit. The valuation was based on estimates of future cash flows developed by management. In determining the amount of goodwill impairment, the Company also used the outside valuation firm to assist in valuing the significant intangible assets of the reporting unit. During the year ended September 30, 2005, no goodwill impairments were recognized.

The following is a summary of changes in the carrying amount of goodwill for the year ended September 30, 2007 and 2006:

	Benefits Outsourcing		HR BPO			Consulting			Total
Balance at September 30, 2005	$	8,563	$	439,938		$	245,869		$	694,370
Additions		408		—			6,094			6,502
Adjustment and reclassifications		7,680		(3,737	)		(7,680	)		(3,737	)
Impairment		—		(172,000	)		—			(172,000	)
Effect of changes in foreign exchange rates		88		4,747			14,952			19,787
Balance at September 30, 2006		16,739		268,948			259,235			544,922
Additions		30,859		—			3,009			33,868
Adjustment and reclassifications		—		—			(12,977	)		(12,977	)
Impairment		—		(279,843	)		—			(279,843	)
Effect of changes in foreign exchange rates		782		10,895			21,667			33,344
Balance at September 30, 2007	$	48,380	$	—		$	270,934		$	319,314

The additions to goodwill during the year ended September 30, 2007 primarily related to the acquisition of a benefits management services provider (Note 4) within the Benefits Outsourcing segment. The adjustments and reclassifications to goodwill during the year ended September 30, 2007 primarily related to a previously unclaimed tax benefit for share-based compensation relating to a prior year acquisition within the Consulting segment.

The additions to goodwill during the year ended September 30, 2006 primarily related to the finalization of the opening balance sheet for an acquisition within the Benefits Outsourcing segment which occurred in the fourth quarter of fiscal 2005 and an acquisition within the Consulting segment which occurred in the fourth quarter of fiscal 2006.

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The adjustments and reclassifications to goodwill during the year ended September 30, 2006 related to the increase of deferred tax assets associated with an acquisition (Note 20) and the Company’s decision to shift management oversight for an acquired business into the Benefits Outsourcing segment (Note 23).

Intangible assets with definite useful lives are amortized over their estimated useful lives and are tested for impairment whenever indicators of impairment arise.

During the year ended September 30, 2007, the Company evaluated certain intangible assets related to the HR BPO and Benefits Outsourcing segments for impairment. For the year ended September 30, 2007, the Company recorded $20,879 of non-cash charges in the HR BPO segment results and $4,395 of non-cash charges in the Benefits Outsourcing results, shown within goodwill and asset impairment in the accompanying consolidated statements of operations and reflected as a decrease to the gross carrying value of the assets. The impairment charge in the HR BPO segment primarily related to the impairment of core technology of $18,501, primarily due to lower than expected utilization of the assets, and also customer relationships of $2,028, primarily due to lower then expected future cash flows. The impairment charge in the Benefits Outsourcing segment primarily related to the impairment of customer relationships of $3,957, mostly due to lower than expected future cash flows. Fair value was determined using estimated discounted future cash flows and a third-party valuation firm.

During the year ended September 30, 2006, the Company evaluated certain intangible assets related to the HR BPO segment for impairment. For the year ended September 30, 2006, $1,705 of non-cash charges were recorded in the HR BPO segment results and shown within goodwill and asset impairment in the accompanying consolidated statements of operations and is reflected as a decrease to the gross carrying value of the asset. The impairment charges are primarily due to changes in customer contract provisions. Fair value was determined using estimated discounted future cash flows.

The following is a summary of intangible assets at September 30, 2007 and 2006:

	September 30, 2007						September 30, 2006
Definite useful life assets	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Trademarks and tradenames	$	15,548	$	14,498	$	1,050	$	14,870	$	11,647	$	3,223
Core technology		25,499		12,572		12,927		45,309		9,273		36,036
Customer relationships		256,024		73,868		182,156		245,780		42,931		202,849
Total	$	297,071	$	100,938	$	196,133	$	305,959	$	63,851	$	242,108

Amortization expense related to definite-lived intangible assets for the years ended September 30, 2007, 2006 and 2005, are as follows:

	2007		2006		2005
Trademarks and tradenames	$	1,895	$	2,694	$	2,840
Core technology		4,271		4,824		4,434
Customer relationships		27,492		17,222		18,036
Total	$	33,658	$	24,740	$	25,310

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Applying current foreign exchange rates, estimated amortization expense related to intangible assets with definite lives at September 30, 2007, for each of the years in the five-year period ending September 30, 2012 and thereafter is as follows:

	Total
Fiscal year ending:
2008	$	25,981
2009		15,567
2010		15,388
2011		15,352
2012		14,945
2013 and thereafter		108,900
Total	$	196,133

9. Other Non-Current Assets, Net

As of September 30, 2007 and 2006, other non-current assets, net, consisted of the following:

	2007		2006
Other non-current assets, net:
Long-term unbilled work in process	$	4,552	$	10,498
Prepaid long-term interest and service contracts		1,194		7,476
Investments in affiliated companies		20,017		16,982
Prepaid pension asset		6,199		—
Other non-current assets, net	$	31,962	$	34,956

The Company has several prepaid long-term contracts for maintenance on computer software systems. Benefits related to these long-term prepaid maintenance contracts are received over the contractual period.

Investments in less than 50%-owned affiliated companies over which the Company has the ability to exercise significant influence but lacks control are accounted for using the equity method of accounting.

Effective September 30, 2007, the Company adopted SFAS No. 158, Employers’ Accounting for Defined Benefit and Other Postretirement Plans. As a result of adopting SFAS No. 158, the Company has aggregated all its over-funded retirement plans and classified the amount at September 30, 2007 as a non-current asset within the accompanying consolidated balance sheets. Prior to adoption, the over-funded amounts were included with pension liabilities within other non-current liabilities. For further discussion on our retirement plans and adoption of SFAS No. 158, see Note 1 and Note 16.

10. Short-Term Debt

As of September 30, 2007 and 2006, the Company had short-term debt outstanding of $30,369 and $32,246, respectively consisting of borrowings on unsecured lines of credit.

Unsecured lines of credit

As part of the 2005 merger with Exult, the Company assumed a domestic unsecured revolving line of credit facility which provided for borrowings up to $25,000 and expired on July 31, 2005. Borrowings under the facility accrued interest at LIBOR plus 212.5 basis points or a base rate. On January 25, 2005, the Company replaced the facility with a $25,000 unsecured revolving line of credit facility which provides for borrowings up to $25,000 expiring on October 1, 2007. Borrowings under this facility accrue interest at LIBOR plus 52.5-72.5 basis points or a base rate. On September 26, 2007, the Company replaced the facility with a $19,500 unsecured revolving line of credit facility which provides for borrowings up to $19,500 expiring on September 30, 2008. Borrowings under this facility accrue interest at LIBOR plus 30.0-60.0 basis points or a base rate. The Company had borrowings of $13,345 and $19,559 accruing interest at a weighted average rate of 6.866% and 6.41% at September 30, 2007 and 2006, respectively.

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On May 23, 2005, the Company entered into a five-year credit facility, with a six-bank syndicate, that provides for borrowings up to $200,000. This facility replaced a three-year facility that was scheduled to expire on September 27, 2005. Borrowings under the new facility accrue interest at LIBOR plus 30-60 basis points or the prime rate, at our option. Borrowings are repayable upon demand or at expiration of the facility on May 23, 2010. Quarterly facility fees ranging from 7.5-15 basis points are charged on the average daily commitment under the facility. At September 30, 2007 and 2006, there were no borrowings outstanding against the new facility.

Hewitt Bacon & Woodrow Ltd., the Company’s U.K. subsidiary, had an unsecured British pound sterling line of credit. In July 2005 the line of credit was amended and extended to allow for borrowings up to £5,000 until the expiration of the facility on July 31, 2006. The agreement was amended in July 2006 to extend the facility to October 31, 2006, all terms remained unchanged. The expiration for this facility has been extended to October 30, 2007. This facility expired on October 30, 2007 and the Company is in the process of extending the facility. The interest rate for this facility is LIBOR plus 87.5 basis points. As of September 30, 2007 and 2006, the interest rates on the line of credit were 7.069% and 5.775%, respectively, and there was no outstanding balance at either date.

The Company has a contract with a lender to guarantee borrowings of its subsidiaries up to $20,500 in multiple currency loans and letters of credit. There is no fixed termination date on this contract. This contract allows the Company’s foreign subsidiaries to secure financing at rates based on the Company’s credit-worthiness. The contract was signed August 31, 2004, and $3,476 of the facility is available for the Company’s foreign offices and bank facilities. The facility provides for borrowings at LIBOR plus 75 basis points. As of September 30, 2007 and 2006, there were borrowings of $17,024 and $12,687, respectively.

11. Debt

Debt at September 30, 2007 and 2006, consisted of the following:

	2007		2006
Term loan credit facility	$	8,122	$	9,362
Capital lease obligations		72,910		76,580
Unsecured convertible senior term notes		106,080		104,805
Unsecured senior term notes		70,000		98,000
Other foreign debt		575		847
		257,687		289,594
Current portion of long-term debt and capital lease obligations		24,222		34,742
Debt and capital lease obligations, less current portion	$	233,465	$	254,852

The principal portion of long-term debt excluding capital lease obligations and net of discount on unsecured convertible senior term notes at September 30, 2007 becomes due as follows:

Fiscal year ending:
2008	$	19,530
2009		9,079
2010		19,054
2011		130,114
2012		7,000
Total	$	184,777

Various debt agreements call for the maintenance of specified financial ratios, among other restrictions. At September 30, 2007 and 2006, the Company was in compliance with all debt covenants.

Term loan credit facility

On December 22, 2004, Hewitt Bacon & Woodrow Ltd., the Company’s U.K. subsidiary, entered into a £6 million term loan credit facility agreement. The loan is repayable in 24 quarterly installments through December 2010 and accrues interest at LIBOR plus 80 basis points. At September 30, 2007 and 2006, the outstanding balance of the term loan was approximately £4 million or $8,122 and £5 million or $9,362, respectively and was accruing interest at 7.1625% and 5.9525%, respectively.

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Other foreign debt

Other foreign debt outstanding at September 30, 2007 and 2006 totaled $575 and $847, respectively, pursuant to local banking relationships.

Unsecured convertible senior term notes

In connection with the Company’s merger with Exult, the Company became obligated for $110,000 aggregate principal amount of 2.50% Convertible Senior Notes due October 1, 2010. The notes rank equally with all of Hewitt’s existing and future senior unsecured debt and will be effectively subordinated to all liabilities of each of its subsidiaries. The Company recorded the notes at their estimated fair value of $102,300 as of October 1, 2004 and is accreting the value of the discount over the remaining term of the notes to their stated maturity value using a method that approximates the effective interest method. As of September 30, 2007 and 2006, the carrying value on the notes was $106,080 and $104,805, respectively, resulting in an unamortized discount of $3,920 and $5,195, respectively.

The notes are convertible into shares of Hewitt Class A common stock at any time before the close of business on the date of their maturity, unless the notes have previously been redeemed or repurchased, if (1) the price of Hewitt’s Class A common stock issuable upon conversion of a note reaches a specified threshold, (2) the notes are called for redemption, (3) specified corporate transactions occur or (4) the trading price of the notes falls below certain thresholds. The conversion rate is 17.0068 shares of Hewitt Class A common stock per each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of approximately $58.80 per share. Based upon the $58.80 conversion price, the notes would be convertible into 1,870,748 shares of Hewitt Class A common stock.

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

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Unsecured senior term notes

The unsecured senior term notes were issued to various financial institutions consisting primarily of insurance companies. The terms and balances of the unsecured senior term notes are as follows:

Terms	Balance at Issuance		Interest Rate		September 30, 2007		September 30, 2006
Issued July 7, 2000, repayable on June 30, 2007	$	15,000	7.93	%	$	—	$	15,000
Issued March 30, 2000, repayable in five annual installments beginning March 2003 through March 2007		15,000	7.94	%		—		3,000
Issued May 30, 1996, repayable in five annual installments beginning May 2004 through May 2008		50,000	7.45	%		10,000		20,000
Issued July 7, 2000, repayable on June 30, 2010		10,000	8.11	%		10,000		10,000
Issued on October 16, 2000, repayable on October 15, 2010		15,000	7.90	%		15,000		15,000
Issued on March 30, 2000, repayable in five annual installments beginning March 2008 through March 2012		35,000	8.08	%		35,000		35,000
	$	140,000			$	70,000	$	98,000

12. Lease Agreements

The Company has obligations under long-term, non-cancelable lease agreements, principally for office space, furniture, and equipment, with terms ranging from one to twenty years. Prior to May 20, 2005, some of the leases were with related parties (Note 13). At September 30, 2007 and 2006 all leases are with third-parties.

Capital Leases

Capital lease obligations at September 30, 2007 and 2006, consisted of the following:

	2007		2006
Building capital leases	$	72,123	$	76,213
Computer and telecommunications equipment capital leases		787		367
		72,910		76,580
Current portion		4,692		4,286
Capital lease obligations, less current portion	$	68,218	$	72,294

The following is a schedule of minimum future rental payments required as of September 30, 2007, under capital leases which have an initial or remaining non-cancelable lease term in excess of one year:

	Principal		Interest		Total
Fiscal year ending:
2008	$	4,692	$	5,103	$	9,795
2009		5,459		4,750		10,209
2010		5,890		4,356		10,246
2011		6,509		3,918		10,427
2012		7,151		3,430		10,581
2013 and thereafter		43,209		7,912		51,121
Total minimum lease payments	$	72,910	$	29,469	$	102,379

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Building capital leases

The Norwalk, Connecticut and Newport Beach, California capital leases are payable in monthly installments at 7.33% interest and expire in April 2017 and May 2017, respectively. The leases provide for stepped rents over the lease term with the option for two renewal terms of five years each. The capitalized leases and the related capital lease obligations were recorded at lease inception and the capitalized lease assets are being amortized over the remaining lease term on a straight-line basis. The terms of the Norwalk lease also provide the Company with a right of first refusal on sale if the landlord receives an offer for the sale of the building. In April 2007 the Company entered into a sublease agreement for the Norwalk lease. Minimum sublease rentals to be received in the future under the sublease are $26,681 at September 30, 2007.

Computer and telecommunications equipment capital leases

The Company’s computer and telecommunications equipment installment notes and capitalized leases are secured by the related equipment and are payable typically over three to five years in monthly or quarterly installments at an interest rate of 5.0%.

Operating Leases

The Company also has various third-party operating leases for office space, furniture, and equipment with terms ranging from one to twenty years. The Company has various office leases that grant a free rent period and have escalating rents. Certain office leases include landlord incentives for leasehold improvements. Landlord incentives are recognized as a reduction to rental expense over the term of the lease. The accompanying consolidated statements of operations reflect rent expense on a straight-line basis recognized over the term of the leases. The difference between straight-line basis rent and the amount paid has been recorded as accrued lease obligations. The Company also has leases that have lease renewal provisions. As of September 30, 2007 all operating leases outstanding were with third parties.

The following is a schedule of minimum future rental commitments as of September 30, 2007, under operating leases with an initial or remaining non-cancelable lease terms in excess of one year:

	Total
Fiscal year ending:
2008	$	95,355
2009		88,561
2010		80,106
2011		74,180
2012		67,349
2013 and thereafter		316,676
Total minimum lease payments		722,227
Total anticipated future sublease receipts		(31,140	)
	$	691,087

Total rental expense for operating leases amounted to $106,092, $99,266 and $106,341 in 2007, 2006 and 2005, respectively.

13. Related Party Transactions

Prior to fiscal 2006, the Company leased real property in Lincolnshire, Illinois, The Woodlands, Texas and Orlando, Florida from FORE Holdings LLC, the former parent company and related party, and its subsidiaries, Hewitt Properties I LLC, Hewitt Properties II LLC, Hewitt Properties III LLC, Hewitt Properties IV LLC, and Hewitt Properties VII LLC, The Bayview Trust, and Overlook Associates (a former equity method investment of FORE Holdings). During the fiscal years ended September 30, 2007 and 2006, the Company was not a party to any related party leases.

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In May 2005, FORE Holdings sold the majority of its properties to a third party. Upon closing of the sale, Hewitt Associates LLC, a wholly-owned subsidiary of the Company, entered into amended lease agreements with the third party. Under the amended leases, rent and lease terms remained the same. Hewitt Associates LLC agreed to two debt covenants (minimum net worth and leverage ratio) identical to those that exist on the Company’s unsecured senior term notes and Hewitt Associates LLC also waived a purchase option right with respect to the properties sold and one other property. In exchange for the amended terms, Hewitt Associates received $3,000 in consideration from FORE Holdings. The $3,000 will reduce the Company’s rent expense related to the properties over the remaining lease terms which run through March 2020.

Total lease payments to these entities were $23,988 in 2005. The leases were entered into on terms comparable to those which could have been obtained in an arm’s length transaction. The investment in these properties was funded through capital contributions by FORE Holdings and third-party debt. This debt was not reflected on the Company’s balance sheet as it was an obligation of FORE Holdings and its related parties, and not an obligation of the Company. The Company does not guarantee the debt related to these properties.

14. Severance Accrual

During fiscal 2007, the Company implemented several productivity initiatives across the business that resulted in a reduction in workforce. The Company’s severance policy provides that the affected employees will receive an amount of severance pay that is based on the employee’s length of service, current employment status and level and benefits elections. For certain affected employees outside of the United States, the amount of severance is based upon the requirements of local regulations. As of September 30, 2007, the Company has estimated its severance obligations to be $10,661 in accordance with Statement of Financial Accounting Standards No. 112 (as Amended), “Employers’ Accounting for Postemployment Benefits – an amendment of FASB Statements No. 5 and 43.” The Company recorded charges of $10,033 in the fourth quarter and made payments of $181 related to those charges.

The following table summarizes the activity in the severance accrual for the year ended September 30, 2007:

	October 1, 2006		Additions		Payments			Adjustments			September 30, 2007
Severance Accrual	$	—	$	36,221	$	(21,226	)	$	(4,334	)	$	10,661

The Company anticipates that the remaining accrual will be paid out by the end of fiscal 2008.

15. Restructuring Activities

In conjunction with an ongoing review of the Company’s leased real estate portfolio, during the third quarter of fiscal 2007, the Company announced its intention to consolidate facilities, and in some cases, exit certain properties. During the fourth quarter of fiscal 2007, the Company recorded expense of $17,777 related to the exit and consolidation of certain facilities in both the U.S. and international locations. The charges consisted of $21,649 for recognition of the fair value of lease vacancy obligations and lease termination charges. This was offset by the reversal of accrued rents of $3,872. The net costs were recorded in other operating expense within the consolidated statements of operations and charged to the Benefits Outsourcing, HR BPO, and Consulting segments in the amounts of $13,469, $3,082, and $1,226, respectively.

The following table summarizes the activity in the restructuring reserves for the year ended September 30, 2007:

	October 1, 2006		Additions		Payments			September 30, 2007
Real Estate lease restructuring	$	—	$	21,649	$	(762	)	$	20,887

The Company anticipates that the remaining accrual will be paid out by fiscal 2018.

In connection with the 2005 Exult merger, the Company formulated facility exit and severance strategies. The Company recorded $13,721 of estimated liabilities for costs related to Exult facilities consolidation, the related impact on Exult outstanding real estate leases and Exult involuntary employee terminations and relocations.

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The accrued obligation was $3,132 and $3,608 as of September 30, 2007 and 2006, respectively. All severance amounts have been paid out as of September 30, 2006. Lease termination costs are expected to be paid by October 2011.

16. Retirement Plans

Employee 401(k) and Profit Sharing Plan

The Company has a qualified 401(k) and profit sharing plan for its eligible employees. Under the plan, Hewitt makes annual contributions equal to a percentage of participants’ total cash compensation and may make additional contributions in accordance with the terms of the plan. Additionally, employees may make contributions in accordance with the terms of the plan, with a portion of those contributions matched by the Company. In 2007, 2006, and 2005, profit sharing plan and company match contribution expenses were $58,179, $53,617 and $41,715, respectively.

Defined Benefit Plans

Through various acquisitions, the Company has defined benefit pension plans, the largest of which was closed to new entrants in 1998, providing retirement benefits to eligible employees. The Company also has other smaller defined benefit pension plans to provide benefits to eligible employees. It is the Company’s policy to fund in accordance with local practice and legislation.

Healthcare Plans

The Company provides health benefits for retired employees and certain dependents when the employee becomes eligible for these benefits by satisfying plan provisions which include certain age and service requirements. The health benefit plans covering substantially all U.S. and Canadian employees are contributory, with contributions reviewed annually and adjusted as appropriate. These plans contain other cost-sharing features such as deductibles and coinsurance. The Company does not pre-fund these plans and has the right to modify or terminate any of these plans in the future.

Effective September 30, 2007, the Company adopted SFAS No. 158, Employers’ Accounting for Defined Benefit and Other Postretirement Plans. See Note 2 for the incremental effects of the initial adoption of SFAS No. 158 on our consolidated balance sheet at September 30, 2007.

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The following tables provide a reconciliation of the changes in the defined benefit and healthcare plans’ benefit obligations and fair value of assets for the years ended September 30, 2007 and 2006, and a statement of funded status as of September 30, 2007 and 2006.

	Pension Benefits						Health Benefits
	2007			2006			2007			2006
Change in Benefit Obligation
Benefit obligation, beginning of year	$	182,707		$	169,151		$	13,638		$	17,661
Acquisitions		—			392			—			—
Service cost		12,078			11,028			155			9
Interest cost		9,293			7,494			852			716
Plan amendments		—			(537	)		—			(3,153	)
Remeasurement		—			(710	)		—			—
Actuarial (gains)/losses		(5,453	)		(10,948	)		(321	)		(984	)
Benefit payments		(7,115	)		(2,159	)		(611	)		(611	)
Settlement payment		(31	)		(1,352	)		—			—
Changes in foreign exchange rates		20,154			10,348			—			—
Benefit obligation end of year	$	211,633		$	182,707		$	13,713		$	13,638
Change in Plan Assets
Fair value of plan assets, beginning of year	$	151,553		$	121,848		$	—		$	—
Actual return on plan assets		14,214			10,058			—			—
Employer contribution		19,693			15,906			611			611
Benefit payments		(7,115	)		(2,159	)		(611	)		(611	)
Settlement payment		(31	)		(1,352	)		—			—
Changes in foreign exchange rates		15,275			7,252			—			—
Fair value of plan assets, end of year	$	193,589		$	151,553		$	—		$	—
	Pension Benefits						Health Benefits
	2007			2006			2007			2006
Reconciliation of Accrued Obligation and Total Amount Recognized
Unfunded status (a)	$	(18,044	)	$	(31,154	)	$	(13,713	)	$	(13,638	)
Unrecognized net loss		—			8,324			—			5,007
Unrecognized prior service cost		—			(533	)		—			23
Unrecognized transition obligation		—			—			—			2
Net amount recognized, end of year	$	(18,044	)	$	(23,363	)	$	(13,713	)	$	(8,606	)
Amounts recorded in other comprehensive income, pre-tax:
Prior service cost	$	711		$	—		$	20		$	—
Net actuarial (gain) loss		(2,465	)		—			4,459			—
Transition obligation		—			—			2			—
Total	$	(1,754	)	$	—		$	4,481		$	—

(a) Fair value of assets less projected benefit obligation, shown in the preceding tables.

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After the adoption of SFAS No. 158, the amounts recognized in the consolidated balance sheet as of September 30, 2007 consisted of:

	Pension Benefits			Health Benefits
Other non-current assets, net	$	6,199		$	—
Accrued expenses		(2,725	)		(699	)
Other non-current liabilities		(21,518	)		(13,014	)
Net amount recognized	$	(18,044	)	$	(13,713	)

At September 30, 2007, the above recognized unfunded status of pension plans determined using a June 30, 2007 measurement date was reduced by $2,060 primarily due to employer contributions made during the fourth quarter.

Relating to the pension plans, the estimated net loss, prior service cost, and transition obligation that will be amortized from shareholders’ equity into pension cost in fiscal 2008 are $(24), $92, and zero, respectively. Comparable amounts amortized in fiscal 2007, respectively, were $229, $92, and zero.

Relating to the health benefit plans, the estimated net loss, prior service cost, and transition obligation that will be amortized from shareholders’ equity into pension cost in fiscal 2008 are $172, $2, and zero, respectively. Comparable amounts amortized in fiscal 2007, respectively, were $246, $2, and zero.

The accumulated benefit obligation for the pension plans was $185,044 and $159,607 as of September 30, 2007 and 2006, respectively.

The assumptions used in the measurement of our benefit obligations at June 30, 2007 and 2006 are as follows:

	Pension Benefits				Health Benefits
	2007		2006		2007		2006
Weighted average assumptions:
Discount rate	5.35	%	4.85	%	6.40	%	6.00	%
Expected return on plan assets	6.20	%	5.77	%	N/A		N/A
Rate of compensation increase	4.13	%	3.89	%	N/A		N/A

The assumptions used in the measurement of our net benefit costs for the years ended September 30, 2007, 2006 and 2005 are as follows:

	Pension Benefits						Health Benefits
	2007		2006		2005		2007		2006		2005
Weighted average assumptions:
Discount rate	4.85	%	4.39	%	5.23	%	6.00	%	5.00	%	6.00	%
Expected return on plan assets	5.77	%	5.26	%	5.99	%	N/A		N/A		N/A
Rate of compensation increase	3.89	%	3.54	%	3.73	%	N/A		N/A		N/A

The health plan provides flat dollar credits based on years of service and age at retirement. Service for determining credits was frozen as of December 31, 2005. The amendment to the plan resulted in a $3,153 ($2,728 decrease to the unrecognized prior service cost and $425 decrease to the unrecognized transition obligation) decrease in the accumulated postretirement benefit obligation during 2006. There is a small group of grandfathered retirees who receive postretirement medical coverage at a percentage of cost. The liabilities for these retirees are valued assuming a 9.5% health care cost trend rate for 2007. The rate was assumed to decrease gradually to 6.0% in 2014 and remain at that level thereafter.

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

	2007			2006
Effect of 1% Change in the Assumed Health Care Cost Trend Rates
Effect of 1% increase on:
Total of service and interest cost components	$	3		$	3
Benefit obligations		45			52
Effect of 1% decrease on:
Total of service and interest cost components	$	(3	)	$	(3	)
Benefit obligation		(42	)		(49	)

The Company’s pension plan weighted average asset allocations at September 30, 2007, and 2006, by asset category are as follows:

	2007		2006
Asset Category
Equity securities	49.51	%	47.44	%
Debt securities	45.88		45.86
Real estate	3.57		3.39
Other	1.04		3.31
Total	100.00	%	100.00	%

The investment objectives for the pension plan assets are to generate returns that will enable the plans to meet their future obligations. The strategies balance the requirement to generate returns through investments such as equity securities, with the need to control risk through less volatile assets such as fixed income securities, while also meeting local regulations. Approximately 90% of the Company’s plan assets relate to the Company’s pension plans in the United Kingdom and Switzerland. In the United Kingdom, the plan assets are managed in two separate portfolios, an equity portfolio and a bond portfolio. The strategy is to invest 56% and 44% of the plan assets in equity securities and debt securities, respectively. The total return is tracked to the relevant market index, within specified tolerances and after allowance for withholding tax where applicable, for each of the funds in which the assets are invested. The plan assets for the Switzerland plan are managed in accordance with the laws in Switzerland. Within the scope of the Swiss laws, the strategy targets equity securities of 35%-45%, debt securities of 35%-65%, real estate investments of 5%-15% and other investments of 0%-5%.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

	Pension Benefits		Health Benefits
2008	$	4,560	$	699
2009		4,789		721
2010		5,006		740
2011		5,460		748
2012		5,531		735
Years 2013 through 2017		38,109		3,999

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

	Pension Benefits									Health Benefits
	2007			2006			2005			2007		2006		2005
Components of Net Periodic Benefit Cost
Service cost	$	12,078		$	11,028		$	9,854		$	155	$	9	$	1,267
Interest cost		9,293			7,494			8,331			852		716		791
Expected return on plan assets		(9,090	)		(6,748	)		(6,738	)		—		—		—
(Gain) loss recognized in the year		322			(15	)		4			—		—		—
Loss on settlement		—			86			—			—		—		—
Amortization of:
Unrecognized prior service cost		92			(20	)		—			2		2		199
Unrecognized loss		229			552			155			246		283		115
Transition obligation		—			—			—			—		—		33
Net periodic benefit cost	$	12,924		$	12,377		$	11,606		$	1,255	$	1,010	$	2,405

The Company presently anticipates contributing approximately $19,426 to fund its pension plans and $699 to fund its health benefit plans in fiscal 2008. The Company does not expect any plan assets to be returned to the Company during fiscal 2008.

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17. Share-Based Compensation Plans

On October 1, 2005, the Company adopted SFAS 123(R), Share-Based Payment” (“SFAS 123(R)”) using the modified prospective method. Upon the adoption of SFAS 123(R), the Company recognized an immaterial one-time gain in compensation and related expenses related to the requirement to apply an estimated forfeiture rate to unvested awards. Previously, the Company recorded forfeitures as incurred. The Company also elected to recognize the compensation cost of all share-based awards on a straight-line basis over the vesting period of the award. Under SFAS 123(R), benefits of tax deductions in excess of recognized compensation expense are now reported as a financing cash flow, rather than an operating cash flow as prescribed under the prior accounting rules.

Prior to October 1, 2005, the Company applied Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”) to account for its stock-based compensation plans. Under APB 25, no compensation expense was recognized for non-qualified stock option awards as the exercise price of the awards on the date of grant was equal to the current market price of the Company’s stock. However, the Company did recognize compensation expense in connection with the issuance of restricted stock and restricted stock units. The adoption of SFAS 123(R) primarily resulted in compensation expense being recorded for stock options.

During the years ended September 30, 2007, 2006, and 2005 the Company recorded pre-tax share-based compensation expense of $40,937, $55,007, and $26,199, respectively, related to expensing of the Company’s non-qualified stock options, restricted stock, and restricted stock units. During the third quarter of fiscal 2007, the Company reduced share-based compensation expense by $4,505 related to adjustments to the forfeiture rate used to record share-based compensation.

For the years ended September 30, 2007 and 2006, the excess tax benefits of $4,912 and $1,084, respectively, were reflected as cash flow from financing activities in the consolidated statement of cash flows. The total compensation cost related to non-vested restricted stock and stock option awards not yet recognized as of September 30, 2007 was approximately $63,083, which is expected to be recognized over a weighted average of 2.4 years.

Results for fiscal 2005 have not been restated to reflect the adoption of SFAS 123(R). Had compensation expense for the Company’s stock options been determined based on the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, and applying the Black Scholes valuation method, net income and earnings per share for the year ended September 30, 2005 would have been as follows:

	Year Ended September 30, 2005
Net income:
As reported	$	134,732
Reported share-based compensation expense, net of tax		17,259
Pro forma share-based compensation expense, net of tax		(45,077	)
Pro forma net income	$	106,914
Net income per share – basic:
As reported	$	1.21
Pro forma	$	0.96
Net income per share – diluted:
As reported	$	1.19
Pro forma	$	0.95

Under the Company’s Global Stock and Incentive Compensation Plan (the “Plan”), which was adopted in fiscal 2002 and is administered by the Compensation and Leadership Committee (the “Committee”) of the Company’s Board of Directors, employees and directors may receive awards of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance share units, and cash-based awards; employees can also receive incentive stock options. As of September 30, 2007, only restricted stock, restricted stock units, performance share units and nonqualified stock options have been granted. A total of 25,000,000 shares of Class A common stock have been reserved for issuance under the Plan. As of September 30, 2007, there were 2,810,954 shares available for grant under the Plan.

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Restricted Stock and Restricted Stock Units

On December 1, 2006, the Company granted 2,152,645 shares of restricted stock units at a price of $25.24, which vest over four years. Also on December 1, 2006, the Company granted 115,000 restricted stock units at a price of $25.24 which vest on September 30, 2009 upon meeting certain fiscal year 2007 financial performance conditions. During 2007, an additional 323,707 shares of restricted stock units were granted at a weighted-average price of $28.01, which vest from one to four years.

On October 3, 2005, the Company granted 2,282,190 shares of restricted stock and restricted stock units at a price of $27.59, which vest from two to four years. During the year ended September 30, 2006, an additional 1,031,490 shares of restricted stock and restricted stock units were granted at a weighted average price of $23.71. Included in the fiscal 2006 grants were 186,111 restricted stock awards which vest upon meeting certain financial performance conditions as of September 30, 2008. The majority of these shares vest evenly through July 1, 2009, and portions of the awards vest through July 1, 2007 and July 1, 2008. In the year ended September 30, 2005, the Company granted 735,249 restricted stock and restricted stock units at a weighted average grant price of $26.92. These shares vested on July 1, 2006.

In connection with the 2005 Exult merger, the Company granted 692,139 shares of Class A unvested restricted stock and restricted stock units to certain Exult employees. These awards were valued at $18,535 on the October 1, 2004 grant date (a price of $26.78 per share). This amount was recorded as unearned compensation and was expensed ratably through the vesting date of June 27, 2006.

Shares which vest upon meeting certain financial performance conditions assume that goals will be achieved. The goals are evaluated quarterly. If such goals are not met or it is probable the goals will not be met, no compensation cost is recognized and any recognized compensation cost is reversed. During fiscal year 2006, the Company evaluated the goals under the fiscal 2006 performance plan and it was determined that it was probable that the goals would not be met. As a result, the expense previously recognized in conjunction with performance plan was reversed in fiscal 2006. The plan remains in existence and as such, the Company will continue to monitor the results to assess whether a payout would be probable.

In connection with its initial public offering, the Company granted 5,789,908 shares of Class A restricted stock and restricted stock units to employees. The one-time initial public offering-related awards were valued at $110,141 on the June 27, 2002 grant date (a weighted price of $19.02 per share) and fully vested during the year ended September 30, 2006. For the years ended September 30, 2006 and 2005, compensation expense for the initial public offering restricted stock awards was $9,397 and $17,355, respectively, including the award compensation expense and applicable payroll taxes for the respective periods.

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The following table summarizes restricted stock and restricted stock units activity during 2007, 2006, and 2005:

	2007				2006				2005
	Restricted Stock / Restricted Stock Units		Weighted Average Fair Value		Restricted Stock / Restricted Stock Units		Weighted Average Fair Value		Restricted Stock / Restricted Stock Units		Weighted Average Fair Value
Shares outstanding at beginning of fiscal year	2,370,858		$	25.95	1,316,942		$	22.38	1,626,000		$	19.05
Granted	2,591,352		$	25.59	3,313,680		$	26.38	795,084		$	26.88
Vested	(1,228,320	)	$	26.03	(1,912,794	)	$	24.21	(857,673	)	$	19.67
Forfeited	(598,068	)	$	25.93	(346,970	)	$	26.18	(246,469	)	$	24.37
Shares outstanding at end of fiscal year	3,135,822		$	25.62	2,370,858		$	25.95	1,316,942		$	22.38

Stock Options

The Committee may grant both incentive stock options and nonqualified stock options to purchase shares of Class A common stock. Subject to the terms and provisions of the Plan, options may be granted to participants in such number, and upon such terms, as determined by the Committee, provided that incentive stock options may not be granted to non-employee directors. The option price is determined by the Committee, provided that for options issued to participants in the United States, the option price may not be less than 100% of the fair market value of the shares on the date the option is granted and no option may be exercisable later than the tenth anniversary of its grant. The nonqualified stock options granted vest ratably over a period of four years. As of September 30, 2007, the Company has 7,611,095 options outstanding with a weighted average exercise price of $24.12.

The fair value used to determine compensation expense for the years ended September 30, 2007 and 2006 was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	2007		2006
Expected volatility	28.15	%	28.89	%
Risk-free interest rate	4.42	%	4.73	%
Expected life	6.23		5.68
Dividend yield	0	%	0	%

The Company did not grant any stock options in the year ended September 30, 2005.

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The following table summarizes stock option activity during 2007, 2006 and 2005:

	2007				2006				2005
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of fiscal year	9,664,292		$	23.73	10,364,866		$	23.75	11,212,831		$	23.71
Granted	937,650		$	25.66	331,600		$	22.80	—		$	—
Exercised	(2,377,618	)	$	22.78	(647,740	)	$	22.44	(445,528	)	$	22.14
Forfeited	(197,847	)	$	24.95	(183,863	)	$	24.23	(364,274	)	$	24.63
Expired	(415,382	)	$	25.79	(200,571	)	$	26.49	(38,163	)	$	23.27
Outstanding at end of fiscal year	7,611,095		$	24.12	9,664,292		$	23.73	10,364,866		$	23.75
Exercisable options at end of fiscal year	6,758,976		$	23.94	8,677,556		$	23.66	7,874,066		$	24.01

The weighted average estimated fair value of employee stock options granted during 2007 and 2006 was $9.74 and $8.49 per share, respectively. These stock options were granted at exercise prices equal to the current fair market value of the underlying stock. The Company did not grant options in the year ended September 30, 2005. The following table summarizes information about stock options outstanding at September 30, 2007.

	Outstanding Options						Exercisable Options
	Number Outstanding	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Term (Years)	Number Outstanding	Weighted Average Exercise Price		Aggregate Intrinsic Value
Reasonable price range groupings
$19.00	1,804,040	$	19.00	$	28,955	4.7	1,804,040	$	19.00	$	28,955
$19.01-$30.00	5,727,816	$	25.54		54,448	6.7	4,899,147	$	25.66		46,016
$30.01-$35.00	79,239	$	32.12		232	6.9	55,789	$	32.37		150
	7,611,095	$	24.12	$	83,635	6.3	6,758,976	$	23.94	$	75,121

The total intrinsic value of options exercised during the years ended September 30, 2007, 2006 and 2005, based upon the average market price during the period, was approximately $18,027, $3,426, and $2,925, respectively.

18. Legal Proceedings

The Company is involved in disputes arising in the ordinary course of its business relating to outsourcing or consulting agreements, professional liability claims, vendors or service providers or employment claims. We are also routinely audited and subject to inquiries by governmental and regulatory agencies. The Company evaluates estimated losses under SFAS 5, Accounting for Contingencies. Management considers such factors as the probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss and records a provision with respect to a claim, suit, investigation or proceeding when it is probable that a liability has been incurred and the amount of the loss can reasonably be estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded.

The Company is in active discussions with a number of HR BPO clients to renegotiate the terms of their contracts. Through September 30, 2007, the Company has recorded a $15 million contingent liability related to an ongoing dispute with one of these clients.

The Company does not believe that any unresolved disputes will have a material adverse effect on its financial condition or results of operation. However, litigation in general and the outcome of any matter in particular cannot be predicted with certainty. An unfavorable resolution of one or more pending matters could have a material adverse impact on the Company’s results of operations for one or more reporting periods.

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On May 8, 2007, the House Committee on Oversight and Government Reform chaired by Henry A. Waxman issued letters to the Company and five other executive compensation consulting firms requesting that they identify all Fortune 250 companies for which they provided both executive compensation consulting services and other services during the past five years and disclose annual revenue for each of those two categories for the year 2002 through 2006. The Company has been responding to the requests and continues to cooperate with the Committee.

19. Other Comprehensive Income, Net

Accumulated other comprehensive income consists of the following components:

	Foreign Currency Translation Adjustment		Minimum Pension Liability			Unrealized Gains (Losses) on Investments			Adoption of SFAS No. 158			Accumulated Other Comprehensive Income
As of September 30, 2004	$	69,050	$	—		$	—		$	—		$	69,050
Other comprehensive income (loss)		3,270		(2,397	)		(135	)		—			738
As of September 30, 2005		72,320		(2,397	)		(135	)		—			69,788
Other comprehensive income		2,760		2,397			127			—			5,284
As of September 30, 2006		75,080		—			(8	)		—			75,072
Other comprehensive income		49,827		—			8			—			49,835
Adjustment to initially apply SFAS No.158 (net of tax)		—		—			—			(1,525	)		(1,525	)
As of September 30, 2007 (1)	$	124,907	$	—		$	—		$	(1,525	)	$	123,382

(1) Net of $42,922 of taxes.

The change in foreign currency translation during the year ended September 30, 2007 was primarily related to the changes in value of the British pound sterling and Indian rupee relative to the U.S. dollar. The change in foreign currency translation during the year ended September 30, 2006 and 2005 were primarily related to changes in the value of the British pound sterling relative to the U.S. dollar.

20. Income Taxes

For the years ended September 30, 2007, 2006 and 2005, the Company’s provision for income taxes aggregated $50,362, $56,368, and $85,783, respectively, and consisted of the following:

	2007								2006							2005
	Current		Deferred			Total			Current		Deferred			Total		Current			Deferred			Total
U.S. Federal	$	55,088	$	(5,961	)	$	49,127		$	24,228	$	2,570		$	26,798	$	(4,825	)	$	79,236		$	74,411
State and local		10,976		(6,474	)		4,502			6,620		(935	)		5,685		1,215			5,648			6,863
Foreign		2,232		(5,499	)		(3,267	)		5,765		18,120			23,885		7,675			(3,166	)		4,509
	$	68,296	$	(17,934	)	$	50,362		$	36,613	$	19,755		$	56,368	$	4,065		$	81,718		$	85,783

Tax benefit associated with the vesting of restricted stock and restricted stock units and the exercise of nonqualified stock options were credited directly to additional paid-in capital and amounted to $9,535, $191, and $3,204 in 2007, 2006 and 2005, respectively.

The effective income tax rate for the year ended September 30, 2007 was 40.4% as compared to 94.6% in fiscal 2006. The current year’s effective rate was impacted by a number of significant items including a non-deductible goodwill impairment charge, tax reserves and related interest as well as a reduction of deferred tax assets related to foreign entities. The impact of these significant items was to reduce the rate by a net 54.2%. In addition, the Company added $8,421 of deferred tax assets associated with acquisitions. This deferred tax asset was recorded as a reduction to goodwill.

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Income tax expense for the period differed from the amounts computed by applying the U.S. federal income tax rate of 35% to income before taxes as a result of the following:

	2007			2006			2005
(Benefit) provision for taxes at U.S. federal statutory rate	$	(43,651	)	$	(20,850	)	$	77,180
Increase (reduction) in income taxes resulting from:
Goodwill impairment at U.S. federal statutory rate		88,717			58,665			—
Reduction of deferred tax assets related to foreign entities		(5,499	)		18,343			—
Reserves and related interest		9,237			(4,238	)		—
State and local income taxes, net of federal income tax benefits		2,138			3,432			3,733
Nondeductible expenses		3,672			2,838			2,018
Tax impact on foreign subsidiaries		(2,843	)		(4,793	)		1,893
Other		(1,409	)		2,971			959
	$	50,362		$	56,368		$	85,783

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

	2007			2006
Deferred tax assets:
Deferred contract revenues	$	101,358		$	72,782
Accrued expenses		8,794			7,167
Foreign tax loss carryforwards		44,322			41,680
Foreign accrued expenses		6,389			4,570
Depreciation and amortization		11,113			—
Compensation and benefits		24,223			28,550
Domestic tax loss carryforwards		29,321			44,117
Other		2,849			735
		228,369			199,601
Valuation allowance		(44,224	)		(41,795	)
	$	184,145		$	157,806
Deferred tax liabilities:
Deferred contract costs	$	123,118		$	103,298
Goodwill and intangible amortization		92,902			102,472
Currency translation adjustment		38,479			30,593
Depreciation and amortization		—			2,660
Other		—			—
	$	254,499		$	239,023

The domestic federal net operating loss carryforward of $73,393 relates to the Exult and RealLife HR acquisitions and expires from 2017—2024. All of the net operating losses are expected to be utilized through 2024.

At September 30, 2007, the Company has available foreign net operating losses of approximately $161,821, of which $144,399 has already provided a U.S. tax benefit. The remaining net operating loss carryforward of $17,422 includes $13,232 which expires at various dates between 2007 and 2022, and the remainder has an indefinite carryforward period. The foreign local country net operating loss carryforwards of approximately $161,821 has a valuation allowance of $161,061 offsetting the benefit. The valuation allowance primarily represents loss carryforwards and deductible temporary differences for which utilization is uncertain given the lack of sustained profitability of foreign entities and/or limited carryforward periods.

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The Company has a tax holiday in a foreign country through March 31, 2009. The tax benefit of the tax holiday for the current fiscal year is approximately $5,600 or $0.05 per diluted share.

United States income taxes have not been provided on undistributed earnings of international subsidiaries. Those earnings are considered to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries.

21. Supplemental Cash Flow Information

	Year Ended September 30,
	2007			2006			2005
Supplementary disclosure of cash paid during the year:
Interest paid	$	23,534		$	20,497		$	20,803
Income taxes paid		73,837			25,098			28,942
Schedule of non-cash investing and financing activities:
Acquisition, cash paid, net of cash acquired:
Common stock issued and warrants acquired in connection with acquisition, net of issuance costs	$	—		$	—		$	652,378
Transaction costs		—			—			(3,356	)
Fair value of assets acquired		(14,398	)		(805	)		(469,251	)
Fair value of liabilities assumed		2,704			656			219,872
Goodwill		(33,868	)		(6,502	)		(406,369	)
Cash paid, net of cash acquired		(45,562	)		(6,651	)		(6,726	)
Software licenses purchased under long-term agreements		—			836			2,926

22. Other Income (Expense), Net

Other income (expense), net consists of the following components:

	Year Ended September 30,
	2007			2006			2005
Interest expense	$	(20,019	)	$	(23,072	)	$	(22,645	)
Interest income		30,219			17,795			8,947
Gain on contribution of business		—			7,127			—
Gain on sale of investment		5,982			—			—
Other		2,067			2,841			379
Other income (expense), net	$	18,249		$	4,691		$	(13,319	)

During the year ended September 30, 2007, the Company sold an investment that was accounted for using the cost basis method of accounting and had a net book value of $1,743. The Company’s sale of this investment resulted in a gain of $5,982.

During the year ended September 30, 2006, the Company recognized a gain of $7,127 in connection with the contribution of its retirement and financial management business within Germany in exchange for an increased investment in a German actuarial business (“investee”). The Company currently has a 28% non-controlling interest in the investee and accounts for its investment under the equity method of accounting.

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23. Segments and Geographic Data

Under SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has determined that it has three reportable segments based on similarities among the operating units including homogeneity of services, service delivery methods, and use of technology. The three segments are Benefits Outsourcing, HR BPO and Consulting.

During the second quarter of fiscal 2007, the Company conducted a detailed review of the Outsourcing business. Driving this review was the fact that HR BPO became an increasingly important focus for management and a key line of business. Further, the Company realigned organizational resources in a way that focuses more specific resources to HR BPO and Benefits Outsourcing. Alignment of cost drivers coupled with cost analysis activities allowed management to identify and quantify costs and related consumption drivers specific to HR BPO and Benefits. Following this review, the Company determined that Outsourcing be broken into two reportable segments, Benefits Outsourcing and HR BPO.

In addition to the realignment of the Outsourcing business, the Company completed a detailed review of shared service costs to determine which of these costs should be distributed to the business segments as well as how these shared service costs should be distributed to the business segments. The review resulted in changes to the way previously unallocated costs were distributed to the business segments and the distribution of previously unallocated costs to the business segments. Improved data and analytical capabilities have provided insight into costs that were previously not attributable to specific business segment activity. This includes expenses related to business leadership that could be attributed to specific reportable segments.

The Company also revised its allocation methodologies associated with shared service costs. The new methodologies assign costs based on usage and consumption factors such as computer usage and square footage occupied rather than previously used factors such as headcount. The new methodologies are intended to improve ownership and management of overhead spending. The effect of these changes impacted the costs reported within each segment and reduced the level of unallocated shared service costs.

As a result of the segregation of Outsourcing, the Company now has three reportable segments: Benefits Outsourcing, HR BPO and Consulting.

• Benefits Outsourcing—Hewitt offers benefits administrative services for health and welfare (e.g. medical) plans, defined contribution (e.g. 401(k)) plans and defined benefit (e.g. pension) plans. Through these services, companies are able to control benefit costs while meeting employees’ expectations for enhanced benefit services.

• HR BPO – Hewitt offers workforce administration, rewards management, recruiting and staffing, payroll processing, performance management, learning and development, talent management, relocation services, time and attendance, accounts payable, procurement expertise and vendor management services. These services enable companies to reduce costs and focus on their core business while gaining expertise and access to current and innovative technology and processes through the economies of scale created by using repeatable processes and standardized technologies.

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

The Company operates many of the administrative and support functions of its business through the use of centralized shared service operations to provide an economical and effective means of supporting the operating segments. These shared services include information technology services, client support services, human resources, management, corporate relations, finance, general counsel, real estate management, supplier management and other supporting services. Many of these costs, such as information technology services, human resources, real estate management, and other support services, are assigned to the business segments based on usage and consumption factors. Certain unallocated costs, within finance, general counsel, management and corporate relations, are not allocated to the business segments and remain in unallocated shared service costs.

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The Company has recast the fiscal 2006 results for comparative purposes however, fiscal 2005 segment results have not been recast as it was not practical to do so. As a result, the fiscal 2005 segment results do not reflect the new allocation methodologies associated with shared service costs nor the distribution of certain unallocated shared service costs into segment results adopted in the second quarter of fiscal 2007 and are not comparable to fiscal 2006 or fiscal 2007.

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

	Year Ended September 30,
	2007			2006			2005
Benefits Outsourcing
Segment revenues before reimbursements	$	1,475,332		$	1,465,710		$	1,418,414
Segment income		306,199			321,735			293,546
Net client receivables and unbilled work in process		249,247			274,577
Long-term unbilled work in process		658			2,504
Goodwill and intangible assets		54,829			28,758
Deferred contract costs		133,047			105,977
HR BPO
Segment revenues before reimbursements	$	539,407		$	517,502		$	632,230
Segment loss		(495,219	)		(423,407	)		(116,542	)
Net client receivables and unbilled work in process		121,995			87,661
Long-term unbilled work in process		3,894			7,788
Goodwill and intangible assets		112,663			424,969
Deferred contract costs		237,746			181,537
Consulting
Segment revenues before reimbursements	$	945,905		$	842,616		$	802,810
Segment income		147,261			137,028			196,388
Net client receivables and unbilled work in process		260,769			260,032
Long-term unbilled work in process		—			206
Goodwill and intangible assets		347,955			333,303
Deferred contract costs		1,570			2,140
Total Company
Segment revenues before reimbursements	$	2,960,644		$	2,825,828		$	2,853,454
Intersegment revenues		(39,568	)		(37,106	)		(21,947	)
Revenues before reimbursements (net revenues)		2,921,076			2,788,722			2,831,507
Reimbursements		69,250			68,439			58,143
Total revenues	$	2,990,326		$	2,857,161		$	2,889,650
Segment (loss) income	$	(41,759	)	$	35,356		$	373,392
Charges not recorded at the Segment level – Initial public offering restricted stock awards		—			9,397			17,355
Unallocated shared costs		101,208			90,220			122,203
Operating (loss) income	$	(142,967	)	$	(64,261	)	$	233,834
Net client receivables and unbilled work in process	$	632,011		$	622,270
Long-term unbilled work in process		4,552			10,498
Goodwill and certain intangible assets		515,447			787,030
Deferred contract costs		372,363			289,654
Assets not reported by segment		1,231,165			1,058,226
Total assets	$	2,755,538		$	2,767,678

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Revenues and long-lived assets by geographic area for the following fiscal years are provided below. Revenues are attributed to geographic areas based on the country where the associates perform the services. Long-lived assets include net property and equipment, deferred contract costs, goodwill and intangible assets, such as capitalized software, but exclude investments in affiliated companies.

	Year Ended September 30,
	2007		2006		2005
Revenues
United States	$	2,269,966	$	2,238,901	$	2,271,639
United Kingdom		370,980		344,533		362,541
All Other Countries		349,380		273,727		255,470
Total	$	2,990,326	$	2,857,161	$	2,889,650
Long-Lived Assets
United States	$	768,845	$	948,473
United Kingdom		348,836		373,481
All Other Countries		137,981		183,909
Total	$	1,255,662	$	1,505,863

24. Quarterly Financial Information (Unaudited)

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

	First Quarter		Second Quarter		Third Quarter			Fourth Quarter
Fiscal 2007:
Revenues:
Revenues before reimbursements (net revenues)	$	726,630	$	716,203	$	727,982		$	750,261
Reimbursements		19,420		17,605		14,330			17,895
Total revenues	$	746,050	$	733,808	$	742,312		$	768,156
Operating income (loss) (1)	$	46,533	$	18,765	$	72,372		$	(280,637	)
Net income (loss) (1)	$	30,065	$	12,986	$	47,505		$	(265,636	)
Earnings (loss) per share:
Basic	$	0.28	$	0.12	$	0.44		$	(2.51	)
Diluted	$	0.27	$	0.12	$	0.43		$	(2.51	)
Fiscal 2006:
Revenues:
Revenues before reimbursements (net revenues)	$	701,047	$	676,153	$	698,174		$	713,348
Reimbursements		18,646		19,264		16,271			14,258
Total revenues	$	719,693	$	695,417	$	714,445		$	727,606
Operating income (loss) (2)	$	49,815	$	51,189	$	(207,684	)	$	42,419
Net income (loss) (2) (3)	$	31,532	$	31,782	$	(202,247	)	$	22,995
Earnings (loss) per share:
Basic	$	0.29	$	0.30	$	(1.88	)	$	0.21
Diluted	$	0.29	$	0.29	$	(1.88	)	$	0.21

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(1) Fourth quarter fiscal 2007 results include non-cash pre-tax charges of $326,312 related to impairment of goodwill, intangible assets and contract loss provisions; a pre-tax charge of $29,339 related to the review of our real estate portfolio; and a pre-tax severance charge of $8,032 resulting from ongoing productivity initiatives across the business.

(2) Third quarter fiscal 2006 results include non-cash charges of $248,857 related to HR BPO.

(3) Fourth quarter fiscal 2006 results include the reversal of non-cash charges of $5,054 related to the correction of an error in the third quarter which was not deemed material to the quarter.

25. Regulated Subsidiary

Hewitt Financial Services LLC (“HFS”), a wholly-owned subsidiary of the Company, is a registered U.S. broker-dealer. HFS is subject to the Securities and Exchange Commission’s minimum net capital rule (Rule 15c3-1), which requires that HFS at all times maintain net capital (as defined) equal to the greater of $50,000 or 6 2/3% of aggregate indebtedness, (as defined). As of September 30, 2007 and 2006, HFS has met its net capital requirements.

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INDEX TO EXHIBITS

Exhibit	Description
3.1	Second Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q filed February 6, 2007).
3.2	Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-84198).
4.1	Specimen Class A Common Stock Certificate of the Registrant (incorporated by reference to Exhibit 4.1 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-84198).
4.2	Indenture, dated as of September 30, 2003, by and between Exult, Inc. and Bank One Trust Company, N.A., as Trustee (incorporated by reference to Exhibit 4.1 to Hewitt Associates, Inc.’s Registration Statement on Form S-3, Registration No. 333-119576).
10.1	Hewitt Global Stock and Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to Hewitt Associates, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).
10.2	Stockholders Agreement, dated as of June 15, 2004, by and among Hewitt Associates, Inc., General Atlantic Partners 54, L.P., General Atlantic Partners 57, L.P., General Atlantic Partners 60, L.P., GAP Coinvestment Partners, L.P. and GAP Coinvestment Partners II, L.P. (incorporated by reference to Exhibit 99.2 to Hewitt Associates, Inc.’s Current Report on Form 8-K, dated June 15, 2004).
10.3	Hewitt Associates LLC Note Purchase Agreement, dated May 1, 1996, authorizing the issue and sale of $50,000,000 aggregate principal amount of its 7.45% Senior Notes due May 30, 2008 (incorporated by reference to Exhibit 10.4 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-105560).
10.4	Hewitt Associates LLC Note Purchase Agreement, dated as of March 15, 2000, authorizing the issue and sale of $15,000,000 aggregate principal amount of its 7.94% Senior Notes, Series A, Tranche 1, due March 30, 2007 and $35,000,000 aggregate principal amount of its 8.08% Senior Notes, Series A, Tranche 2, due March 30, 2012 (incorporated by reference to Exhibit 10.5 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-105560).
10.5	Hewitt Associates LLC First Amendment to Note Purchase Agreement, dated as of June 15, 2000, amending the Note Purchase Agreement authorizing the issue and sale of $15,000,000 aggregate principal amount of its 7.94% Senior Notes, Series A, Tranche 1, due March 30, 2007 and $35,000,000 aggregate principal amount of its 8.08% Senior Notes, Series A, Tranche 2, due March 30, 2012 (incorporated by reference to Exhibit 10.6 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-84198).
10.6	Hewitt Associates LLC Supplemental Note Purchase Agreement (Series B), dated as of June 15, 2000, authorizing the issue and sale of $10,000,000 aggregate principal amount of Subsequent Notes designated as its 8.11% Senior Notes, Series B, due June 30, 2010 (incorporated by reference to Exhibit 10.7 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-105560).
10.7	Hewitt Associates LLC Supplemental Note Purchase Agreement (Series E), dated as of October 1, 2000, authorizing the issue and sale of $15,000,000 aggregate principal amount of Subsequent Notes designated as its 7.90% Senior Notes, Series E, due October 15, 2010 (incorporated by reference to Exhibit 10.10 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-105560).

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10.8	First Amendment and Waiver to Note Purchase Agreement, dated May 31, 2002, authorizing the issue and sale of $50,000,000 aggregate principal amount of its 7.45% Senior Notes due May 30, 2008 (incorporated by reference to Exhibit 10.16 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-105560).
10.9	Second Amendment and Waiver to Note Purchase Agreement, dated May 31, 2002, authorizing the issue and sale of $15,000,000 of its 7.94% Senior Notes, Series A, Tranche 1, $35,000,000 of its 8.08% Senior Notes, Series A, Tranch 2, $10,000,000 of its 8.11% Senior Notes, Series B, $15,000,000 of its 7.93% Senior Notes, Series C, $10,000,000 of its 7.65%, Senior Notes, Series D, and $15,000,000 of its 7.90% Senior Notes, Series E (incorporated by reference to Exhibit 10.17 to Hewitt Associates, Inc.’s Registration Statement on Form S-1, as amended, Registration No. 333-105560).
10.10	Credit Agreement, by and among Hewitt Associates LLC, Hewitt Associates, Inc. and the lenders named therein, such other lenders as may become a party thereto and Wachovia Bank, National Association, as Administrative Agent for the Lenders, dated May 23, 2005 (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed May 27, 2005).
10.11	Amendment to the Credit Agreement, by and among Hewitt Associates LLC, Hewitt Associates, Inc. and the lenders named herein and such other lenders as may become a party hereto and Wachovia Bank, National Association, as Administrative Agent for the Lenders, dated May 23, 2005, amended as of August 11, 2006 (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed August 14, 2006).
10.12	Second Amendment, dated August 6, 2007, to the Credit Agreement, by and among Hewitt Associates LLC, Hewitt Associates, Inc. and the lenders named herein and such other lenders as may become a party hereto and Wachovia Bank, National Association, as Administrative Agent for the Lenders, dated May 23, 2005, amended as of August 11, 2006 (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed August 8, 2007).
10.13	Third Amendment to Credit Agreement dated as of November 9, 2007 among Hewitt Associates LLC, Hewitt Associates, Inc., the lenders named therein, such other lenders as may become a party therto and Wachovia Bank, National Association, as Administrative Agent for the Lenders, dated May 23, 2005 (filed herewith).
10.14	Form of Restricted Stock Award (incorporated by reference to Exhibit 10.40 to the Annual Report on Form 10-K filed November 18, 2005).
10.15	Form of Stock Option Agreement (incorporated by reference to Exhibit 10.41 to the Annual Report on Form 10-K filed November 18, 2005).
10.16	Change in Control Executive Severance Plan (incorporated by reference to Exhibit 99.3 to Current Report on Form 8-K filed October 7, 2005).
10.17	Common Stock Warrant Issued to Bank of Montreal on April 23, 2003 (incorporated by reference to Exult, Inc’s Report on Form 10-Q for the Quarter ended June 30, 2003).
10.18	Warrant Adjustment and Assumption Agreement dated as of October 1, 2004 by and among Exult, Inc., Hewitt Associates, Inc. and Bank of Montreal (incorporated by reference to Exhibit 10.50 to the Annual Report on Form 10-K filed November 18, 2005).
10.19	Form of Director Stock Option Agreement (incorporated by reference to Exhibit 10.51 to the Annual Report on Form 10-K filed November 18, 2005).
10.20	Form of Director Restricted Stock Agreement (incorporated by reference to Exhibit 10.52 to the Annual Report on Form 10-K filed November 18, 2005).

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10.21	Letter Agreement between Russell P. Fradin and Hewitt Associates, Inc. dated August 8, 2006 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed August 14, 2006).
10.22	Corrected Fiscal Year 2007 Performance Share Program Award Agreement (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed May 9, 2007).
10.23	Employment letter dated December 18, 2006 to Matthew Levin (filed herewith).
10.24	Employment letter dated April 16, 2007 to Jay Rising (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed May 9, 2007).
10.25	Employment letter dated March 23, 2007 to Tracy Keogh (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed August 8, 2007).
10.26	Letter Agreement dated August 23, 2007 between Hewitt Associates LLC and John M. Ryan (incorporated by reference to Exhibit 99.1 to Current Report on Form 8-K filed August 24, 2007).
10.27	Employment letter dated October 10, 2007 to Steven J. Kyono (filed herewith).
12.1	Ratio of Earnings to Fixed Charges (filed herewith).
14.	Code of Ethics (incorporated by reference to Exhibit 14 to Hewitt Associates, Inc.’s Annual Report on Form 10-K for the year ended September 30, 2003.)
21.	Subsidiaries (filed herewith).
23.1	Consent of Independent Registered Public Accounting Firm (filed herewith).
31.1	Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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