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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of report (Date of earliest event reported): April 15, 2002
ACCENTURE LTD
(Exact Name of Registrant as Specified in Charter)
Bermuda 001-16565 98-0341111
(State or Other (Commission (I.R.S. Employer
Jurisdiction File Number) Identification No.)
of Incorporation)
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (441) 296-8262
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
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Item 5. Other Events
Accenture Ltd is filing the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and its historical financial
statements and related notes previously included in its Registration Statement
on Form S-1 (File No. 333-84492) filed on March 19, 2002. This information
should be read in conjunction with our Annual Report on Form 10-K for our fiscal
year ended August 31, 2001 and our Quarterly Report on Form 10-Q for our fiscal
quarter ended November 30, 2001.
FORWARD-LOOKING STATEMENTS AND CERTAIN FACTORS
THAT MAY AFFECT OUR BUSINESS
We have included in this Current Report on Form 8-K forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act relating to our operations that are based on our current
expectations, estimates and projections. Words such as "expects," "intends,"
"plans," "projects," "believes," "estimates" and similar expressions are used to
identify these forward-looking statements. These statements are not guarantees
of future performance and involve risks and uncertainties 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 implied in these forward-looking
statements. The reasons for this include changes in general economic and
political conditions, including fluctuations in exchange rates, and the
following factors:
. A significant or prolonged economic downturn could have a material
adverse effect on our results of operations.
. Our business will be negatively affected if we are not able to anticipate
and keep pace with rapid changes in technology or if growth in the use of
technology in business is not as rapid as in the past.
. We may face damage to our professional reputation or legal liability if
our clients are not satisfied with our services.
. Our services or solutions may infringe upon the intellectual property
rights of others.
. Our engagements with clients may not be profitable.
. If our affiliates or alliances do not succeed, we may not be successful
in implementing our growth strategy.
. Our global operations pose complex management, foreign currency, legal,
tax and economic risks, which we may not adequately address.
. The consulting, technology and outsourcing markets are highly competitive,
and we may not be able to compete effectively.
. If we are unable to attract and retain employees in appropriate numbers,
we will not be able to compete effectively and will not be able to grow
our business.
. Our transition to a corporate structure may adversely affect our ability
to recruit, retain and motivate our partners and other key employees,
which in turn could adversely affect our ability to compete effectively
and to grow our business.
. We have only a limited ability to protect our intellectual property
rights, which are important to our success.
. Our profitability will suffer if we are not able to maintain our prices
and utilization rates and control our costs.
. Our quarterly revenues, operating results and profitability will vary
from quarter to quarter, which may result in increased volatility of our
share price.
. We may be named in lawsuits as a result of Arthur Andersen's current
legal and financial situation based on misconceptions about the nature of
our past relationship with Arthur Andersen.
. Our share price may decline due to the large number of Class A common
shares eligible for future sale.
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. We are registered in Bermuda, and a significant portion of our assets are
located outside the United States. As a result, it may not be possible
for shareholders to enforce civil liability provisions of the federal or
state securities laws of the United States.
. Bermuda law differs from the laws in effect in the United States and may
afford less protection to shareholders.
For a more detailed discussion of these factors, see the information under
the heading "Business--Forward-Looking Statements and Certain Factors That May
Affect our Business" in the reports and other documents that we file with the
Securities and Exchange Commission, including our Annual Report on Form 10-K
for the fiscal year ended August 31, 2001. We undertake no obligation to update
or revise any forward-looking statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our historical financial statements and related notes included elsewhere in
this prospectus.
All references to years, unless otherwise noted, refer to our fiscal year,
which ends on August 31. For example, a reference to "2001" or "fiscal year
2001" means the 12-month period that ended on August 31, 2001. All references
to quarters, unless otherwise noted, refer to the quarters of our fiscal year.
Overview
The results of our operations are affected by the level of economic
activity and change in the industries we serve. Our business is also driven, in
part, by the pace of technological change and the type and level of technology
spending by our clients. The ability to identify and capitalize on these
technological and market changes early in their cycles is a key driver of our
performance. Our cost management strategy is to anticipate changes in demand
for our services and to identify cost-management initiatives in order to manage
costs as a percentage of revenues.
Prior to May 31, 2001, we operated as a series of related partnerships and
corporations under the control of our partners. We now operate in a corporate
structure. As a business, whether in partnership form or in a corporate
structure, our profitability is driven by many of the same factors. Revenues
are driven by our partners' and senior executives' ability to secure contracts
for new engagements and to deliver solutions and services that add value to our
clients. Our ability to add value to clients and therefore drive revenues
depends in part on our ability to offer market-leading service offerings and to
deploy skilled teams of professionals quickly and on a global basis. While
current economic conditions have caused some clients to reduce or defer their
expenditures for consulting services, we believe we have gained market share in
this environment. Despite the slowdown in the economy, we are positioning
ourselves to achieve revenue growth principally through our business
transformation outsourcing solutions. However, we are unable to predict the
level of impact that the current economic environment will have on our ability
to secure contracts for new engagements.
Cost of services is primarily driven by the cost of client service
personnel, which consists primarily of compensation and other personnel costs.
Cost of services as a percentage of revenues is driven by the productivity of
our client service workforce. Chargeability, or utilization, represents the
percentage of our professionals' time spent on billable work. We plan and
manage our headcount to meet the anticipated demand for our services. For
example, in 2001, we announced initiatives to reduce our staff in certain parts
of the world, in certain skill groups and in some support positions. Selling
and marketing expense is driven primarily by development of new service
offerings, the level of concentration of clients in a particular industry or
market, client targeting, image development and brand-recognition activities.
General and administrative costs generally correlate with changes in headcount
and activity levels in our business.
Presentation
As a result of a restructuring in 1989, we and our "member firms," which
are now our subsidiaries, became legally separate and distinct from the Arthur
Andersen firms. Thereafter, until August 7, 2000, we had contractual
relationships with an administrative entity, Andersen Worldwide, and indirectly
with the separate Arthur Andersen firms under various member firm agreements
whereby we and our member firms, on the one hand, and Arthur Andersen and its
member firms, on the other hand, were two stand-
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alone business units linked through such agreements to Andersen Worldwide for
administrative and other services. Following arbitration proceedings between us
and Andersen Worldwide and Arthur Andersen that were completed in August 2000,
the tribunal terminated our contractual relationships with the Andersen
Worldwide administrative entity and all Arthur Andersen member firms. On
January 1, 2001, we began to conduct business under the name Accenture.
Because we have historically operated as a series of related partnerships
and corporations under the control of our partners, our partners generally
participated in profits, rather than received salaries. Therefore, our
historical financial statements in respect of periods ended on or prior to May
31, 2001 do not reflect any compensation or benefit costs for services rendered
by them. Following our transition to a corporate structure, operating expenses
include partner compensation, which consists of salary, variable compensation
and benefits. Similarly, in periods when we operated primarily in the form of
partnerships, our partners have paid income tax on their share of the
partnerships' income. Therefore, our historical financial statements in respect
of periods ended on or prior to May 31, 2001 do not reflect the income tax
liability that we would have paid as a corporation. Following our transition to
a corporate structure, we are subject to corporate tax on our income. For
purposes of comparing our results for 2000 with our results for 2001, we have
included pro forma financial information below.
Segments
Our five reportable operating segments are our operating groups (formerly
referred to as global market units), which are Communications & High Tech,
Financial Services, Government, Products and Resources. Operating groups are
managed on the basis of revenues before reimbursements because our management
believes it is a better indicator of operating group performance than revenues.
Generally, operating expenses for each operating group have similar
characteristics and are subject to the same drivers, pressures and challenges.
While most operating expenses apply to all segments, some sales and marketing
expenses are typically lower as a percentage of revenues in industry groups
whose client base is concentrated and higher in industry groups whose client
base is more fragmented. The discussion and analysis related to each
operational expense category applies to all segments, unless otherwise
indicated.
In the first quarter of fiscal 2002 we made certain changes in the format
of information presented to the chief executive officer. The most significant
of these changes was the elimination of interest expense from the five
operating groups' operating income and the elimination of interest credit from
Other's operating income. Also, the consolidated affiliated companies' revenue
and operating income (loss) results are included in the five operating groups'
results rather than being reported in Other. Segment results for all periods
presented have been revised to reflect these changes.
Revenues
Revenues include all amounts that are billable to clients. Revenues are
recognized on a time-and-materials basis, or on a percentage-of-completion
basis, depending on the contract, as services are provided by employees and
subcontractors. In fiscal 2001, approximately 54% of our revenues were
attributable to activities in the Americas, 39% of our revenues were
attributable to our activities in Europe, the Middle East and Africa, and 7% of
our revenues were attributable to our activities in the Asia/Pacific region.
Revenues before reimbursements include the margin earned on computer
hardware and software resale contracts, as well as revenues from alliance
agreements, neither of which is material to us. Reimbursements, including those
relating to travel and out-of-pocket expenses, and other similar third party
costs, such as the cost of hardware and software resales, are included in
revenues, and an equivalent amount of reimbursable expenses is included in cost
of services.
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Client prepayments (even if nonrefundable) are deferred, i.e., classified
as a liability, and recognized over future periods as services are delivered or
performed.
Generally, our contracts are terminable by the client on short notice or
without notice. Accordingly, we do not believe it is appropriate to
characterize these contracts as backlog. Normally if a client terminates a
project, the client remains obligated to pay for commitments we have made to
third parties in connection with the project, services performed and
reimbursable expenses incurred by us through the date of termination.
While we have many types of contracts including time-and-materials
contracts, fixed-price contracts and contracts with features of both of these
contract types, we have been moving away from contracts that are priced solely
on a time-and-materials basis toward contracts that also include incentives
related to costs incurred, benefits produced and our adherence to schedule. We
estimate that a majority of our contracts have some fixed-price,
incentive-based or other pricing terms that condition our fee on our ability to
deliver defined goals. The trend to include greater incentives in our contracts
related to costs incurred, benefits produced or adherence to schedule, may
increase the variability in revenues and margins earned on such contracts. We
conduct rigorous reviews prior to signing such contracts to evaluate whether
these incentives are reasonably achievable.
We have experienced pricing pressures over the last year as a result of the
difficult economic environment, which have eroded our revenues somewhat.
However, we have also implemented cost- management programs such that operating
margins have been maintained or improved over this period. Current and future
cost-management initiatives may not be sufficient to maintain our margins if
the current challenging economic environment continues for several quarters.
Operating Expenses
Operating expenses include variable and fixed direct and indirect costs
that are incurred in the delivery of our solutions and services to clients. The
primary categories of operating expenses include cost of services, sales and
marketing, and general and administrative costs.
Cost of Services
Cost of services includes the direct costs to provide services to our
clients. Such costs generally consist of compensation for client service
personnel, the cost of subcontractors hired as part of client service teams,
costs directly associated with the provision of client service, such as
facilities for outsourcing contracts and the recruiting, training, personnel
development and scheduling costs of our client service personnel.
Reimbursements, including those relating to travel and other out-of-pocket
expenses, and other similar third-party costs, such as the cost of hardware and
software resales, are included in revenues, and an equivalent amount of
reimbursable expenses is included in cost of services.
Sales and Marketing
Sales and marketing expense consists of expenses related to promotional
activities, market development, including costs to develop new service
offerings, and image development, including advertising and market research.
General and Administrative Costs
General and administrative costs primarily include costs for non-client
service personnel, information systems and office space. Through various
cost-management initiatives, we seek to manage general and administrative costs
proportionately in line with or below anticipated changes in revenues.
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Reorganization and Rebranding Costs
Reorganization and rebranding costs include one-time costs to rename our
organization Accenture and other costs to transition to a corporate structure.
Substantially all of these costs were incurred in fiscal year 2001 and no
material costs are expected in fiscal year 2002.
Restricted Share Unit-based Compensation
Restricted share unit-based compensation reflects restricted share unit
awards which were granted at the time of the initial public offering of the
Accenture Ltd Class A common shares on July 19, 2001, and vested prior to
August 31, 2001. These restricted share units were granted to some of our
partners, former partners, employees and former employees pursuant to a formula
adopted by the board of directors.
Gain (Loss) on Investments
Gain (loss) on investments primarily represents gains and losses on the
sales of marketable securities and writedowns on investments in securities.
These fluctuate over time, are not predictable and may not recur. Beginning on
September 1, 2000, they also include changes in the fair market value of equity
holdings considered to be derivatives in accordance with SFAS 133.
After exploring a number of alternatives, we have decided to sell
substantially all of our minority ownership interests in our venture and
investment portfolio that could cause volatility in our future earnings. To
facilitate this sale, we expect to aggregate these positions into a single
subsidiary, which we would then sell. Related to this decision, our loss on
investments in the second quarter of fiscal 2002 includes a charge of $212
million, before and after tax, related to investment writedowns of our venture
and investment portfolio and the loss we expect to incur on this sale
transaction. After giving effect to the charge, we expect our venture and
investment portfolio to have a net book value of approximately $95 million, $43
million of which is hedged. We expect to receive offers that allow us to retain
a modest percentage ownership of the subsidiary in connection with an ongoing
alliance with the buyer. We have engaged an investment bank and are currently
engaged in discussions with potential purchasers. We hope to complete the
transaction by the end of the calendar year.
We will continue to make investments and will accept equity and
equity-linked securities using guidelines intended to eliminate volatility, but
will discontinue venture capital investing.
Interest Income
Interest income represents interest earned on cash and cash equivalents.
Interest income also includes interest earned on a limited number of client
engagement receivables when we agree in advance to finance those receivables
for our clients beyond the normal billing and collection period.
Interest Expense
Interest expense primarily reflects interest incurred on borrowings.
Other Income (Expense)
Other income (expense) consists of currency exchange gains (losses) and the
recognition of income from vesting of options for services by our
representatives on boards of directors of those companies in which we invest.
In general, we earn revenues and incur related costs in the same currency. We
hedge significant planned movements of funds between countries, which
potentially give rise to currency exchange gains (losses).
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Equity in Gains (Losses) of Affiliates
Equity in gains (losses) of affiliates represents our share of the
operating results of non-consolidated companies over which we have significant
influence.
Provision for Taxes
Prior to our transition to a corporate structure, we were generally not
subject to income taxes in most countries because we operated in partnership
form in those countries. Since taxes related to income earned by the
partnerships were the responsibility of the individual partners, our partners
reported and paid taxes on their share of the partnerships' income on their
individual tax returns. In other countries, however, we operated in the form of
a corporation or were otherwise subject to entity-level taxes on income and
withholding taxes. As a result, prior to our transition to a corporate
structure, we paid some entity-level taxes, with the amount varying from year
to year depending on the mix of earnings among the countries. Where applicable,
we accounted for these taxes under the asset and liability method. Therefore,
our historical financial statements in respect of periods ended on or prior to
May 31, 2001 do not reflect the income tax liability that we would have paid as
a corporation. Following our transition to a corporate structure, we are
subject to corporate tax on our income.
Minority Interest
Minority interest eliminates the income earned or expense incurred
attributable to the equity interest that some of our partners have in our
subsidiary Accenture SCA and the equity interest that some of our partners have
in our subsidiary Accenture Canada Holdings Inc. See "Accenture Organizational
Structure." The resulting net income of Accenture Ltd represents the income
attributable to the shareholders of Accenture Ltd.
Partnership Income Before Partner Distributions
Our historical financial statements in respect of periods ended on or prior
to May 31, 2001 reflect our organization as a series of related partnerships
and corporations under the control of our partners. The income of our partners
in historical periods is not executive compensation in the customary sense
because in those periods partner compensation was comprised of distributions of
current earnings, out of which our partners were responsible for their payroll
taxes and benefits.
Net Income
Net income reflects the earnings of our organization under a corporate
structure. We have provided pro forma financial results which include
adjustments to exclude one-time items and other adjustments to include partner
compensation and income taxes necessary to present our historical financial
statements in respect of periods ended on or prior to May 31, 2001 in corporate
structure as if the transition had occurred on September 1, 2000.
Critical Accounting Policies and Estimates
Revenue Recognition
We derive substantially all our revenues from contracts for management and
technology service offerings and solutions that we develop, implement and
manage for our clients. Depending on the terms of the contract, revenues are
recognized on a time-and-materials basis or on a percentage-of-completion basis
as services are provided by our employees, and to a lesser extent,
subcontractors. Revenues from time-and-materials service contracts are
recognized as the services are provided. Revenues from
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long-term system integration contracts are recognized based on the percentage
of services provided during the period compared to the total estimated services
to be provided over the duration of the contract. This method is followed where
reasonably dependable estimates of the revenues and costs applicable to various
elements of a contract can be made. Estimates of total contract revenues and
costs are continuously monitored during the term of the contract, and recorded
revenues and costs are subject to revision as the contract progresses. Such
revisions, which may result in increases or decreases to revenues and income,
are reflected in the financial statements in the period in which they are first
identified.
Each contract has different terms based on the scope, deliverables and
complexity of the engagement, the terms of which frequently require us to make
judgments and estimates about recognizing revenue. While we have many types of
contracts including time-and-materials contracts, fixed-price contracts and
contracts with features of both of these contract types, we have been moving
away from contracts that are priced solely on a time-and-materials basis toward
contracts that also include incentives related to costs incurred, benefits
produced and our adherence to schedule. We estimate that a majority of our
contracts have some fixed-price, incentive-based or other pricing terms that
condition our fee on our ability to deliver defined goals. For systems
integration contracts, estimated revenues for applying the
percentage-of-completion method include estimated incentives for which
achievement of defined goals is deemed probable. Incentives relating to
non-systems integration projects are not recorded until the contingency is
achieved.
In recent years, our outsourcing business has increased significantly.
Determining revenue and margins on outsourcing contracts requires judgment.
Typically the terms of these contracts span several years. In a number of these
arrangements we hire client employees and become responsible for client
obligations. Revenues are recognized as services are performed or as
transactions are processed in accordance with contractual standards, and costs
on outsourcing contracts are generally charged to expense as incurred. This
typically results in a relatively stable margin percentage over the life of the
contract. Outsourcing contracts can also include incentive payments for
benefits delivered to clients. Revenues relating to such incentive payments are
not recorded until the contingency is achieved.
Taxes
Determining the consolidated provision for income tax expense, deferred tax
assets and liabilities and related valuation allowance involves judgment. As a
global company with offices in 47 countries, we are required to calculate and
provide for income taxes in each of the tax jurisdictions where we operate.
This involves estimating current tax exposures in each jurisdiction as well as
making judgments regarding the recoverability of deferred tax assets. To
determine the quarterly tax rate we are required to estimate full year income
and the related income tax expense in each jurisdiction. Tax exposures can
involve complex issues and may require an extended period to resolve. Changes
in the geographic mix or estimated level of annual pre-tax income can affect
the overall effective tax rate.
Valuation of Investments
Gains and losses on investments are not predictable and can cause
fluctuations in net income. Management conducts periodic impairment reviews of
each investment in the portfolio, including historical and projected financial
performance, expected cash needs and recent funding events.
Other-than-temporary impairments are recognized in the income statement if the
market value of the investment is below its cost basis for an extended period
or the issuer has experienced significant financial declines or difficulties in
raising capital to continue operations. Judgment is required to first determine
the market value of each investment and then to assess whether impairments are
temporary or
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other-than-temporary. Changes in the market value of equity derivatives are
reflected in the income statement in the current period. Adverse changes in the
financial condition of our investments could result in impairment charges. We
have decided to sell substantially all of our minority ownership interests in
our venture and investment portfolio that could cause volatility in our future
earnings. See "--Gain (Loss) on Investments" for a discussion of our plans with
respect to our investment portfolio.
Historical Results of Operations
The following table sets forth the unaudited percentage of revenues
represented by items in our Combined and Consolidated Income Statements for the
periods presented.
Three months
ended
Year ended August 31, November 30,
-------------------- -----------
1999 2000 2001 2000 2001
---- ---- ---- ---- ----
Revenues:
Revenues before reimbursements......................... 86% 85% 86% 87% 88%
Reimbursements......................................... 14 15 14 13 12
--- --- --- --- ---
Revenues........................................... 100 100 100 100 100
Operating expenses:*
Cost of services:*
Cost of services before reimbursable expenses*..... 49 48 47 42 53
Reimbursable expenses.............................. 14 15 14 13 12
--- --- --- --- ---
Cost of services*.................................. 63 63 61 55 65
Sales and marketing*................................... 7 8 9 6 11
General and administrative costs*...................... 12 11 11 12 12
Reorganization and rebranding costs.................... -- -- 7 1 --
Restricted share unit-based compensation............... -- -- 7 -- --
--- --- --- --- ---
Total operating expenses*.......................... 82 82 95 74 88
Operating income*(1)...................................... 18 18 5 26 12
Gain (loss) on investments, net........................... 1 5 1 7 (3)
Interest income........................................... n/m n/m n/m 1 n/m
Interest expense.......................................... n/m n/m n/m n/m n/m
Other income (expense).................................... n/m n/m n/m n/m n/m
Equity in losses of affiliates............................ n/m n/m n/m (1) n/m
--- --- --- --- ---
Income before taxes*...................................... 19 23 6 33 9
Provision for taxes....................................... 1 2 4 2 3
--- --- --- --- ---
Income before minority interest and accounting change*.... 18 21 2 31 6
Minority interest......................................... -- -- 4 -- (4)
--- --- --- --- ---
Income before accounting change*.......................... 18 21 6 31 2
Cumulative effect of accounting change.................... -- -- 2 6 --
--- --- --- --- ---
Partnership income before partner distributions*.......... 18% 21% 37%
=== === ===
Net income*............................................... 8% 2%
=== ===
--------
n/m = not meaningful
* Excludes payments for partner distributions in respect of periods ended on
or prior to May 31, 2001.
(1) Operating income as a percentage of revenues before reimbursements was 21%,
21% and 6% for 1999, 2000 and 2001, respectively. Operating income as a
percentage of revenues before reimbursements was 30% and 14% for the three
months ended November 30, 2000 and 2001, respectively.
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We provide services through five operating groups. The following table
provides unaudited financial information for each of these operating groups.
Three months
ended
Year ended August 31, November 30,
------------------------- --------------
1999 2000 2001 2000 2001
------- ------- ------- ------ ------
(in millions, except percentages)
Revenues:
Communications & High Tech...................... $ 2,499 $ 2,806 $ 3,238 $ 865 $ 743
Financial Services.............................. 2,736 2,542 2,894 759 717
Government...................................... 777 797 1,003 213 337
Products........................................ 1,699 1,932 2,357 532 650
Resources....................................... 1,812 1,661 1,933 461 541
Other........................................... 27 14 19 1 1
------- ------- ------- ------ ------
Total revenues before reimbursements........ 9,550 9,752 11,444 2,831 2,989
Reimbursements.................................. 1,529 1,788 1,904 407 420
------- ------- ------- ------ ------
Total....................................... $11,079 $11,540 $13,348 $3,238 $3,409
======= ======= ======= ====== ======
Revenues as a percentage of total:
Communications & High Tech...................... 23% 24% 24% 27% 22%
Financial Services.............................. 25 22 22 23 21
Government...................................... 7 7 8 7 10
Products........................................ 15 17 18 16 19
Resources....................................... 16 15 14 14 16
Other........................................... n/m n/m n/m n/m n/m
------- ------- ------- ------ ------
Total revenues before reimbursements........ 86 85 86 87 88
Reimbursements.................................. 14 15 14 13 12
------- ------- ------- ------ ------
Total....................................... 100% 100% 100% 100% 100%
======= ======= ======= ====== ======
Operating Income:
Communications & High Tech...................... $ 557 $ 671 $ 449 $ 261 $ 55
Financial Services.............................. 824 666 537 271 91
Government...................................... 103 80 75 30 63
Products........................................ 263 416 363 148 120
Resources....................................... 285 264 235 122 82
Other........................................... 0 (11) (963) 7 3
------- ------- ------- ------ ------
Total....................................... $ 2,032 $ 2,086 $ 696 $ 839 $ 414
======= ======= ======= ====== ======
Operating Income as a percentage of total:
Communications & High Tech...................... 27% 32% 64% 31% 13%
Financial Services.............................. 41 32 77 32 22
Government...................................... 5 4 11 4 15
Products........................................ 13 20 52 18 29
Resources....................................... 14 13 34 14 20
Other........................................... n/m (1) (138) 1 1
------- ------- ------- ------ ------
Total....................................... 100% 100% 100% 100% 100%
======= ======= ======= ====== ======
Operating Income as a percentage of total revenues
before reimbursements by operating group:
Communications & High Tech...................... 22% 24% 14% 30% 7%
Financial Services.............................. 30 26 19 36 13
Government...................................... 13 10 7 14 19
Products........................................ 15 22 15 28 18
Resources....................................... 16 16 12 26 15
Other........................................... n/m n/m n/m n/m n/m
Operating Income as a percentage of revenues before
reimbursements................................... 21% 21% 6% 30% 14%
======= ======= ======= ====== ======
Operating Income as a percentage of revenues....... 18% 18% 5% 26% 12%
======= ======= ======= ====== ======
--------
n/m = not meaningful
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Pro Forma Financial Information
The following pro forma consolidated income statements for the year ended
August 31, 2001 and for the three months ended November 30, 2000 are based on
our historical financial statements included elsewhere in this prospectus.
The pro forma consolidated income statements give effect to the following
as if they occurred on September 1, 2000:
. the transactions related to our transition to a corporate structure
described under "Certain Relationships and Related
Transactions--Reorganization and Related Transactions";
. compensation payments to employees who were partners prior to our
transition to a corporate structure;
. provision for corporate income taxes; and
. our initial public offering in July 2001.
The pro forma as adjusted consolidated income statements give effect to the
pro forma adjustments described above and also to the exclusion of one-time
rebranding costs of $304 million incurred in connection with our name change to
Accenture. Management believes that this pro forma as adjusted information
provides useful supplemental information in understanding its results of
operations.
The pro forma and pro forma as adjusted consolidated income statements for
the year ended August 31, 2001 and for the three months ended November 30, 2000
exclude one-time events directly attributable to our initial public offering,
because of their nonrecurring nature. These one-time events include:
. net compensation cost of approximately $967 million resulting from the
grant of restricted share units in connection with our initial public
offering; and
. approximately $544 million for costs associated with our transition to a
corporate structure.
The pro forma and pro forma as adjusted consolidated income statement for
the year ended August 31, 2001 excludes the effect of a cumulative change in
accounting principle to implement Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable.
This information and the accompanying notes should be read in conjunction
with our historical financial statements and the related notes included
elsewhere in this prospectus. The information presented is not necessarily
indicative of the results of operations or financial position that might have
occurred had the events described above actually taken place as of the dates
specified or that may be expected to occur in the future.
11
Pro Forma Consolidated Income Statement For the Year Ended August 31, 2001
(Unaudited)
As adjusted Pro forma % of
As reported Adjustments Pro forma adjustments as adjusted revenues
----------- ----------- --------------- ----------- -------------- --------
(in millions, except percentages and share and per share data)
Revenues:
Revenues before reimbursements....... $11,444 $ -- $ 11,444 $ -- $ 11,444 86%
Reimbursements....................... 1,904 -- 1,904 -- 1,904 14
------- ------- --------------- ----- -------------- ---
Revenues.......................... 13,348 -- 13,348 -- 13,348 100%
Operating expenses:
Cost of services:*
Cost of services before
reimbursable expenses*........... 6,200 725(a) 6,925 -- 6,925 52
Reimbursable expenses............. 1,904 -- 1,904 -- 1,904 14
------- ------- --------------- ----- -------------- ---
Cost of services*................. 8,104 725 8,829 -- 8,829 66
Sales and marketing*................. 1,217 290(a) 1,507 -- 1,507 11
General and administrative costs*.... 1,516 44(a) 1,560 -- 1,560 12
Reorganization and rebranding costs.. 848 (544)(b) 304 (304)(h) -- n/m
Restricted share unit-based
compensation........................ 967 (967)(c) -- -- -- n/m
------- ------- --------------- ----- -------------- ---
Total operating expenses*............ 12,652 (452) 12,200 (304) 11,896 89
------- ------- --------------- ----- -------------- ---
Operating income*....................... 696 452 1,148 304 1,452 11
Gain on investments, net................ 107 -- 107 -- 107 1
Interest income......................... 80 -- 80 -- 80 n/m
Interest expense........................ (44) (15)(d) (59) -- (59) n/m
Other income (expense).................. 17 -- 17 -- 17 n/m
Equity in losses of affiliates.......... (61) -- (61) -- (61) n/m
------- ------- --------------- ----- -------------- ---
Income before taxes*.................... 795 437 1,232 304 1,536 12
Provision for taxes (1)................. 503 (10)(e) 493 121(e) 614 5
------- ------- --------------- ----- -------------- ---
Income before minority interest and
accounting change*..................... 292 447 739 183 922 7
Minority interest....................... 577 (1,013)(f) (436) (109)(f) (545) (4)
------- ------- --------------- ----- -------------- ---
Income before accounting change*........ $ 869 $ (566) $ 303 $ 74 $ 377 3%
======= ======= =============== ===== ============== ===
Earnings per share:
--basic.............................. $ 0.73 $ 0.91
=============== ==============
--diluted............................ $ 0.73 $ 0.91
=============== ==============
Outstanding shares at August 31, 2001:
--basic.............................. 412,705,954(g) 412,705,954(g)
=============== ==============
--diluted............................ 1,008,163,290(g) 1,008,163,290(g)
=============== ==============
--------
n/m = not meaningful
* Historical information excludes payments for partner distributions with
respect to periods ended on or prior to May 31, 2001.
(1) Provision for taxes is not the same as income taxes of a corporation. For
periods ended on or prior to May 31, 2001, we operated through partnerships
in many countries. Therefore, we generally were not subject to income taxes
in those countries. Taxes related to income earned by our partnerships were
the responsibility of the individual partners. In other countries, we
operated through corporations, and in these circumstances we were subject
to income taxes.
12
Pro Forma Consolidated Income Statement for the Three Months Ended November 30,
2000
(Unaudited)
As adjusted Pro forma % of
As reported Adjustments Pro forma adjustments as adjusted revenues
----------- ----------- -------------- ----------- -------------- --------
(in millions, except percentages and share and per share data)
Revenues:
Revenues before reimbursements....... $2,831 $ -- $ 2,831 $ -- $ 2,831 87%
Reimbursements....................... 407 -- 407 -- 407 13
------ ----- -------------- ---- -------------- ---
Revenues.......................... 3,238 -- 3,238 -- 3,238 100
Operating expenses:
Cost of services:*
Cost of services before
reimbursable expenses*........... 1,384 327(a) 1,711 -- 1,711 53
Reimbursable expenses............. 407 -- 407 -- 407 13
------ ----- -------------- ---- -------------- ---
Cost of services*................. 1,791 327 2,118 -- 2,118 66
Sales and marketing*................. 202 125(a) 327 -- 327 10
General and administrative costs*.... 376 29(a) 405 -- 405 12
Reorganization and rebranding costs.. 30 -- 30 (30)(h) -- --
------ ----- -------------- ---- -------------- ---
Total operating expenses*............ 2,399 481 2,880 (30) 2,850 88
------ ----- -------------- ---- -------------- ---
Operating income*....................... 839 (481) 358 30 388 12
Gain on investments, net................ 219 -- 219 -- 219 7
Interest income......................... 23 -- 23 -- 23 1
Interest expense........................ (5) (5)(d) (10) -- (10) n/m
Other income (expense).................. 7 -- 7 -- 7 n/m
Equity in losses of affiliates.......... (20) -- (20) -- (20) (1)
------ ----- -------------- ---- -------------- ---
Income before taxes*.................... 1,063 (486) 577 30 607 19
Provision for taxes (1)................. 53 180(e) 233 12(e) 245 8
------ ----- -------------- ---- -------------- ---
Income before minority interest and
accounting change*..................... 1,010 (666) 344 18 362 11
Minority interest....................... -- (203)(f) (203) (11)(f) (214) (6)
------ ----- -------------- ---- -------------- ---
Income before accounting change*........ $1,010 $(869) $ 141 $ 7 $ 148 5%
====== ===== ============== ==== ============== ===
Earnings per share:
--basic.............................. $ 0.34 $ 0.36
============== ==============
--diluted............................ $ 0.34 $ 0.36
============== ==============
Outstanding shares at August 31, 2001:
--basic.............................. 412,705,954(g) 412,705,954(g)
============== ==============
--diluted............................ 1,008,163,290(g) 1,008,163,290(g)
============== ==============
--------
n/m = not meaningful
* Historical information excludes payments for partner distributions with
respect to periods ended on or prior to May 31, 2001.
(1) Provision for taxes is not the same as income taxes of a corporation. For
periods ended on or prior to May 31, 2001, we operated through partnerships
in many countries. Therefore, we generally were not subject to income taxes
in those countries. Taxes related to income earned by our partnerships were
the responsibility of the individual partners. In other countries, we
operated through corporations, and in these circumstances we were subject
to income taxes.
13
Notes to Pro Forma Financial Information
(Unaudited)
(in millions, except share and per share data)
(a) Adjustments totaling $1,059 and $481 for the year ended August 31, 2001 and
for the three months ended November 30, 2000, respectively, reflect the
effects of partner compensation and benefit costs as if our transition to a
corporate structure had occurred on September 1, 2000. Prior to having a
corporate structure, payments to our partners were generally accounted for
as distributions of partners' income, rather than compensation expense. For
the year ended August 31, 2001 and for the three months ended November 30,
2000, respectively, compensation and benefit costs of partners have been
allocated 69% and 68% to cost of services, 27% and 26% to sales and
marketing, and 4% and 6% to general and administrative costs based on an
estimate of the time spent on each activity at the appropriate cost rates.
The compensation plan adopted upon our transition to a corporation includes
a fixed salary, benefits and performance-based bonuses. All elements of the
new compensation plan, including bonuses, have been reflected in the pro
forma adjustments because our partners would have earned the bonuses based
on our results of operations for the historical periods. Benefit costs are
medical, dental and payroll taxes, all of which are based on estimated
costs that would have been incurred had these benefits been in place during
the historical periods.
(b) One-time reorganization costs were incurred during the year ended August
31, 2001. Reorganization costs for the year ended August 31, 2001 include
$89 of restructuring costs relating to our transition to a corporate
structure and $455 of indirect taxes, such as capital and stamp duty
imposed on transfers of assets to the new corporate holding company
structure.
(c) In connection with our initial public offering, 68,481,815 fully-vested
restricted share units at $14.50 per share were granted in July 2001 to
certain partners, former partners and employees. The $967 expense
represents the fair value of fully vested restricted share units less $26
relating to canceled liabilities for a deferred bonus plan for employees.
Each restricted share unit represents an unfunded, unsecured right, which
is nontransferable except in the event of death, of a participant to
receive a Class A common share on the date specified in the participant's
award agreement.
(d) Reflects adjustments of $15 and $5 for the year ended August 31, 2001 and
for the three months ended November 30, 2000, respectively, representing
estimated interest expense on early-retirement benefits payable to partners.
(e) Reflects adjustments for an estimated income tax provision as if we had
operated in a corporate structure at a pro forma tax rate of 40%. The
adjustment for the year ended August 31, 2001 is net of $222 relating to
the revaluation of deferred tax liabilities upon change in tax status,
including income taxes relating to mandatory changes in tax accounting
methods, from a partnership to a corporate structure. As a series of
related partnerships and corporations under the control of our partners, we
generally were not subject to income taxes. However, some of the
corporations were subject to income taxes in their local jurisdictions.
(f) Minority interests for the year ended August 31, 2001 and for the three
months ended November 30, 2000 are based on the assumption that minority
interests as of August 31, 2001 existed throughout the fiscal year and do
not give effect to the offering. As of August 31, 2001 partners owned a 59%
minority interest in Accenture SCA and Accenture Canada Holdings. Since
Accenture Ltd is the sole general partner of Accenture SCA and owns the
majority of the voting shares, Accenture Ltd consolidates Accenture SCA and
its subsidiaries. Although the other shareholders of Accenture SCA hold
more than 50% of the economic interest in Accenture SCA, they do not have
voting control and therefore are considered to be a minority interest.
14
(g) Earnings per share calculations for the year ended August 31, 2001 and for
the three months ended November 30, 2000 are based on the assumption that
shares and share equivalents outstanding as of August 31, 2001 were
outstanding throughout the year and do not give effect to the offering. For
the purposes of the pro forma earnings per share calculation, diluted
outstanding shares include Accenture Class A common shares issuable or
exchangeable upon redemption or exchange of shares held by SCA Class I
common shareholders and Accenture Canada Holdings shareholders. The
weighted average shares outstanding, basic and diluted, were calculated
based on:
Share issuances Basic Diluted
--------------- ----------- -------------
Accenture Ltd Class A common shares.......... 343,307,238 343,307,238
Accenture SCA Class I common shares.......... -- 587,296,594
Accenture Canada Holdings exchangeable shares -- 8,160,742
Restricted share units....................... 69,398,716 69,398,716
----------- -------------
Weighted average shares outstanding.......... 412,705,954 1,008,163,290
=========== =============
(h) One-time rebranding costs were incurred during the year ended August 31,
2001 and during the three months ended November 30, 2000. Rebranding costs
for the year ended August 31, 2001 and for the three months ended November
30, 2000 include $157 and $0, respectively, for the amortization of
intangible assets relating to the final resolution of arbitration with
Andersen Worldwide and Arthur Andersen as well as $147 and $30,
respectively, from changing our name to Accenture. These amounts are
considered pro forma as adjusted adjustments due to their nonrecurring
nature.
Three Months Ended November 30, 2001 Compared to Three Months Ended November
30, 2000
Our results of operations in respect of periods ended on or prior to May
31, 2001 reflect the fact that we operated as a series of related partnerships
and corporations prior to that date, and our results of operations in respect
of periods ending after May 31, 2001 reflect that we commenced operations in
corporate structure on that date. Accordingly, in order to provide a more
meaningful comparison of our results for the three months ended November 30,
2001 as compared to the three months ended November 30, 2000, we comment below
on our results for those periods both on a historical basis and a pro forma as
adjusted basis.
Revenues
Revenues for the three months ended November 30, 2001 were $3,409 million,
an increase of $171 million, or 5%, over the three months ended November 30,
2000. Revenues before reimbursements for the three months ended November 30,
2001 were $2,989 million, an increase of $158 million, or 6%, over the three
months ended November 30, 2000 in both U.S. dollars and local currency.
Our Communications & High Tech operating group achieved revenues before
reimbursements of $743 million in the three months ended November 30, 2001, a
decrease of 14% from the three months ended November 30, 2000, primarily due to
weakening in our Communications, Electronics & High Tech and Media &
Entertainment industry groups in North America. Our Financial Services
operating group achieved revenues before reimbursements of $717 million in the
three months ended November 30, 2001, a decrease of 6% from the three months
ended November 30, 2000, primarily due to the impact of the economic downturn
in the banking and insurance industries. The weakening in our Banking industry
group in North America and Europe was partially offset by growth in our Health
Services industry group in North America. Our Government operating group
achieved revenues before reimbursements of $337 million in the three months
ended November 30, 2001, an increase of 58% over the three months
15
ended November 30, 2000, primarily driven by strong growth in North America and
Europe. Our Products operating group achieved revenues before reimbursements of
$650 million in the three months ended November 30, 2001, an increase of 22%
over the three months ended November 30, 2000, as a result of strong growth in
our Retail industry group in Europe. Our Resources operating group achieved
revenues before reimbursements of $541 million in the three months ended
November 30, 2001, an increase of 17% over the three months ended November 30,
2000, as a result of strong growth in the Utilities, Chemicals, Forest Products
and Metals & Mining industry groups in North America and Europe.
Operating Expenses
Operating expenses in the three months ended November 30, 2001 were $2,995
million, an increase of $596 million, or 25%, over the three months ended
November 30, 2000 and an increase as a percentage of revenues from 74% in the
three months ended November 30, 2000 to 88% in the three months ended November
30, 2001.
Operating expenses for the three months ended November 30, 2001 increased
$145 million, or 5%, over the pro forma as adjusted operating expenses for the
three months ended November 30, 2000, and remained constant as a percentage of
revenues at 88%. Pro forma as adjusted operating expenses in the three months
ended November 30, 2000 included partner variable compensation costs in respect
of the large realized investment gains in the quarter. Operating expenses in
the three months ended November 30, 2001 included costs related to the
September 11 tragedy and the costs of completing severance programs initiated
in prior quarters. The partner variable compensations costs in the first
quarter of fiscal 2001 were comparable in size to the costs related to the
September 11 tragedy and the costs of completing severance programs in the
first quarter of fiscal 2002.
We continue to implement long-term and short-term cost management
initiatives aimed at keeping overall growth in operating expenses less than the
growth in revenues. Our long-term initiatives focus on global reductions in
infrastructure costs. In addition, the costs of delivering training have been
reduced by moving toward Web-enabled and other lower-cost distribution methods.
Our short-term initiatives focus on reducing variable costs, such as headcount
in select administrative areas, and limiting travel and meeting costs.
Cost of Services
Cost of services was $2,226 million in the three months ended November 30,
2001, an increase of $435 million, or 24%, over the three months ended November
30, 2000 and an increase as a percentage of revenues from 55% in the three
months ended November 30, 2000 to 65% in the three months ended November 30,
2001. Cost of services before reimbursable expenses was $1,806 million in the
three months ended November 30, 2001, an increase of $422 million, or 31%, over
the three months ended November 30, 2000 and an increase as a percentage of
revenues before reimbursements from 49% in the three months ended November 30,
2000 to 60% in the three months ended November 30, 2001. These increases
resulted from higher employee compensation costs. Following our transition to a
corporate structure, cost of services includes partner compensation, which
consists of salary, variable compensation and benefits, whereas historical
financial statements in respect of periods ended on or prior to May 31, 2001 do
not reflect any compensation or benefit costs for services rendered by the
partners.
Cost of services before reimbursements for the three months ended November
30, 2001 increased $95 million, or 6%, over the pro forma as adjusted cost of
services for the three months ended November 30, 2000 and remained constant as
a percentage of revenues at 53%.
16
Sales and Marketing
Sales and marketing expense was $361 million in the three months ended
November 30, 2001, an increase of $159 million, or 78%, over the three months
ended November 30, 2000 and an increase as a percentage of revenues from 6% in
the three months ended November 30, 2000 to 11% in the three months ended
November 30, 2001. This increase as a percentage of revenues resulted from
higher employee compensation costs. Following our transition to a corporate
structure, sales and marketing expense include partner compensation, which
consists of salary, variable compensation and benefits. Our historical
financial statements in respect of periods ended on or prior to May 31, 2001 do
not reflect any compensation or benefit costs for services rendered by the
partners.
Sales and marketing expense for the three months ended November 30, 2001
increased $34 million, or 10%, over the pro forma as adjusted sales and
marketing expense for the three months ended November 30, 2000, and increased
as a percentage of revenues from 10% in the three months ended November 30,
2000 to 11% in the three months ended November 30, 2001. The slowdown in the
global economy in the second half of fiscal year 2001 led us to increase our
selling and marketing efforts in order to promote our business.
General and Administrative Costs
General and administrative costs were $408 million in the three months
ended November 30, 2001, an increase of $32 million, or 8%, over the three
months ended November 30, 2000 and remained constant as a percentage of
revenues at 12%.
General and administrative costs for the three months ended November 30,
2001 increased $3 million, or 1%, over the pro forma as adjusted general and
administrative costs for the three months ended November 30, 2000, and remained
constant as a percentage of revenues at 12%.
Reorganization and Rebranding Costs
Reorganization and rebranding costs were $30 million, or 1% of revenues for
the three months ended November 30, 2000. Rebranding costs resulted from
changing our name to Accenture. These costs are excluded from our pro forma as
adjusted financial results as they are considered to be one-time items. We
incurred no reorganization and rebranding costs for the three months ended
November 30, 2001 and no material costs are expected in fiscal year 2002.
Operating Income
Operating income was $414 million in the three months ended November 30,
2001, a decrease of $425 million, or 51%, from the three months ended November
30, 2000 and a decrease as a percentage of revenues from 26% in the three
months ended November 30, 2000 to 12% in the three months ended November 30,
2001. Operating income decreased as a percentage of revenues before
reimbursements from 30% in the three months ended November 30, 2000 to 14% in
the three months ended November 30, 2001.
Operating income for the three months ended November 30, 2001, increased
$26 million, or 7%, over the pro forma as adjusted operating income for the
three months ended November 30, 2000 and remained constant as a percentage of
revenues at 12%. Operating income remained constant as a percentage of revenues
before reimbursements at 14% in the pro forma as adjusted results of operations
for the three months ended November 30, 2000 and in the three months ended
November 30, 2001.
17
Gain (Loss) on Investments
Loss on investments totaled $95 million in the three months ended November
30, 2001, compared to a gain of $219 million in the three months ended November
30, 2000. The net loss on investments in the three months ended November 30,
2001 is comprised of a $3 million gain from the sale of securities, net of
other-than-temporary impairment investment writedowns of $90 million, and
unrealized investment losses of $8 million recognized according to SFAS 133.
Other-than-temporary impairment writedowns consisted of $11 million in publicly
traded equity securities and $79 million in privately held equity securities.
The writedowns relate to investments in companies where the market value has
been less than our cost for an extended time period, or the issuer has
experienced significant financial declines or difficulties in raising capital
to continue operations.
Equity in Gains (Losses) of Affiliates
Equity in gains (losses) of affiliates was a $6 million gain in the three
months ended November 30, 2001, compared to a $20 million loss in the three
months ended November 30, 2000. Amortization of negative goodwill was $13
million in the three months ended November 30, 2001 compared to $4 million in
the three months ended November 30, 2000.
Provision for Taxes
The effective tax rate for the three months ended November 30, 2001 was
38%. On a pro forma as adjusted basis, the effective tax rate for the three
months ended November 30, 2000 was 40%. The actual effective tax rate for the
three months ended November 30, 2000 is not comparable to the effective tax
rate for the three months ended November 30, 2001 because, prior to May 31,
2001, we operated as a series of related partnerships and corporations and,
therefore, generally did not pay income taxes as a corporation.
Minority Interest
Minority interest was $118 million in the three months ended November 30,
2001. Minority interest for the three months ended November 30, 2001 decreased
$96 million, or 45%, over the pro forma as adjusted minority interest for the
three months ended November 30, 2000, and remained constant as a percentage of
income at 59%.
Cumulative Effect of Accounting Change
The adoption of SFAS 133 resulted in cumulative income of $188 million on
September 1, 2000, which represents the cumulative unrealized gains resulting
from changes in the fair market value of equity holdings considered to be
derivatives.
Year Ended August 31, 2001 Compared to Year Ended August 31, 2000
Our results of operations in respect of periods ended on or prior to May
31, 2001 reflect the fact that we operated as a series of related partnerships
and corporations prior to that date, and our results of operations in respect
of periods ending after May 31, 2001 reflect that we commenced operations in
corporate structure on that date. Accordingly, in order to provide a more
meaningful comparison of our results for fiscal year 2001 as compared to fiscal
year 2000, we comment below on our results for those periods both on a
historical basis and a pro forma as adjusted basis.
18
Revenues
Revenues for 2001 were $13,348 million, an increase of $1,808 million, or
16%, over 2000. Revenues before reimbursements for 2001 were $11,444 million,
an increase of $1,692 million, or 17%, over 2000 in U.S. dollars. In local
currency terms, revenues before reimbursements grew by 23% in 2001 over 2000.
In 2001, our revenues grew significantly, continuing a trend that began in
the second half of 2000 as our clients began to focus on new transformation and
implementation initiatives after Year 2000 disruptions proved to be minimal. In
addition, demand for our services grew as clients began to explore
Web-enablement and electronic commerce strategies and solutions both in the
business-to-business and business-to-consumer areas. We believe that this
strong revenue growth was the result of our rapid response to changes in the
marketplace and our creation and refinement of relevant service offerings. In
addition, by focusing on the retraining of our client service personnel during
the Year 2000-related slowdown, we positioned ourselves to take advantage of
the growth opportunities in these new markets. We achieved this strong revenue
growth in 2001 despite the difficult economic conditions that many of our
clients' industries experienced. We experienced continued growth in revenues in
the fourth quarter of 2001, though at a slower rate of growth than in the third
quarter of 2001.
Our Communications & High Tech operating group achieved revenues before
reimbursements of $3,238 million in 2001, an increase of 15% over 2000,
primarily due to strong growth in our Communications and Electronics & High
Tech industry groups in North America. Operations in Europe and Latin America
also experienced significant growth. Our Financial Services operating group
achieved revenues before reimbursements of $2,894 million in 2001, an increase
of 14% over 2000, primarily due to strong growth in our Banking industry group
in Europe and North America and our Health industry group in North America. Our
Government operating group achieved revenues before reimbursements of $1,003
million in 2001, an increase of 26% over 2000, primarily driven by strong
growth in North America and the United Kingdom. Our Products operating group
achieved revenues before reimbursements of $2,357 million in 2001, an increase
of 22% over 2000, as a result of strong growth in our Retail and Consumer Goods
& Services industry groups in Europe. Our Resources operating group achieved
revenues before reimbursements of $1,933 million in 2001, an increase of 16%
over 2000, as a result of strong growth in the Chemicals, Forest Products,
Metals & Mining and Utilities industry groups in North America.
Operating Expenses
Operating expenses in 2001 were $12,652 million, an increase of $3,198
million, or 34%, over 2000 and an increase as a percentage of revenues from 82%
in 2000 to 95% in 2001.
Pro forma as adjusted operating expenses were $11,896 million for 2001, an
increase of $1,356 million, or 13%, over pro forma operating expenses of
$10,540 million for 2000 (which reflects $1,086 million of partner compensation
and benefit costs as if our transition to a corporate structure had occurred on
September 1, 1999; prior to having a corporate structure, payments to our
partners were generally accounted for as distributions of partners' income,
rather than compensation expense) and a decrease as a percentage of revenues
from 91% in 2000 to 89% in 2001.
We continue to implement long-term and short-term cost management
initiatives aimed at keeping overall growth in operating expenses less than the
growth in revenues. The long-term initiatives focus on global reductions in
infrastructure costs. In addition, the costs of delivering training have been
reduced by moving toward Web-enabled and other lower cost distribution methods.
The short-term initiatives focus on reducing variable costs, such as headcount
in select administrative areas, and limiting travel and meeting costs.
19
Cost of Services
Cost of services was $8,104 million in 2001, an increase of $830 million,
or 11%, over 2000 and a decrease as a percentage of revenues from 63% in 2000
to 61% in 2001. Cost of services before reimbursable expenses was $6,200
million in 2001, an increase of $714 million, or 13%, over 2000 and a decrease
as a percentage of revenues before reimbursements from 56% in 2000 to 54% in
2001. This decrease as a percentage of revenues and revenues before
reimbursements resulted from increased demand for our services and lower
employee compensation costs resulting from the promotion of 1,286 employees to
partner effective September 1, 2000. The increase in partner admissions was
designed to incentivize our professionals at an earlier stage in their careers
with us.
Pro forma as adjusted cost of services before reimbursable expenses was
$6,925 million in 2001, an increase of $798 million, or 13%, over pro forma
cost of services before reimbursable expenses of $6,127 million for 2000 (which
reflects $641 million of partner compensation and benefit costs as if our
transition to a corporate structure had occurred on September 1, 1999) and a
decrease as a percentage of revenues from 53% in 2000 to 52% in 2001. This
decrease as a percentage of revenues can be attributed primarily to a favorable
mix in the composition of our workforce, reduced costs related to recruiting
and training and redirected efforts to sales and marketing in the second half
of 2001. Lower attrition enabled us to retain a more experienced workforce,
which commands a higher margin. While overall employee chargeability declined
in 2001 versus 2000, chargeable hours for our experienced employees as a
percentage of total chargeable hours increased. Lower attrition enabled us to
reduce our expenditures in recruiting, and the move to Web-enabled and other
lower cost distribution methods reduced our costs of delivering training.
Sales and Marketing
Sales and marketing expense was $1,217 million in 2001, an increase of $334
million, or 38%, over 2000 and an increase as a percentage of revenues from 8%
in 2000 to 9% in 2001.
Pro forma as adjusted sales and marketing expense was $1,507 million in
2001, an increase of $320 million, or 27%, over pro forma sales and marketing
expense of $1,187 million in 2000 (which reflects $304 million of partner
compensation and benefit costs as if our transition to a corporate structure
had occurred on September 1, 1999) and an increase as a percentage of revenues
from 10% in 2000 to 11% in 2001.
The increase as a percentage of revenues in 2001 is due to higher than
normal business development and market development activities during the second
half of the year, as the slowdown in the global economy in the second half of
the year led us to increase our selling and marketing efforts in order to
generate revenue opportunities.
General and Administrative Costs
General and administrative costs were $1,516 million in 2001, an increase
of $219 million, or 17%, over 2000 and remained constant as a percentage of
revenues at 11% in years 2000 and 2001.
Pro forma as adjusted general and administrative expenses were $1,560
million in 2001, an increase of $122 million, or 8%, over pro forma general and
administrative expenses of $1,438 million in 2000 (which reflects $141 million
of partner compensation and benefit costs as if our transition to a corporate
structure had occurred on September 1, 1999) and a decrease as a percentage of
revenues from 13% in 2000 to 12% in 2001.
20
Our short-term cost management initiatives in this period of significant
growth in revenues enabled us to reduce general and administrative expenses as
a percentage of revenues.
Reorganization and Rebranding Costs
Reorganization and rebranding costs were $848 million, or 7% of revenues
for 2001. Reorganization costs included $89 million of restructuring costs
relating to our transition to a corporate structure and $455 million of
indirect taxes and other costs imposed on transfers of assets to the new
corporate holding company structure. Rebranding costs included $157 million for
the amortization of intangible assets related to the final resolution of the
arbitration with Andersen Worldwide and Arthur Andersen and $147 million
resulting from changing our name to Accenture. These costs are excluded from
our pro forma as adjusted financial results as they are considered to be
one-time items.
Restricted Share Unit-based Compensation
Our grants of restricted share units to partners, former partners and
employees resulted in compensation cost of $967 million in the quarter ended
August 31, 2001. These costs are excluded from our pro forma as adjusted
financial results as they are considered to be one-time items.
Operating Income
Operating income was $696 million in 2001, a decrease of $1,390 million, or
67%, from 2000 and a decrease as a percentage of revenues from 18% in 2000 to
5% in 2001. Operating income decreased as a percentage of revenues before
reimbursements from 21% in 2000 to 6% in 2001.
Pro forma as adjusted operating income was $1,452 million in 2001, an
increase of $452 million, or 45%, over pro forma operating income of $1,000
million in 2000 (which reflects the effects of $1,086 million of partner
compensation and benefit costs as if our transition to a corporate structure
had occurred on September 1, 1999) and an increase as a percentage of revenues
from 9% in 2000 to 11% in 2001. Pro forma as adjusted operating income
increased as a percentage of revenues before reimbursements from 10% in 2000 to
13% in 2001.
Gain on Investments
Gain on investments totaled $107 million in 2001, compared to a gain of
$573 million in 2000. The gain in 2001 was comprised of $382 million from the
sale of a marketable security purchased in 1995 and $11 million from the sale
of other securities, net of other-than-temporary impairment investment
writedowns of $94 million and unrealized investment losses recognized according
to SFAS 133 of $192 million. Other-than-temporary impairment writedowns
consisted of $19 million in publicly traded equity securities and $75 million
in privately traded equity securities. The writedowns relate to investments in
companies where the market value has been less than our cost for an extended
time period, or the issuer has experienced significant financial declines or
difficulties in raising capital to continue operations.
Interest Income
Interest income was $80 million in 2001, an increase of $13 million, or
19%, over 2000. The increase resulted primarily from the investment of the
proceeds of the sale of a portion of a marketable security purchased in 1995
and the investment of cash proceeds received from our initial public offering.
Interest Expense
Interest expense was $44 million in 2001, an increase of $20 million, or
83%, over 2000. Interest expense on a pro forma as adjusted basis was $59
million for 2001, an increase of $24 million, or 69%
21
over interest expense on a pro forma basis of $35 million in 2000 (which
reflects an adjustment of $11 million representing estimated interest expense
on early-retirement benefits payable to partners). The increase resulted
primarily from the increase in short-term bank borrowings during the third and
fourth quarters of 2001.
Other Income (Expense)
Other income was $17 million in 2001, a decrease of $34 million from 2000,
primarily resulting from foreign exchange translations.
Equity in Losses of Affiliates
Equity in losses of affiliates was a $61 million loss in 2001, compared to
a $46 million loss in 2000. In 2001, amortization of negative goodwill of $32
million was reflected as a component of equity in losses of affiliates,
compared to $1 million in 2000.
Provision for Taxes
Taxes were $503 million in 2001, an increase of $260 million over 2000. Pro
forma as adjusted taxes were $614 million in 2001, a decrease of $30 million,
or 5%, over pro forma taxes of $644 million in 2000 (which reflects an
adjustment of $401 million for an estimated income tax provision as if we had
operated in a corporate structure at a pro forma tax rate of 40%). This
decrease was due to lower pro forma income before taxes for 2001 as compared to
2000. Net deferred tax assets totaling $300 million at August 31, 2001 have
been recognized following our transition to a corporate structure. These net
deferred tax assets include a valuation allowance of $76 million, relating to
our ability to recognize the tax benefits associated with capital losses on
certain U.S. investments and with specific tax net operating loss carryforwards
and tax credit carryforwards of certain non-U.S. operations. Management has
concluded that the realizability of the remaining net deferred tax assets is
more likely than not.
Minority Interest
Minority interest was a credit of $577 million in 2001, which represents
minority interest since our transition to a corporate structure as of May 31,
2001. Minority interest on a pro forma as adjusted basis was an expense of $545
million for 2001, or a 5% decrease over a pro forma minority interest expense
of $571 million for 2000 (which is based on the assumption that minority
interests as of August 31, 2001 existed throughout 2000).
Cumulative Effect of Accounting Change
The adoption of SFAS 133 resulted in cumulative income of $188 million on
September 1, 2000, which represents the cumulative unrealized gains resulting
from changes in the fair market value of equity holdings considered to be
derivatives by that statement.
Year Ended August 31, 2000 Compared to Year Ended August 31, 1999
Because we operated as a series of related partnerships and corporations in
both 2000 and 1999, our results of operations for those periods are comparable.
Revenues
Revenues for 2000 were $11,540 million, an increase of $461 million, or 4%,
over 1999. Revenues before reimbursements for 2000 were $9,752 million, an
increase of $202 million, or 2%, over 1999.
22
Exchange rate fluctuations, specifically with respect to the euro, negatively
affected revenue growth as measured in U.S. dollars. In local currency terms,
revenues before reimbursements grew by 6% over 1999. Our revenue growth was
achieved in the face of a challenging economic environment, which began in the
second half of 1999 and was primarily related to Year 2000 events.
Specifically, we experienced a slowdown in information technology spending by
large companies as they completed large enterprise business systems
installations in anticipation of the Year 2000. In addition, there was
reluctance by large companies to commit to major new transformation and
implementation projects until the impact of Year 2000 concerns was fully
understood. However, at the same time, we experienced an increase in demand in
the electronic commerce area. Accordingly, we focused on developing
capabilities and new service offerings to meet the growing opportunities in
these new areas. We retrained our workforce to maintain market relevance to
meet the demands of our clients in the emerging new economy. During the second
half of 2000, following the realization by our clients that Year 2000
disruptions were minimal, we experienced increased demand for our services,
which led to stronger revenue growth beginning in the third quarter.
Specifically, revenue growth was (1%), 0%, 7% and 11% in the first through
fourth quarters of the year over the corresponding quarters in the previous
year.
Our Communications & High Tech operating group achieved revenues before
reimbursements of $2,806 million in 2000, an increase of 12% over 1999,
primarily due to growth in Europe and Asia, which was partially offset by
slower growth in our North American operations because of the Year 2000-related
slowdown. Our Financial Services operating group achieved revenues before
reimbursements of $2,542 million in 2000, a decrease of 7% from 1999, primarily
driven by decreasing levels of business activity in North America as a result
of clients focusing on Year 2000 concerns, as well as the effects of an
unfavorable interest rate environment and reduced client merger activity. Our
Government operating group achieved revenues before reimbursements of $797
million in 2000, an increase of 3% over 1999. The 2000 increase was lower than
in 1999, primarily as a result of government clients postponing large
implementation projects until Year 2000 concerns were resolved. Our Products
operating group achieved revenues before reimbursements of $1,932 million in
2000, an increase of 14% over 1999, primarily driven by growth in North America
from the Retail and Transportation & Travel Services industry groups, as well
as additional growth in the Retail industry group in Europe. Our Resources
operating group achieved revenues before reimbursements of $1,661 million in
2000, a decrease of 8% from 1999, primarily as the result of delayed merger
activity as several proposed mergers were delayed by regulatory concerns, and
the completion of a number of large enterprise resource planning implementation
projects before Year 2000.
Operating Expenses
Operating expenses in 2000 were $9,454 million, an increase of $407
million, or 4%, over 1999 and remained constant as a percentage of revenues at
82% in 1999 and 2000. In anticipation of slower growth, we formed a special
task force in the second half of 1999 to identify cost drivers, raise cost
consciousness and reduce non-payroll cost structures, the results of which were
reflected in cost savings during 2000. In 2000, we began a training initiative
that focused on building electronic commerce skills and knowledge quickly. The
advent of electronic commerce also facilitated a move from traditional
classroom training toward Web-enabled distributed training that is designed to
deliver the same or better quality training in fewer hours at lower cost. We
expect this move toward Web-enabled and other distributed training to continue.
Cost of Services
Cost of services was $7,274 million in 2000, an increase of $288 million,
or 4%, over 1999 and remained constant as a percentage of revenues at 63% in
1999 and 2000. Cost of services before reimbursable expenses was $5,486 million
in 2000, an increase of $29 million, or 1%, over 1999 and a
23
decrease as a percentage of revenues before reimbursements from 57% in 1999 to
56% in 2000. We were able to maintain overall cost of services as a percentage
of revenues and revenues before reimbursements at relatively constant levels
through periods of slow growth in the first half of 2000, followed by periods
of accelerated growth in the second half of 2000.
Sales and Marketing
Sales and marketing expense was $883 million in 2000, an increase of $93
million, or 12%, over 1999 and an increase as a percentage of revenues from 7%
in 1999 to 8% in 2000. The increase was primarily related to our employees
spending larger portions of their time on business development and market
development activities coupled with an increase in advertising to communicate
our electronic commerce capabilities to existing and potential clients. The
increased business development and market development activities were directed
toward increasing demand for our services and solutions after the Year
2000-related slowdown.
General and Administrative Costs
General and administrative costs were $1,297 million in 2000, an increase
of $26 million, or 2%, from 1999 and a decrease as a percentage of revenues
from 12% in 1999 to 11% in 2000. As signs of slowing demand became apparent in
the first half of 2000, we launched initiatives to better manage our general
and administrative costs, including controlling facilities, services, and
support costs. This reduction as a percentage of revenues was due in part to
the elimination of temporary duplicate costs incurred in 1999 associated with
the transition to us of internal support systems and other functions previously
shared with Andersen Worldwide.
Operating Income
Operating income was $2,086 million in 2000, an increase of $54 million, or
3%, over 1999 and remained constant as a percentage of revenues at 18% in 1999
and 2000. Operating income remained constant as a percentage of revenues before
reimbursements at 21% in 1999 and 2000.
Gain on Investments
Gain on investments totaled $573 million for 2000, compared to a gain of
$93 million in 1999. In 2000, $569 million of gain on investments was related
to the sale of a portion of our investment in a marketable security purchased
in 1995, compared to $93 million in 1999.
Interest Income
Interest income was $67 million in 2000, an increase of $7 million, or 12%,
over 1999. The increase in interest income in 2000 resulted primarily from an
increase in our cash balance, which was generated by the sale of a portion of
our investment in a marketable security purchased in 1995.
Other Income (Expense)
Other income was $51 million in 2000, an increase of $56 million over 1999.
This increase was primarily attributable to the recognition of income from
vesting of options for services by our representatives on boards of directors
of those companies in which we invest, coupled with income resulting from
foreign exchange translations.
Equity in Losses of Affiliates
Equity in losses of affiliates was a loss of $46 million in 2000 compared
to a loss of $6 million in 1999.
24
Provision for Taxes
Taxes were $243 million in 2000, an increase of $120 million over 1999.
This increase was due to increased taxable income in some of our entities that
were subject to entity-level tax.
Quarterly Results
The following tables present unaudited quarterly financial information for
each of our last nine fiscal quarters on a historical basis. We believe the
quarterly information contains all adjustments, consisting only of normal
recurring adjustments, necessary to fairly present this information. As a
professional services organization, we anticipate and respond to demand from
our clients. Accordingly, we have limited control over the timing and
circumstances under which our services are provided. Typically, we show slight
increases in our first-quarter revenues as a result of billing rate increases
and the addition of new hires. We typically experience minor declines in
revenues for the second and fourth quarters because of an increase in vacation
and holiday hours in those quarters. For these and other reasons, we can
experience variability in our operating results from quarter to quarter. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
Three months ended
------------------------------------------------------------------------------
November 30, February 29, May 31, August 31, November 30, February 28, May 31,
1999 2000 2000 2000 2000 2001 2001
------------ ------------ ------- ---------- ------------ ------------ -------
(in millions, except per share data)
Revenues:
Revenues before reimbursements......... $2,412 $2,272 $2,561 $2,507 $2,831 $2,882 $2,953
Reimbursements......................... 364 436 501 487 407 502 566
------ ------ ------ ------ ------ ------ ------
Revenues............................... 2,776 2,708 3,062 2,994 3,238 3,384 3,519
Operating expenses*.....................
Cost of services:*
Cost of services before
reimbursable expenses*.............. 1,356 1,304 1,340 1,487 1,384 1,560 1,566
Reimbursable expenses................ 364 436 501 487 407 502 566
------ ------ ------ ------ ------ ------ ------
Cost of services*.................... 1,720 1,740 1,841 1,974 1,791 2,062 2,132
Sales and marketing*................... 199 222 230 232 202 251 318
General and administrative costs*...... 318 322 296 360 376 389 365
Reorganization and rebranding costs*... -- -- -- -- 30 159 588
Restricted share unit-based
compensation.......................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total operating expenses*........... 2,237 2,284 2,367 2,566 2,399 2,861 3,403
------ ------ ------ ------ ------ ------ ------
Operating income (loss)*................ 539 424 695 428 839 523 116
Gain (loss) on investments, net......... 68 200 266 39 219 (30) (9)
Interest income......................... 14 13 18 22 23 20 17
Interest expense........................ (7) (5) (6) (6) (5) (6) (16)
Other income (expense).................. 6 14 12 19 7 17 (3)
Equity in gains (losses) of affiliates.. (4) (3) (2) (37) (20) (21) (11)
------ ------ ------ ------ ------ ------ ------
Income (loss) before taxes*............. 616 643 983 465 1,063 503 94
Provision for taxes..................... 42 71 81 49 53 83 285
------ ------ ------ ------ ------ ------ ------
Income (loss) before minority interest
and accounting change.................. 574 572 902 416 1,010 420 (191)
Minority interest....................... -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Income before accounting change*........ 574 572 902 416 1,010 420 (191)
Cumulative effect of accounting change.. -- -- -- -- 188 -- --
------ ------ ------ ------ ------ ------ ------
Partnership income (loss) before partner
distributions*......................... $ 574 $ 572 $ 902 $ 416 $1,198 $ 420 $ (191)
====== ====== ====== ====== ====== ====== ======
Net income (loss).......................
Earnings (loss) per share--basic and
diluted................................
August 31, November 30,
2001 2001
---------- ------------
Revenues:
Revenues before reimbursements......... $2,778 $2,989
Reimbursements......................... 429 420
------ ------
Revenues............................... 3,207 3,409
Operating expenses*.....................
Cost of services:*
Cost of services before
reimbursable expenses*.............. 1,690 1,806
Reimbursable expenses................ 429 420
------ ------
Cost of services*.................... 2,119 2,226
Sales and marketing*................... 446 361
General and administrative costs*...... 386 408
Reorganization and rebranding costs*... 71 --
Restricted share unit-based
compensation.......................... 967 --
------ ------
Total operating expenses*........... 3,989 2,995
------ ------
Operating income (loss)*................ (782) 414
Gain (loss) on investments, net......... (73) (95)
Interest income......................... 20 15
Interest expense........................ (17) (9)
Other income (expense).................. (4) (8)
Equity in gains (losses) of affiliates.. (9) 6
------ ------
Income (loss) before taxes*............. (865) 323
Provision for taxes..................... 82 123
------ ------
Income (loss) before minority interest
and accounting change.................. (947) 200
Minority interest....................... 577 (118)
------ ------
Income before accounting change*........ (370) 82
Cumulative effect of accounting change.. -- --
------ ------
Partnership income (loss) before partner
distributions*.........................
Net income (loss)....................... $ (370) $ 82
====== ======
Earnings (loss) per share--basic and
diluted................................ $(1.25) $ 0.20
====== ======
--------
* Excludes payments for partner distributions.
25
Liquidity and Capital Resources
We have historically relied on cash flow from operations, partner capital
contributions and bank credit facilities to satisfy our liquidity and capital
requirements. However, each year a portion of the distributions we made to our
partners was made on a deferred basis, which significantly strengthened our
working capital and enabled us to limit our external borrowings. Since May
2001, our liquidity needs on a short-term and long-term basis have been
satisfied by cash flows from operations, debt capacity under existing and/or
new credit facilities and the net proceeds of the initial public offering. We
believe our short-term and long-term liquidity needs will be met through cash
flows from operations and debt capacity. In addition, we may need to raise
additional funds through public or private debt or equity financings in the
future in order to:
. take advantage of opportunities, including more rapid expansion;
. acquire complementary businesses or technologies;
. develop new services and solutions; or
. respond to competitive pressures.
Our balance of cash and cash equivalents was $1,130 million at November 30,
2001 and $1,880 million at August 31, 2001, a decrease of $750 million, or 40%.
The decrease is largely attributable to distributions to partners of
partnership income earned for periods prior to our transition to a corporate
structure and taxes paid in the U.S. related to our transition to a corporate
structure, partially offset by earnings. Our balance of cash and cash
equivalents at August 31, 2001 increased $609 million, or 48%, from $1,271
million at August 31, 2000. The increase is largely attributable to proceeds
from the issuance of common shares, earnings and the sale of marketable
securities, which were partially offset by distributions to partners, return of
capital to partners and purchases of equity investments.
Net cash used in operating activities was $197 million in the three months
ended November 30, 2001, compared to net cash provided by operating activities
of $713 million in the three months ended November 30, 2000, primarily due to
lower net income and the payment of taxes in the U.S. Net cash used in
investing activities was $64 million in the three months ended November 30,
2001, compared to net cash provided by investing activities of $156 million in
the three months ended November 30, 2000, primarily due to reduced proceeds
from the sale of investments. Net cash used in financing activities was $496
million in the three months ended November 30, 2001, a decrease of $266 million
from the three months ended November 30, 2000, primarily due to reduced
pre-incorporation earnings distributions to our partners. Net cash provided by
operating activities was $2,281 million for fiscal 2001, an increase of $150
million from fiscal 2000. Net cash used by investing activities was $411
million for fiscal 2001, an increase of $518 million from fiscal 2000, as
proceeds from the sale of investments of $428 million were offset by purchases
of new investments and by capital expenditures. Net cash used by financing
activities was $1,167 million for fiscal 2001, a decrease of $867 million from
fiscal 2000. This included net proceeds of $1,791 million from the initial
public offering and sale of the Accenture Ltd Class A common shares in the
fourth quarter of fiscal 2001, offset by earnings distributions to partners of
$2,282 million, repayment of partners' capital totaling $524 million, and a
payment of $314 million to Andersen Worldwide and Arthur Andersen of amounts
due related to the final resolution of the arbitration.
Because we have historically deferred the distribution of a portion of our
partners' current year earnings into the subsequent fiscal year, these earnings
have been available for a period of time to meet liquidity and working capital
requirements. These distributable earnings, temporarily retained and
distributed in the subsequent fiscal year, totaled $1,130 million and $819
million at August 31, 2000 and 2001, respectively. At May 31, 2001, we
reclassified the final distributable earnings from the capital
26
accounts to current liabilities. Distribution to our partners of
pre-incorporation earnings during the three months ended November 30, 2001 was
$489 million. The balance was paid in the second quarter of fiscal 2002.
We have two syndicated credit facilities providing $450 million and $420
million, respectively, of unsecured, revolving borrowing capacity for general
working capital purposes. Committed financing is provided at the prime rate or
at the London Interbank Offered Rate plus a spread, and bid option financing is
available. These facilities mature in August 2003 and June 2002, respectively.
We expect to be able to renew these facilities on comparable terms. The
facilities require us to (1) limit liens placed on our assets to (a) liens
incurred in the ordinary course of business (subject to certain limitations)
and (b) other liens securing aggregate amounts not in excess of 30% of our
total assets and (2) maintain a maximum debt to cash flow ratio of one to one.
We are in compliance with these terms. As of November 30, 2001, we had no
borrowings and $19 million in letters of credit outstanding under these
facilities.
We also maintain four separate bilateral, uncommitted, unsecured
multicurrency revolving credit facilities. As of November 30, 2001, these
facilities provided for up to $369 million of local currency financing in
countries that cannot readily access our syndicated facilities. We also
maintain local guaranteed and non-guaranteed lines of credit. As of November
30, 2001, amounts available under these lines of credit facilities totaled $230
million. At November 30, 2001, we had $217 million outstanding under these
various facilities. Interest rate terms on the bilateral revolving facilities
and local lines of credit are at market rates prevailing in the relevant local
markets.
During the three months ended November 30, 2000 and 2001, we made $67
million and $42 million in capital expenditures, respectively, and $315 million
and $378 million for fiscal 2000 and 2001, respectively, primarily for
technology assets, furniture and equipment and leasehold improvements to
support our operations. We expect that our capital expenditures in the current
fiscal year will be less than our capital expenditures in each of the last two
fiscal years. During November 1999, we formed Accenture Technology Ventures to
select, structure and manage a portfolio of equity investments. We made equity
investments of $85 million and $31 million during the three months ended
November 30, 2000 and 2001, respectively, and $153 million and $326 million
during fiscal 2000 and 2001, respectively. See "--Overview--Gain (Loss) on
Investments" for a discussion of our plans with respect to our investment
portfolio.
As of August 31, 2001 and November 30, 2001, we had commitments for
investments of $66 million and $62 million, respectively. We also received $21
million and $1 million in the three months ended November 30, 2000 and 2001,
respectively, and $111 million and $118 million in fiscal 2000 and 2001,
respectively, in equity from our clients as compensation for current and future
services. Amounts ultimately realized from these equity securities may be
higher or lower than amounts recorded on the measurement dates. At February 28,
2002, we had authorization to repurchase up to an additional $123 million of
Accenture Ltd's Class A common shares. The cost of shares repurchased during
the three months ended November 30, 2001 was $21 million, and $106 million
during the three months ended February 28, 2002. In addition to our ongoing
open-market share repurchases, we expect to repurchase shares pursuant to our
Share Management Plan. See "Certain Relationships and Related
Transactions--Share Management Plan." In certain countries we must use treasury
shares, rather than newly issued shares, to satisfy our obligations upon the
maturity of a restricted share unit or the exercise of an option in order for
the transaction to receive the available tax deductability. We expect that we
will use 6.4 million, 10.0 million and 7.5 million treasury shares for these
purposes in fiscal 2002, 2003 and 2004, respectively.
In limited circumstances, we agree to extend financing to clients. The
terms vary by engagement, but generally we contractually link payment for
services to the achievement of specified performance
27
milestones. We finance these client obligations primarily with existing working
capital and bank financing in the country of origin. As of August 31, 2000,
August 31, 2001 and November 30, 2001, $223 million, $182 million and $180
million were outstanding for 14, 17 and 18 clients, respectively. These
outstanding amounts are included in unbilled services and other non-current
assets on our historical balance sheets.
Obligations and Commitments
As of November 30, 2001, we had the following obligations and commitments
to make future payments under contracts, contractual obligations and commercial
commitments:
Payments due by period
---------------------------------------------------
Less than After 5
Total 1 year 1-3 years 4-5 years years
---------- --------- --------- --------- ----------
(in thousands)
Contractual Cash Obligations
Long-term debt................... $ 5,787 $ 1,425 $ 4,362 $ -- $ --
Operating leases................. 2,831,237 216,732 350,036 371,765 1,892,704
Client financing................. 180,000 118,000 62,000 -- --
Andersen services (1)............ 660,000 120,000 240,000 240,000 60,000
Partner retirement benefits...... 61,782 2,635 9,345 8,485 41,317
Early retirement partner benefits 281,716 50,249 128,749 87,283 15,435
--------
(1) In addition, we are obligated to provide Andersen up to $22,500 per year of
services valued at then current retail billing rates for five years from
2001.
Market Risk
Foreign Currency Risk
We are exposed to foreign currency risk in the ordinary course of business.
We hedge cash flow exposures for our major countries using a combination of
forward and option contracts. We do not hold or issue derivative financial
instruments for trading purposes. These instruments are generally short-term in
nature, with typical maturities of less than one year. From time to time, we
enter into forward or option contracts of a long-term nature.
For purposes of specific risk analysis, we use sensitivity analysis to
determine the effects that market risk exposures may have on the fair value of
our hedge portfolio. The foreign currency exchange risk is computed based on
the market value of future cash flows as affected by the changes in the rates
attributable to the market risk being measured. The sensitivity analysis
represents the hypothetical changes in value of the hedge position and does not
reflect the opposite gain or loss on the underlying transaction. As of August
31, 2000, a 10% decrease in the levels of foreign currency exchange rates
against the U.S. dollar with all other variables held constant would result in
an increase in the fair value of our financial instruments of $6 million, while
a 10% increase in the levels of foreign currency exchange rates against the
U.S. dollar would have almost no effect on the fair value of our financial
instruments due to the fact that our long and short forward positions almost
completely offset each other. As of August 31, 2001, a 10% decrease in the
levels of foreign currency exchange rates against the U.S. dollar with all
other variables held constant would result in a decrease in the fair value of
our financial instruments of $4 million, while a 10% increase in the levels of
foreign currency exchange rates against the U.S. dollar would result in an
increase in the fair value of our financial instruments of $4 million. As of
November 30, 2001, a 10% decrease in the levels of foreign currency exchange
rates against the U.S. dollar with all other variables held constant would
result in an increase in the fair value of our financial instruments of $4
million, while a 10% increase in the levels of foreign currency exchange rates
against the U.S. dollar would result in a decrease in the fair value of our
financial instruments of $4 million.
28
Twelve of the fifteen member countries of the European Union have
established fixed conversion rates between their existing currencies ("legacy
currencies") and one common currency, the Euro. Beginning in January 2002, the
new Euro-denominated currency was issued, and legacy currencies are being
withdrawn from circulation. We have addressed the systems and business issues
raised by the Euro currency conversion. These issues include, among others: (1)
the need to adapt computer and other business systems and equipment to
accommodate Euro-denominated transactions; and (2) the competitive impact of
cross-border price transparency. The Euro conversion has not had, and we
currently anticipate that it will not have, a material adverse impact to our
consolidated financial position, results of operations or cash flows.
Interest Rate Risk
During the last three years, the majority of our debt obligations have been
short-term in nature and the associated interest obligations have floated
relative to major interest rate benchmarks, such as the London Interbank
Offered Rate. While we have not entered into any derivative contracts to hedge
interest rate risks during this period, we may do so in the future.
The interest rate risk associated with our borrowing and investing
activities at August 31, 2000, August 31, 2001 and November 30, 2001 is not
material in relation to our consolidated financial position, results of
operations or cash flows. We have not used derivative financial instruments to
alter the interest rate characteristics of our investment holdings or debt
instruments.
Equity Price Risk
We have marketable equity securities that are subject to market price
volatility. Marketable equity securities include common stock, warrants and
options. Our investment portfolio includes warrants and options in both
publicly traded and privately held companies. Warrants in public companies and
those that can be net share settled in private companies are deemed derivative
financial instruments and are recorded on the Consolidated Balance Sheet at
fair value. The privately held investments are inherently risky because the
markets for the technologies or products developed by these companies are less
established than those of most publicly traded companies and we may be unable
to liquidate our investments if desired. Beginning September 1, 2000, warrants
are deemed derivative financial instruments by SFAS 133. As such, they are
recorded on the balance sheet at fair value with unrealized gains or losses
recorded on the income statement. As of November 30, 2001, we have entered into
a derivative contract to offset the risks associated with certain equity
investments.
29
The following analysis presents the hypothetical change in the fair value
of our marketable equity securities at August 31, 2000, August 31, 2001 and
November 30, 2001, assuming the same hypothetical price fluctuations of plus or
minus 10%, 20% and 30%.
Valuation of investments Valuation of investments
assuming indicated decrease August 31, assuming indicated increase
--------------------------- 2000 ---------------------------
-30% -20% -10% fair value +10% +20% +30%
-------- -------- -------- ---------- -------- -------- --------
(in thousands)
Marketable Equity Securities.... $528,016 $603,446 $678,877 $754,308 $829,739 $905,170 $980,600
Valuation of investments Valuation of investments
assuming indicated decrease August 31, assuming indicated increase
--------------------------- 2001 ---------------------------
-30% -20% -10% fair value +10% +20% +30%
-------- -------- -------- ---------- -------- -------- --------
(in thousands)
Marketable Equity Securities and
Warrants Deemed Derivatives
by SFAS 133................... $ 60,618 $ 69,278 $ 77,937 $ 86,597 $ 95,257 $103,916 $112,576
Valuation of investments Valuation of investments
assuming indicated decrease November assuming indicated increase
--------------------------- 30, 2001 ---------------------------
-30% -20% -10% fair value +10% +20% +30%
-------- -------- -------- ---------- -------- -------- --------
(in thousands)
Marketable Equity Securities and
Warrants Deemed Derivatives
by SFAS 133................... $ 56,741 $ 64,846 $ 72,952 $ 81,058 $ 89,164 $ 97,270 $105,375
See "--Overview--Gain (Loss) on Investments" for a discussion of our plans
with respect to our investment portfolio.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Financial Statements:
Consolidated Balance Sheets as of August 31, 2001 and November 30, 2001 (unaudited)
Combined Income Statement Before Partner Distributions for the three months ended November 30, 2000
and Consolidated Income Statement for the three months ended November 30, 2001 (unaudited)
Combined and Consolidated Cash Flows Statements for the three months ended November 30, 2000 and
2001 (unaudited)
Notes to Combined and Consolidated Financial Statements (unaudited)
Report of Independent Accountants
Combined and Consolidated Balance Sheets as of August 31, 2000 and 2001
Combined Income Statements Before Partner Distributions for the years ended August 31, 1999 and 2000
and Consolidated Income Statement for the year ended August 31, 2001
Combined Statements of Partners' Capital and Comprehensive Income for the years ended August 31,
1999 and 2000 and Consolidated Shareholders' Equity for the year ended August 31, 2001
Combined and Consolidated Cash Flows Statements for the years ended August 31, 1999, 2000 and 2001
Notes to Combined and Consolidated Financial Statements
(c) Exhibits:
23.1 Consent of PricewaterhouseCoopers LLP.
30
INDEX TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of August 31, 2001 and November 30, 2001 (unaudited)................. F-2
Combined Income Statement Before Partner Distributions for the three months ended November 30, 2000
and Consolidated Income Statement for the three months ended November 30, 2001 (unaudited)........ F-3
Combined and Consolidated Cash Flows Statements for the three months ended November 30, 2000 and
2001 (unaudited).................................................................................. F-4
Notes to Combined and Consolidated Financial Statements (unaudited)................................. F-5
Report of Independent Accountants................................................................... F-8
Combined and Consolidated Balance Sheets as of August 31, 2000 and 2001............................. F-9
Combined Income Statements Before Partner Distributions for the years ended August 31, 1999 and 2000
and Consolidated Income Statement for the year ended August 31, 2001.............................. F-10
Combined Statements of Partners' Capital and Comprehensive Income for the years ended August 31,
1999 and 2000 and Consolidated Shareholders' Equity for the year ended August 31, 2001............ F-11
Combined and Consolidated Cash Flows Statements for the years ended August 31, 1999, 2000 and 2001.. F-12
Notes to Combined and Consolidated Financial Statements............................................. F-13
F-1
ACCENTURE LTD
CONSOLIDATED BALANCE SHEETS
August 31, 2001 and November 30, 2001
(In thousands of U.S. dollars except share and per share amounts)
August 31, November 30,
2001 2001
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 1,880,083 $ 1,129,517
Receivables from clients, net............................ 1,498,812 1,534,348
Unbilled services........................................ 731,802 930,389
Due from related parties................................. 69,500 86,390
Deferred income taxes, net............................... 166,372 173,665
Other current assets..................................... 233,068 219,234
----------- -----------
Total current assets.................................. 4,579,637 4,073,543
----------- -----------
NON-CURRENT ASSETS:
Due from related parties................................. 23,800 --
Investments.............................................. 324,139 259,906
Property and equipment, net.............................. 822,318 787,121
Deferred income taxes, net............................... 213,617 208,722
Other non-current assets................................. 97,845 93,379
----------- -----------
Total non-current assets.............................. 1,481,719 1,349,128
----------- -----------
TOTAL ASSETS............................................... $ 6,061,356 $ 5,422,671
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank borrowings............................... $ 189,872 $ 217,017
Current portion of long-term debt........................ 797 1,425
Accounts payable......................................... 371,794 360,724
Due to related parties................................... 818,888 379,680
Deferred revenue......................................... 810,043 719,063
Accrued payroll and related benefits..................... 1,050,385 1,107,426
Taxes payable............................................ 515,304 236,162
Deferred income taxes, net............................... 29,373 19,750
Other accrued liabilities................................ 392,364 319,550
----------- -----------
Total current liabilities............................. 4,178,820 3,360,797
----------- -----------
NON-CURRENT LIABILITIES:
Long-term debt........................................... 1,090 4,362
Retirement obligation.................................... 343,249 344,114
Deferred income taxes, net............................... 50,969 22,569
Other non-current liabilities............................ 797,114 811,689
----------- -----------
Total non-current liabilities......................... 1,192,422 1,182,734
----------- -----------
MINORITY INTEREST.......................................... 407,926 526,388
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred shares, 2,000,000,000 shares authorized, 0
shares issued and outstanding.......................... -- --
Class A common shares, par value $0.0000225 per share,
20,000,000,000 shares authorized, 343,307,238 issued as
of August 31, 2001 and 343,308,444 issued as of
November 30, 2001...................................... 8 8
Class X common shares, par value $0.0000225 per share,
1,000,000,000 shares authorized, 591,161,472 shares
issued and outstanding................................. 13 13
Restricted share units (related to Class A common
shares), 68,481,815 units issued and outstanding as of
August 31, 2001 and 68,273,504 units issued and
outstanding as of November 30, 2001.................... 993,380 989,280
Additional paid-in capital............................... 832,731 832,731
Treasury shares, at cost 1,622,400 shares................ -- (20,978)
Retained deficit......................................... (1,435,310) (1,353,634)
Accumulated other comprehensive loss..................... (108,634) (94,668)
----------- -----------
Total shareholders' equity............................ 282,188 352,752
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $ 6,061,356 $ 5,422,671
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
ACCENTURE LTD
COMBINED INCOME STATEMENT BEFORE PARTNER DISTRIBUTIONS
CONSOLIDATED INCOME STATEMENT
For the Three Months Ended November 30, 2000 and 2001
(In thousands of U.S. dollars except share and per share amounts)
(Unaudited)
Combined Consolidated
Income Income
Statement Statement
2000 2001
---------- ------------
REVENUES:
Revenues before reimbursements........................... $2,831,298 $2,988,630
Reimbursements........................................... 406,994 419,880
---------- ----------
Revenues............................................. 3,238,292 3,408,510
OPERATING EXPENSES:
Cost of services*:
Cost of services before reimbursable expenses*....... 1,383,590 1,806,181
Reimbursable expenses................................ 406,994 419,880
---------- ----------
Cost of services*.................................... 1,790,584 2,226,061
Sales and marketing*..................................... 201,818 360,235
General and administrative costs*........................ 376,477 407,957
Reorganization and rebranding costs...................... 30,010 --
---------- ----------
Total operating expenses*......................... 2,398,889 2,994,253
---------- ----------
OPERATING INCOME*........................................... 839,403 414,257
Gain (loss) on investments, net............................. 219,104 (94,737)
Interest income............................................. 22,549 14,785
Interest expense............................................ (4,430) (9,770)
Other income (expense)...................................... 6,675 (7,933)
Equity in gains (losses) of affiliates...................... (20,441) 6,201
---------- ----------
INCOME BEFORE TAXES*........................................ 1,062,860 322,803
Provision for taxes......................................... 52,393 122,665
---------- ----------
INCOME BEFORE MINORITY INTEREST AND
ACCOUNTING CHANGE*........................................ 1,010,467 200,138
Minority interest........................................... -- (118,462)
---------- ----------
INCOME BEFORE ACCOUNTING CHANGE*............................ 1,010,467 81,676
Cumulative effect of accounting change...................... 187,974 --
---------- ----------
PARTNERSHIP INCOME BEFORE PARTNER DISTRIBUTIONS*............ $1,198,441
==========
NET INCOME.................................................. $ 81,676
==========
Weighted Average Class A Common Shares:....................
Basic...................................................... -- 410,488,771
Diluted.................................................... -- 1,014,448,500
Earnings Per Class A Common Share:.........................
Basic...................................................... -- $ 0.20
Diluted.................................................... -- $ 0.20
--------
* Excludes payments for partner distributions in respect of periods ended on or
prior to May 31, 2001.
The accompanying notes are an integral part of these financial statements.
F-3
ACCENTURE LTD
COMBINED AND CONSOLIDATED CASH FLOWS STATEMENTS
For the Three Months Ended November 30, 2000 and 2001
(In thousands of U.S. dollars)
(Unaudited)
Combined Consolidated
Cash Flow Cash Flow
2000 2001
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Partnership income before partnership distributions....... $1,198,441
----------
Net income................................................ $ 81,676
----------
Adjustments to reconcile partnership income and net income
to net cash provided by (used in) operating activities--
Depreciation............................................ 58,407 69,069
(Gain) loss on investments, net......................... (219,104) 94,737
Equity in (gains) losses of affiliates.................. 20,441 (6,201)
Losses on disposal of property and equipment............ -- 8,582
Deferred income taxes................................... -- (40,421)
Minority interest....................................... -- 118,462
Other items, net........................................ (936) 14,780
Cumulative effect of accounting change.................. (187,974) --
Change in assets and liabilities--......................
Increase in receivables from clients, net.............. (147,131) (35,536)
Increase in unbilled services.......................... (125,117) (198,587)
Decrease in other current assets....................... 49,633 13,834
(Increase) decrease in other non-current assets........ (17,255) 4,466
Increase (decrease) in accounts payable................ 46,356 (11,070)
Decrease in due to related parties..................... (14,106) --
Decrease in deferred revenue........................... (81,279) (88,650)
Increase in accrued payroll and related benefits....... 240,174 64,166
Decrease in taxes payable.............................. (33,606) (279,142)
Decrease in other accrued liabilities.................. (73,993) (22,846)
Increase in other non-current liabilities.............. -- 15,291
---------- ----------
Total adjustments..................................... (485,490) (279,066)
---------- ----------
Net cash provided by (used in) operating activities... 712,951 (197,390)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments........................ 308,394 8,361
Proceeds from sales of property and equipment............. -- 257
Purchases of investments.................................. (85,328) (30,761)
Property and equipment additions.......................... (67,228) (42,057)
---------- ----------
Net cash provided by (used in) investing activities... 155,838 (64,200)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital paid in by partners............................... 2,879 --
Repayment of paid-in capital to partners.................. (5,079) --
Purchase of treasury shares............................... -- (20,978)
Distribution of partners' pre-incorporation income........ (927,863) (489,391)
Proceeds from issuance of long-term debt.................. -- 3,935
Repayment of long-term debt............................... (1,175) (35)
Proceeds from issuance of short-term bank borrowings...... 237,222 132,352
Repayments of short-term bank borrowings.................. (68,052) (122,287)
---------- ----------
Net cash used in financing activities................. (762,068) (496,404)
Effect of exchange rate changes on cash and cash
equivalents............................................. (29,076) 7,428
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 77,645 (750,566)
CASH AND CASH EQUIVALENTS, beginning of period............. 1,270,516 1,880,083
---------- ----------
CASH AND CASH EQUIVALENTS, end of period................... $1,348,161 $1,129,517
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars except share and per share amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of
Accenture Ltd (the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") for quarterly
reports on Form 10-Q and do not include all of the information and note
disclosures required by accounting principles generally accepted in the United
States of America. These financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the fiscal
year ended August 31, 2001, included in the Company's Annual Report on Form
10-K filed with the SEC. The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America and reflect all adjustments (consisting solely
of normal, recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of results for these interim periods. The
results of operations for the three months ended November 30, 2001, are not
necessarily indicative of the results that may be expected for the fiscal year
ending August 31, 2002. Certain prior period amounts have been reclassified to
conform with the current period presentation.
2. COMPREHENSIVE INCOME
The components of comprehensive income for the three-month periods ended
November 30, 2000 and 2001, respectively, are as follows:
2000 2001
---------- --------
Partnership Income Before Partner Distributions........................................ $1,198,441
Net Income............................................................................. $ 81,676
Foreign currency translation adjustments............................................... (29,076) 7,428
Unrealized gains (losses) on marketable securities, net of reclassification adjustments (596,990) 6,538
---------- --------
Comprehensive income................................................................... $ 572,375 $ 95,642
========== ========
3. INVESTMENTS
Management conducts a quarterly impairment review of each investment in the
portfolio, including historical and projected financial performance, expected
cash needs and recent funding events. Other-than-temporary impairments for
investments are recognized if the market value of the investment is below its
cost basis for an extended period or the issuer has experienced significant
financial declines or difficulties in raising capital to continue operations.
Other-than-temporary impairments were $28,000 and $90,000 for the three months
ended November 30, 2000 and 2001, respectively.
4. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision-making group, in deciding how to
allocate resources and in assessing performance.
Accenture's chief operating decision maker is the Chief Executive Officer.
The operating segments are managed separately because each operating segment
represents a strategic business unit that serves different markets. The
reportable operating segments are the Company's five operating groups (formerly
known as global market units), which are Communications & High Tech, Financial
Services, Government, Products and Resources.
F-5
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share and per share amounts)
(Unaudited)
Certain changes have been made to the prior-period amounts in order to
conform with the current period presentation. The most significant of these
changes was the elimination of interest expense from the five operating groups'
operating income and the elimination of interest credits from Other's operating
income. Also, the consolidated affiliated companies' revenues and operating
income (loss) results are included in the five operating groups' results rather
than being reported in Other.
Reportable Segments
Comm. &
Three months High Financial
ended November 30, 2000 Tech Services Government Products Resources Other Total
----------------------- -------- --------- ---------- -------- --------- ------ ----------
Revenues before reimbursements $864,870 $758,563 $213,103 $532,404 $460,750 $1,608 $2,831,298
Operating income *............ 260,698 270,636 30,474 148,466 121,933 7,196 839,403
======== ======== ======== ======== ======== ====== ==========
Comm. &
Three months High Financial
ended November 30, 2001 Tech Services Government Products Resources Other Total
----------------------- -------- --------- ---------- -------- --------- ------ ----------
Revenues before reimbursements $743,215 $716,707 $336,519 $649,829 $540,908 $1,452 $2,988,630
Operating income.............. 55,319 90,805 62,898 120,316 81,501 3,418 414,257
======== ======== ======== ======== ======== ====== ==========
--------
* Excludes payments for partner distributions in respect of periods ended on or
prior to May 31, 2001.
5. EARNINGS PER SHARE (EPS)
Reconciliation of Net income and Earnings per share for the three months
ended November 30, 2001:
Basic Diluted
------------ --------------
Net income available for Class A common shareholders................... $ 81,676 $ 81,676
Minority interest (1).................................................. -- 118,462
------------ --------------
Net income for per share calculation................................... $ 81,676 $ 200,138
============ ==============
Weighted average Class A common shares outstanding..................... 410,448,771 410,448,771
Class A common shares issuable upon redemption of minority interest (1) -- 595,457,336
Employee compensation related to Class A common shares................. -- 8,542,393
------------ --------------
410,448,771 1,014,448,500
============ ==============
Earnings per Class A common share...................................... $ 0.20 $ 0.20
============ ==============
--------
(1) Accenture Class A common shares issuable or exchangeable upon redemption or
exchange of shares held by Accenture SCA Class I common shareholders and
Accenture Canada Holdings Inc. shareholders.
In respect of periods ended on or prior to May 31, 2001, the Company
operated as a series of related partnerships and corporations under the control
of the partners. There is no single capital structure upon which to calculate
historical earnings per share information. Accordingly, historical earnings per
share information has only been presented for periods following the Company's
transition to a corporate structure.
F-6
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share and per share amounts)
(Unaudited)
6. EMPLOYEE SHARE PURCHASE PLAN
On October 1, 2001, a six-month offering period commenced under the plan.
At November 30, 2001, accrued payroll and related benefits includes $20,523 of
payroll withholdings from employees.
7. RELATED PARTIES
Amounts due to/due from related parties at August 31, 2001 and November 30,
2001 were payable to/receivables from those individuals who were partners of
Accenture prior to May 31, 2001, in respect of pre-incorporation transactions.
F-7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Accenture Ltd:
In our opinion, the accompanying combined and consolidated balance sheets
and the related combined income statements before partner
distributions/consolidated income statement, combined statements of partners'
capital and comprehensive income/consolidated shareholders' equity statement
and combined and consolidated cash flows statements present fairly, in all
material respects, the financial position of Accenture Ltd and its subsidiaries
at August 31, 2000 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended August 31, 2001 in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the consolidated financial statements, in 2001
the Company changed its method of accounting for derivative instruments and
hedging activities.
/s/ PricewaterhouseCoopers LLP
October 11, 2001, except as to Note 18 which is as of March 15, 2002
Chicago, Illinois
F-8
ACCENTURE LTD
COMBINED AND CONSOLIDATED BALANCE SHEETS
August 31, 2000 and 2001
(In thousands of U.S. dollars except share amounts)
Combined Consolidated
Balance Sheet Balance Sheet
2000 2001
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $1,270,516 $ 1,880,083
Short-term investments...................................... 395,620 --
Receivables from clients, net............................... 1,450,555 1,498,812
Unbilled services........................................... 682,935 731,802
Due from related parties.................................... 58,287 69,500
Deferred income taxes, net.................................. -- 166,372
Other current assets........................................ 141,372 233,068
---------- -----------
Total current assets...................................... 3,999,285 4,579,637
---------- -----------
NON-CURRENT ASSETS:
Due from related parties.................................... 81,220 23,800
Investments................................................. 509,665 324,139
Property and equipment, net................................. 705,508 822,318
Deferred income taxes, net.................................. -- 213,617
Other non-current assets.................................... 155,619 97,845
---------- -----------
Total non-current assets.................................. 1,452,012 1,481,719
---------- -----------
TOTAL ASSETS................................................... $5,451,297 $ 6,061,356
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank borrowings.................................. $ 164,765 $ 189,872
Current portion of long-term debt........................... 29,921 797
Accounts payable............................................ 233,737 371,794
Due to related parties...................................... 339,877 818,888
Deferred revenue............................................ 948,390 810,043
Accrued payroll and related benefits........................ 700,843 1,050,385
Taxes payable............................................... 283,731 515,304
Deferred income taxes, net.................................. -- 29,373
Other accrued liabilities................................... 282,715 392,364
---------- -----------
Total current liabilities................................. 2,983,979 4,178,820
---------- -----------
NON-CURRENT LIABILITIES:
Long-term debt.............................................. 98,865 1,090
Retirement obligation....................................... -- 343,249
Deferred income taxes, net.................................. -- 50,969
Other non-current liabilities............................... -- 797,114
---------- -----------
Total non-current liabilities............................. 98,865 1,192,422
---------- -----------
MINORITY INTEREST.............................................. -- 407,926
---------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred shares, 2,000,000,000 shares authorized, 0
shares issued and outstanding.............................. -- --
Class A common shares, par value $0.0000225 per share,
20,000,000,000
shares authorized, 343,307,238 shares issued and
outstanding................................................ -- 8
Class X common shares, par value $0.0000225 per share,
1,000,000,000
shares authorized, 591,161,472 shares issued and
outstanding................................................ -- 13
Restricted share units (related to Class A common
shares), 68,481,815 units issued and outstanding........... -- 993,380
Additional paid-in capital.................................. -- 832,731
Retained earnings (deficit)................................. -- (1,435,310)
Partners' paid-in capital................................... 403,483 --
Partners' undistributed earnings............................ 1,347,905 --
Accumulated other comprehensive income (loss)............... 617,065 (108,634)
---------- -----------
Total shareholders' equity................................ 2,368,453 282,188
---------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..................... $5,451,297 $ 6,061,356
========== ===========
The accompanying notes are an integral part of these financial statements.
F-9
ACCENTURE LTD
COMBINED INCOME STATEMENTS BEFORE PARTNER DISTRIBUTIONS
CONSOLIDATED INCOME STATEMENT
For the Years Ended August 31, 1999, 2000 and 2001
(In thousands of U.S. dollars)
Combined Combined Consolidated
Income Income Income
Statement Statement Statement
1999 2000 2001
----------- ----------- ------------
REVENUES:
Revenues before reimbursements......................... $ 9,549,856 $ 9,752,085 $11,443,720
Reimbursements......................................... 1,529,543 1,787,865 1,904,152
----------- ----------- -----------
Revenues........................................... 11,079,399 11,539,950 13,347,872
OPERATING EXPENSES:
Cost of services*:
Cost of services before reimbursable expenses*..... 5,456,559 5,486,292 6,199,213
Reimbursable expenses.............................. 1,529,543 1,787,865 1,904,152
----------- ----------- -----------
Cost of services*.................................. 6,986,102 7,274,157 8,103,365
Sales and marketing*................................... 790,246 883,276 1,217,343
General and administrative costs*...................... 1,271,357 1,296,398 1,515,683
Reorganization and rebranding costs*................... -- -- 848,615
Restricted share unit-based compensation............... -- -- 967,110
----------- ----------- -----------
Total operating expenses*....................... 9,047,705 9,453,831 12,652,116
----------- ----------- -----------
OPERATING INCOME*......................................... 2,031,694 2,086,119 695,756
Gain on investments, net.................................. 92,542 573,220 107,016
Interest income........................................... 60,039 67,244 79,778
Interest expense.......................................... (27,200) (24,071) (43,278)
Other income (expense).................................... (5,309) 51,042 16,973
Equity in losses of affiliates............................ (6,472) (46,853) (61,388)
----------- ----------- -----------
INCOME BEFORE TAXES*...................................... 2,145,294 2,706,701 794,857
Provision for taxes....................................... 122,640 242,807 502,616
----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST AND
ACCOUNTING CHANGE*...................................... 2,022,654 2,463,894 292,241
Minority interest......................................... -- -- 577,188
----------- ----------- -----------
INCOME BEFORE ACCOUNTING CHANGE*.......................... 2,022,654 2,463,894 869,429
Cumulative effect of accounting change.................... -- -- 187,974
----------- ----------- -----------
PARTNERSHIP INCOME BEFORE PARTNER
DISTRIBUTIONS*.......................................... $ 2,022,654 $ 2,463,894
=========== ===========
NET INCOME*............................................... $ 1,057,403
===========
--------
* Excludes payments for partner distributions in respect of periods ended on or
prior to May 31, 2001.
The accompanying notes are an integral part of these financial statements.
F-10
PAGE>
ACCENTURE LTD
COMBINED STATEMENTS OF PARTNERS' CAPITAL AND COMPREHENSIVE INCOME
CONSOLIDATED SHAREHOLDERS' EQUITY STATEMENT
For the Years Ended August 31, 1999, 2000 and 2001
(In thousands of U.S. dollars and in thousands of share amounts)
Class A Class X RSU
Preferred Common Shares Common Shares Common Shares
Shares $ No. Shares $ No. Shares $ No. Shares
--------- --- ---------- --- ---------- -------- ----------
Balance, at August 31, 1998.................................. $-- $-- -- $-- -- $ -- --
Comprehensive income.........................................
Partnership income before partner distributions.............
Other comprehensive income..................................
Unrealized gains on marketable securities, net of
reclassification adjustment..............................
Foreign currency translation..............................
Other comprehensive income..................................
Comprehensive income.........................................
Capital paid in by partners..................................
Repayment of paid-in capital to partners.....................
Distribution of partners' income.............................
--- --- ------- --- ------- -------- ------
Balance at August 31, 1999................................... -- -- -- -- -- -- --
Comprehensive income.........................................
Partnership income before partner distributions.............
Other comprehensive income..................................
Unrealized gains on marketable securities, net of
reclassification adjustment..............................
Foreign currency translation..............................
Other comprehensive income..................................
Comprehensive income.........................................
Capital paid in by partners..................................
Repayment of paid-in capital to partners.....................
Distribution to AW-SC........................................
Distribution of partners' income.............................
--- --- ------- --- ------- -------- ------
Balance at August 31, 2000................................... -- -- -- -- -- -- --
Comprehensive income.........................................
Partnership income before partner distributions for the nine
months ended May 31, 2001..................................
Net loss for the three months ended August 31, 2001.........
Other comprehensive income (loss)...........................
Unrealized losses on marketable securities, net of
reclassification adjustment..............................
Foreign currency translation..............................
Other comprehensive income (loss)...........................
Comprehensive income.........................................
Capital paid in by partners..................................
Repayment of paid-in capital to partners.....................
Distribution to AW-SC........................................
Distribution of partners' income.............................
Partner retirement and vacation benefits.....................
Transfer to retained earnings (deficit)......................
Issuance of shares:
Shares issued upon reorganization to corporate structure.... 5 212,257 13 591,161
Initial public offering, net................................ 3 131,050
Restricted share units...................................... 993,380 68,482
Minority interest............................................
--- --- ------- --- ------- -------- ------
Balance at August 31, 2001................................... $-- $ 8 343,307 $13 591,161 $993,380 68,482
=== === ======= === ======= ======== ======
Accumulated
Additional Retained Other
Paid-in Earnings Paid-in Undistributed Comprehensive
Capital (Deficit) Capital Earnings Income (Loss)
---------- ----------- --------- ------------- -------------
Balance, at August 31, 1998.................................. $ -- $ -- $ 276,025 $ 1,143,377 $ 87,209
Comprehensive income.........................................
Partnership income before partner distributions............. 2,022,654
Other comprehensive income..................................
Unrealized gains on marketable securities, net of
reclassification adjustment.............................. 185,881
Foreign currency translation.............................. (19,948)
---------
Other comprehensive income.................................. 165,933
Comprehensive income.........................................
Capital paid in by partners.................................. 93,211
Repayment of paid-in capital to partners..................... (17,731)
Distribution of partners' income............................. (1,562,545)
---------- ----------- --------- ----------- ---------
Balance at August 31, 1999................................... -- -- 351,505 1,603,486 253,142
Comprehensive income.........................................
Partnership income before partner distributions............. 2,463,894
Other comprehensive income..................................
Unrealized gains on marketable securities, net of
reclassification adjustment.............................. 408,998
Foreign currency translation.............................. (45,075)
---------
Other comprehensive income.................................. 363,923
Comprehensive income.........................................
Capital paid in by partners.................................. 99,895
Repayment of paid-in capital to partners..................... (47,917)
Distribution to AW-SC........................................ (826,156)
Distribution of partners' income............................. (1,893,319)
---------- ----------- --------- ----------- ---------
Balance at August 31, 2000................................... -- -- 403,483 1,347,905 617,065
Comprehensive income.........................................
Partnership income before partner distributions for the nine
months ended May 31, 2001.................................. 1,427,185
Net loss for the three months ended August 31, 2001......... (369,782)
Other comprehensive income (loss)...........................
Unrealized losses on marketable securities, net of
reclassification adjustment.............................. (700,857)
Foreign currency translation.............................. (24,842)
---------
Other comprehensive income (loss)........................... (725,699)
Comprehensive income.........................................
Capital paid in by partners.................................. 146,328
Repayment of paid-in capital to partners..................... (549,811)
Distribution to AW-SC........................................ (268,781)
Distribution of partners' income............................. (3,106,350)
Partner retirement and vacation benefits..................... (465,487)
Transfer to retained earnings (deficit)...................... (1,065,528) 1,065,528
Issuance of shares:
Shares issued upon reorganization to corporate structure....
Initial public offering, net................................ 1,791,441
Restricted share units......................................
Minority interest............................................ (958,710)
---------- ----------- --------- ----------- ---------
Balance at August 31, 2001................................... $ 832,731 $(1,435,310) $ -- $ -- $(108,634)
========== =========== ========= =========== =========
Total
-----------
Balance, at August 31, 1998.................................. $ 1,506,611
Comprehensive income.........................................
Partnership income before partner distributions............. 2,022,654
Other comprehensive income..................................
Unrealized gains on marketable securities, net of
reclassification adjustment.............................. 185,881
Foreign currency translation.............................. (19,948)
Other comprehensive income..................................
-----------
Comprehensive income......................................... 2,188,587
Capital paid in by partners.................................. 93,211
Repayment of paid-in capital to partners..................... (17,731)
Distribution of partners' income............................. (1,562,545)
-----------
Balance at August 31, 1999................................... 2,208,133
Comprehensive income.........................................
Partnership income before partner distributions............. 2,463,894
Other comprehensive income..................................
Unrealized gains on marketable securities, net of
reclassification adjustment.............................. 408,998
Foreign currency translation.............................. (45,075)
Other comprehensive income..................................
-----------
Comprehensive income......................................... 2,827,817
Capital paid in by partners.................................. 99,895
Repayment of paid-in capital to partners..................... (47,917)
Distribution to AW-SC........................................ (826,156)
Distribution of partners' income............................. (1,893,319)
-----------
Balance at August 31, 2000................................... 2,368,453
Comprehensive income.........................................
Partnership income before partner distributions for the nine
months ended May 31, 2001.................................. 1,427,185
Net loss for the three months ended August 31, 2001......... (369,782)
Other comprehensive income (loss)...........................
Unrealized losses on marketable securities, net of
reclassification adjustment.............................. (700,857)
Foreign currency translation.............................. (24,842)
Other comprehensive income (loss)...........................
-----------
Comprehensive income......................................... 331,704
Capital paid in by partners.................................. 146,328
Repayment of paid-in capital to partners..................... (549,811)
Distribution to AW-SC........................................ (268,781)
Distribution of partners' income............................. (3,106,350)
Partner retirement and vacation benefits..................... (465,487)
Transfer to retained earnings (deficit)...................... --
Issuance of shares:
Shares issued upon reorganization to corporate structure.... 18
Initial public offering, net................................ 1,791,444
Restricted share units...................................... 993,380
Minority interest............................................ (958,710)
-----------
Balance at August 31, 2001................................... $ 282,188
===========
The accompanying notes are an integral part of these financial statements.
F-11
ACCENTURE LTD
COMBINED AND CONSOLIDATED CASH FLOWS STATEMENTS
For the Years Ended August 31, 1999, 2000 and 2001
(In thousands of U.S. dollars)
Combined Combined Consolidated
Cash Flow Cash Flow Cash Flow
1999 2000 2001
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Partnership income before partnership distributions..................................... $ 2,022,654 $ 2,463,894
----------- -----------
Net income.............................................................................. $ 1,057,403
-----------
Adjustments to reconcile partnership income and net income for the year to the net cash
provided by operating activities--
Depreciation........................................................................... 217,032 237,078 257,072
Amortization........................................................................... -- -- 157,000
Gain on investments, net............................................................... (92,542) (573,220) (107,016)
Equity in losses of affiliates......................................................... 6,472 46,853 61,388
Losses on disposal of property and equipment........................................... -- 31,557 24,725
Restricted share unit-based compensation............................................... -- -- 967,110
Deferred income taxes.................................................................. -- -- (299,647)
Minority interest...................................................................... -- -- (577,188)
Other items, net....................................................................... (4,473) (30,749) (25,646)
Cumulative effect of accounting change................................................. -- -- (187,974)
Change in assets and liabilities--
(Increase) in receivables from clients................................................ (60,913) (211,867) (48,257)
(Increase) in unbilled services....................................................... (108,898) (184,957) (48,867)
(Increase) in due from / (decrease) in due to related parties......................... (38,718) 17,294 (89,180)
(Increase) decrease in other current assets........................................... 32,744 28,343 (91,696)
(Increase) decrease in other non-current assets....................................... (23,736) 28,468 44,814
Increase in accounts payable.......................................................... 23,412 14,183 138,057
Increase (decrease) in deferred revenue............................................... 19,997 67,415 (114,942)
Increase in accrued payroll and employee benefits..................................... 124,783 339 250,968
Increase in taxes payable............................................................. 21,019 46,817 231,573
Increase in other accrued liabilities................................................. 55,514 149,816 11,418
Increase in other non-current liabilities............................................. -- -- 669,499
----------- ----------- -----------
Total adjustments................................................................... 171,693 (332,630) 1,223,211
----------- ----------- -----------
Net cash provided by operating activities........................................... 2,194,347 2,131,264 2,280,614
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments...................................................... 93,496 575,806 427,561
Proceeds from sales of property and equipment........................................... -- -- 22,778
Purchases of investments................................................................ (18,446) (153,050) (326,086)
Purchase of intangible assets........................................................... -- -- (157,000)
Property and equipment additions........................................................ (305,156) (315,426) (377,930)
----------- ----------- -----------
Net cash provided by (used in) investing activities................................. (230,106) 107,330 (410,677)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital paid in by partners............................................................. 93,211 99,895 146,328
Repayment of paid-in capital to partners................................................ (17,731) (47,917) (524,130)
Issuance of common stock................................................................ -- -- 1,791,444
Distribution of partners' income........................................................ (1,562,545) (1,893,319) (2,282,141)
Payment to AW-SC........................................................................ (87,548) (229,776) (313,832)
Proceeds from issuance of long-term debt................................................ -- 1,384 1,787
Repayment of long-term debt............................................................. (1,427) (1,605) (19,653)
Proceeds from issuance of short-term bank borrowings.................................... 93,872 283,747 876,495
Repayments of short-term bank borrowings................................................ (87,907) (246,004) (843,264)
----------- ----------- -----------
Net cash used in financing activities............................................... (1,570,075) (2,033,595) (1,166,966)
Effect of exchange rate changes on cash and cash equivalents............................ (19,948) (45,075) (93,404)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................. 374,218 159,924 609,567
CASH AND CASH EQUIVALENTS, beginning of period............................................ 736,374 1,110,592 1,270,516
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................................................. $ 1,110,592 $ 1,270,516 $ 1,880,083
=========== =========== ===========
Supplemental cash flow information
Interest paid........................................................................... $ 26,757 $ 23,727 $ 37,091
Income taxes paid....................................................................... $ 88,426 $ 144,410 $ 187,640
The accompanying notes are an integral part of these financial statements.
F-12
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Accenture is the world's leading provider of management and technology
consulting services and solutions, with more than 75,000 employees in 47
countries delivering a wide range of specialized capabilities and solutions to
clients across all industries. Accenture operates globally with one common
brand and business model designed to enable the company to serve clients on a
consistent basis around the world. Under its strategy, Accenture is building a
network of businesses to meet the full range of any organization's needs -
consulting, technology, outsourcing, alliances and venture capital. The
principal markets for Accenture are North America, Western Europe, Japan and
Australia.
Principles of Consolidation and Combination
The consolidated financial statements include the accounts of Accenture
Ltd, a Bermuda company, and its controlled subsidiary companies (together
"Accenture"). In May 2001, the Accenture Worldwide Organization completed a
transition to a corporate structure with Accenture Ltd becoming the holding
company.
Accenture Ltd's only business is to hold shares and to act as the sole
general partner of its subsidiary, Accenture SCA, a Luxembourg partnership
limited by shares. Accenture operates its business through Accenture SCA and
subsidiaries of Accenture SCA. Accenture Ltd controls Accenture SCA's
management and operations and consolidates Accenture SCA's results in its
financial statements. Accenture Ltd has a 58% voting interest in Accenture SCA
assuming the issuance of 68,481,815 Accenture SCA Class I common shares. These
shares will be issued in connection with the delivery of the 68,481,815
Accenture Ltd Class A common shares underlying 68,481,815 restricted share
units which generally are considered fully vested and will be issued for no
consideration solely upon the passage of time.
Prior to the transition to a corporate structure, the Accenture Worldwide
Organization operated as a series of related partnerships and corporations
under the control of the partners and shareholders of these entities. These
individuals became executive employees of Accenture following its transition,
but retain the "partner" title. In connection with the transition to a
corporate structure, the partners received Accenture Ltd Class A common shares
or, in the case of partners resident in specified countries, Class I common
shares issued by Accenture SCA or exchangeable shares issued by Accenture
Canada Holdings Inc., an indirect subsidiary of Accenture SCA, in lieu of their
interests in these partnerships and corporations. The transition to a corporate
structure was accounted for as a reorganization at carryover basis as there
were no changes in the rights, obligations or economic interests of Accenture's
partners upon the exchange of their interests for shares in Accenture Ltd,
Accenture SCA or Accenture Canada Holdings Inc., except for those applied
consistently among the partners or those resulting from Accenture's transition
from a series of related partnerships and corporations to a corporate structure.
The shares of Accenture SCA and Accenture Canada Holdings Inc. held by the
partners are treated as a minority interest in the consolidated financial
statements of Accenture Ltd. However, the future exchange and/or redemption of
Accenture SCA shares or Accenture Canada Holdings Inc. exchangeable shares will
be accounted for at carryover basis.
F-13
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
The accompanying financial statements, in respect of periods ended on or
prior to May 31, 2001, have been prepared on a combined basis and reflect the
accounts of the Accenture Worldwide Organization which prior to May 31, 2001,
included Accenture Partners Societe Cooperative (Geneva, Switzerland -- the
administrative coordinating entity, "APSC") and a number of entities, many of
which operated as partnerships, that had entered into Member Firm Interfirm
Agreements ("MFIAs") with APSC ("Member Firms"), together with all entities
controlled by them. Prior to January 1, 2001, Accenture was known as Andersen
Consulting. Prior to August 7, 2000, the Accenture Member Firms and the
entities controlled by them were parties to MFIAs with Andersen Worldwide
Societe Cooperative ("AW-SC"). AW-SC also contracted with the Member Firms of
Arthur Andersen (hereinafter, "AA" and "AA Member Firms") and other entities
controlled by them. APSC was incorporated to implement the agreement of the
Accenture Member Firms and the partners of Accenture to remain together, on
substantially the same terms as with AW-SC, as a result of the successful
outcome of the arbitration described in Note 16. Each Accenture Member Firm
entered into an MFIA with APSC, effective as of August 7, 2000, that was
identical in all substantial terms with the prior agreement such Member Firm
had with AW-SC.
The equity method of accounting is used for unconsolidated investments in
which Accenture exercises significant influence. All other investments are
accounted for under the cost method. All significant intercompany/interfirm
transactions and profits have been eliminated.
The Combined financial statements in respect of periods ended on or prior
to May 31, 2001 and the Consolidated financial statements from May 31, 2001
onward are collectively referred to as the Consolidated financial statements in
these footnotes.
Revenue Recognition
Revenues include all amounts that are billable to clients. Revenues are
recognized on a time and materials basis, or on a percentage of completion
basis, depending on the contract, as services are provided by employees and
subcontractors. Revenue from time and material service contracts is recognized
as the services are provided. Revenue from fixed price long-term contracts is
recognized over the contract term based on the percentage of services provided
during the period compared to the total estimated services to be provided over
the entire contract. Losses on contracts are recognized during the period in
which the loss first becomes probable and reasonably estimable. Contract losses
are determined to be the amount by which the estimated direct and indirect
costs of the contract exceed the estimated total revenues that will be
generated by the contract. Losses recognized during each of the three years
ended August 31, 2001 were insignificant. Revenue recognized in excess of
billings is recorded as Unbilled services. Billings in excess of revenue
recognized are recorded as Deferred revenue until the above revenue recognition
criteria are met. Reimbursements, including those relating to travel and other
out-of-pocket expenses, and other similar third-party costs, such as the cost
of hardware and software resales, are included in Revenues, and an equivalent
amount of reimbursable expenses are included in Cost of services.
Operating Expenses
Subcontractor costs are included in Cost of services when they are
incurred. Training costs were $644,760, $553,698 and $691,513 in 1999, 2000 and
2001, respectively. Research and development and advertising costs are expensed
as incurred. Research and development costs were $255,905 in 1999, $251,764 in
2000 and $271,336 in 2001. Advertising costs were $46,500 in 1999, $69,000 in
2000 and $149,900 in 2001.
F-14
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Translation of Non-U.S. Currency Amounts
The net assets and operations of entities outside of the United States are
translated into U.S. dollars using appropriate exchange rates. Assets and
liabilities are translated at year-end exchange rates and income and expense
items are translated at average exchange rates prevailing during the year.
Foreign currency translations on assets and liabilities denominated in
currencies other than their functional currency resulted in gains/(losses) of
($9,642) in 1999, $27,567 in 2000 and ($1,279) in 2001, which are included in
Other income (expense).
Provision for Taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income Taxes." Tax
provisions are recorded at statutory rates for taxable items included in the
Consolidated Income Statements regardless of the period for which such items
are reported for tax purposes. Deferred income taxes are recognized for
temporary differences between the financial reporting and income tax bases of
assets and liabilities.
Partnership Income Before Partner Distributions
Partnership Income Before Partner Distributions is not comparable to net
income of a corporation similarly determined. Also, partnership income is not
executive compensation in the customary sense of that term because partnership
income is comprised of distributions of current earnings. Accordingly,
compensation and benefits for services rendered by partners have not been
reflected as an expense in the combined financial statements in respect of
periods ended on or prior to May 31, 2001.
Cash and Cash Equivalents
Cash and cash equivalents consist of all cash balances and highly liquid
investments with original maturities of three months or less, including time
deposits and certificates of deposit of $486,661 and $224,278 at August 31,
2000 and 2001, respectively. As a result of certain subsidiaries' cash
management systems, checks issued but not presented to the banks for payments
may create negative book cash payables. Such negative balances are classified
as Short-term bank borrowings.
Concentrations of Credit Risk
Accenture's financial instruments that are exposed to concentrations of
credit risk consist primarily of Cash and cash equivalents and Receivables from
clients. Accenture places its Cash and cash equivalents with financial
institutions and limits the amount of credit exposure with any one financial
institution. Accenture actively evaluates the creditworthiness of the financial
institutions with which it invests. The Receivables from clients are dispersed
across many different industries and geographies; therefore, concentrations of
credit risk are limited. As of and for the years ended August 31, 1999, 2000
and 2001, the allowance for uncollectible accounts and bad debt expense are
immaterial.
F-15
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Investments
Investments in marketable equity securities are recorded at fair value. All
investments recorded at fair value have been classified as available-for-sale,
and accordingly, the difference between cost and fair value is recorded in
Accumulated other comprehensive income (loss). The cost of securities sold is
determined on an average cost basis.
Accenture receives warrants issued by other companies primarily in exchange
for services, alliances and directorships. At the measurement date, these
warrants are recorded at fair value. Warrants received in connection with
services and alliances are recorded as Revenues. Warrants received in
connection with directorships are recorded as Other income (expense). Warrants
in public companies and those that can be net share settled in private
companies are deemed derivative financial instruments and are recorded on the
Consolidated Balance Sheet at fair value. Changes in fair value of these
warrants are recognized in the Consolidated Income Statement and included in
Gain on investments, net.
Management conducts a quarterly impairment review of each investment in the
portfolio, including historical and projected financial performance, expected
cash needs and recent funding events. Other-than-temporary impairments for
investments are recognized if the market value of the investment is below its
cost basis for an extended period or the issuer has experienced significant
financial declines or difficulties in raising capital to continue operations.
Foreign Exchange Instruments
In the normal course of business, Accenture uses derivative financial
instruments to manage foreign currency exchange rate risk. These instruments
are subject to fluctuations in foreign exchange rates and credit risk. The
instruments are used to hedge underlying business exposures such that the
impact of foreign exchange rate fluctuations is offset by opposite movements in
the underlying exposure. Credit risk is managed through careful selection of
sound financial institutions as counterparties.
In its hedging programs, Accenture uses a combination of forward and option
contracts to hedge its major foreign currency exchange rate exposures. These
instruments are generally short term in nature, with maturities of less than
one year.
In accordance with SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities", all derivatives are recognized as either assets or
liabilities at fair value. Hedges of committed exposure are marked-to-market
each period with the changes in value included in Net Income. Hedges of
anticipated exposures are marked-to-market each period. The changes in value
are included in other comprehensive income for those hedges that are considered
effective according to SFAS 133; otherwise, the changes in value are included
in Net Income.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation of property and equipment is computed on a straight-line basis
over the following useful lives:
Buildings................................ 20 to 25 years
Term of lease,
Leasehold improvements................... 15 years maximum
Computers, related equipment and software 3 to 5 years
Furniture and fixtures................... 7 to 10 years
F-16
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Long-Lived Assets
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 is assessed by a comparison of
the carrying amount of the asset to the estimated future 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 then fair value.
Earnings Per Share
In respect of periods ended on or prior to May 31, 2001, Accenture operated
as a series of related partnerships and corporations under the control of the
partners. There is no single capital structure upon which to calculate
historical earnings per share information. Accordingly, historical earnings per
share information has only been presented in Note 20, "Quarterly Data" for
periods following Accenture's transition to a corporate structure, and has not
been presented in the Consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts that are reported in the Consolidated
financial statements and accompanying disclosures. Although these estimates are
based on management's best knowledge of current events and actions that
Accenture may undertake in the future, actual results may be different from the
estimates.
Reclassifications
Certain amounts reported in previous years have been reclassified to
conform to the 2001 presentation.
2. ACCOUNTING CHANGE
Effective September 1, 2000, Accenture adopted SFAS 133, which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for hedging
activities. All derivatives, whether designated in hedging relationships or
not, are required to be recorded on the Consolidated Balance Sheet at fair
value. If the derivative is designated as a fair value hedge, the changes in
the fair value of the derivative and of the hedged item attributable to the
hedged risk are recognized in Net Income. If the derivative is designated as a
cash flow hedge, the effective portions of changes in the fair value of the
derivative are recorded in Accumulated other comprehensive income (loss) and
are recognized in the Consolidated Income Statement when the hedged item
affects earnings. Ineffective portions of changes in the fair value of cash
flow hedges are recognized in the Consolidated Income Statement. The adoption
of SFAS 133 resulted in an increase to Net Income of $187,974 based upon the
recognition of the fair value at September 1, 2000, of Accenture's warrants and
options in public companies and those that can be net share settled in private
companies. For the year ended August 31, 2001, Gain on investments, net
includes $191,892 of unrealized investment losses recognized in accordance with
SFAS 133.
F-17
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The components of Accumulated other comprehensive income (loss) at August
31, are:
2000 2001
---------- ---------
Foreign currency translation adjustments......... $ (75,101) $ (99,943)
---------- ---------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)............. 1,004,176 (159,394)
Less: reclassification adjustments............ (595,178) (541,463)
---------- ---------
Net unrealized gains (losses)................. 408,998 (700,857)
Unrealized gains on securities, beginning of year 283,168 692,166
---------- ---------
Net unrealized gains (losses).................... 692,166 (8,691)
---------- ---------
Accumulated other comprehensive income (loss).... $ 617,065 $(108,634)
========== =========
Investments were held in the U.S. or special purpose entities during 2000
and 2001. In respect of periods ended on or prior to May 31, 2001, the
investments were primarily held by partnerships or other non-tax paying
entities; therefore, no income taxes would apply to those gains. Subsequent to
May 31, 2001, the investments were held by special purpose entities which were
not subject to income tax on investment gains and, similarly, losses generated
in these entities are not deductible.
4. PROPERTY AND EQUIPMENT
Property and equipment, net at August 31, is composed of the following:
2000 2001
--------- ---------
Buildings and land....................... $ 72,953 $ 75,371
Leashold improvements.................... 286,177 332,126
Computers, related equipment and software 782,107 837,878
Furniture and fixtures................... 252,905 272,512
Total accumulated depreciation........... (688,634) (695,569)
--------- ---------
$ 705,508 $ 822,318
========= =========
5. INVESTMENTS
Investments which are intended to be sold in the following twelve months
are classified in current assets as Short-term investments. All other
investments are classified as long-term investments. Investments held at August
31, are as follows:
2000 2001
-------- --------
Marketable equity securities: short-term.. $395,620 $ --
Marketable equity securities: long-term... 358,688 85,516
Non-marketable and other.................. 150,977 238,623
-------- --------
Total................................. $905,285 $324,139
======== ========
F-18
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Marketable Equity Securities
Marketable equity securities include common stock, warrants and options,
all of which are classified as available-for-sale. The unrealized gains and
losses on these investments included in Accumulated other comprehensive income
(loss) at August 31, is as follows:
2000 2001
-------- -------
Fair value................................................. $754,308 $85,516
Cost....................................................... 62,142 94,207
Gross unrealized gains..................................... 697,228 633
Gross unrealized losses.................................... (5,062) (9,324)
Equity Method Investments
Accenture has investments in various entities that are accounted for under
the equity method. Under the equity method, investments are stated at initial
cost and are adjusted for subsequent contributions and Accenture's share of
earnings, losses and distributions. The underlying equity in net assets of
these investments exceeded Accenture's carrying value by approximately $49,528
and $154,455, at August 31, 2000 and 2001, respectively. The negative goodwill
is being amortized over three years on a straight-line basis. Amortization of
negative goodwill of $0, $1,376 and $31,545 was reflected as a component of
Equity in losses of affiliates in the accompanying Consolidated Income
Statements for the years ended August 31, 1999, 2000 and 2001, respectively.
Other-Than-Temporary Writedowns
For the years ended August 31, 1999, 2000 and 2001, Accenture recorded
other-than-temporary impairment writedowns of $2,929, $0, and $94,489,
respectively. Of the $94,489 recorded in 2001, $18,998 was reclassified from
Other comprehensive income to Gain on investments, net and $75,491 was directly
expensed to Gain on investments, net.
6. BORROWINGS AND INDEBTEDNESS
Lines of Credit
At August 31, 2001, Accenture has a $450,000 unsecured multicurrency
revolving credit facility with a syndicate of banks led by Morgan Guaranty
Trust Company of New York under which it may borrow from the participants
ratably in proportion to their respective commitments. The facility also
provides a $100,000 sublimit for the issuance of letters of credit. The
facility, which is available through August 31, 2003, provides for committed
borrowings at the prime rate or at LIBOR plus a borrowing margin and also
offers a competitive bid option. Borrowings under this facility were $66,980
and $0 at August 31, 2000 and 2001, respectively. Letters of credit outstanding
at August 31, 2000 and 2001 were $38,000 and $19,247, respectively. The
facility is subject to annual commitment fees. The commitment fees paid for the
year ended August 31, 2001 were $456.
F-19
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
On June 22, 2001, Accenture entered into a $420,000 unsecured 364-day
revolving credit facility with a syndicate of banks led by Bank of America,
N.A. The terms of the Bank of America facility are substantially similar to the
terms of the Morgan Guaranty facility. Borrowings under this facility were $0
at August 31, 2001. The facility is subject to annual commitment fees. The
commitment fees paid for the year ended August 31, 2001 were $0.
At August 31, 2001, Accenture also has in place unsecured multicurrency
credit agreements and local lines of credit of $369,023 and $258,846,
respectively, in the form of committed and non-committed facilities at interest
rates that vary from country to country depending on local market conditions.
Borrowings under these facilities were $97,785 and $187,533 at August 31, 2000
and 2001, respectively. Certain of the agreements are subject to annual
commitment fees.
The most restrictive of these credit agreements requires Accenture to
maintain certain financial ratios and meet certain indebtedness tests. All
these requirements were met throughout the three years ended August 31, 2001.
The weighted average interest rate on borrowings under the multicurrency
credit agreements and lines of credit, based on the average annual balances,
was approximately 12% in 1999, 7% in 2000 and 8% in 2001.
Long-Term Debt
Long-term debt at August 31, consisted of the following:
2000 2001
-------- ------
Joint Debt--
--Unsecured notes payable due upon maturity at various dates through 2002 with
interest due semiannually at fixed rates ranging from 7.52% to 8.49%......... $ 75,000 $ --
--Collateral trust note payable in fixed annual installments through 2011 with
interest due semiannually at 9.26%........................................... 34,342 --
Collateral trust note payable in varying annual installments through 2007 with
interest due annually at 8.12%, secured by real property........................ 18,060 --
Other............................................................................. 1,384 1,887
-------- ------
128,786 1,887
Less--Current portion............................................................. 29,921 797
-------- ------
Total Long-term debt....................................................... $ 98,865 $1,090
======== ======
7. FINANCIAL INSTRUMENTS
At August 31, 2000 and 2001, the carrying amount of Cash and cash
equivalents and Short-term bank borrowings approximates their fair value
because of their short maturities. For all other financial instruments, the
following methods and assumptions were used to approximate fair value. At
August 31, 2001, Accenture has not designated any of its derivatives as hedges
as defined by SFAS 133.
F-20
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Investments
Quoted market prices are used to determine the fair value for the common
equity and debt securities that were issued by publicly traded entities. Those
debt and equity securities issued by non-public entities were valued by
reference to the most recent round of financing as an approximation of the
market value. The fair value and cost of the warrants and options were
approximated using the Black-Scholes valuation model after considering
restrictions on exercisability or sale.
2000 2001
----------------- -----------------
Fair Fair
Cost Value Cost Value
Type of Investment -------- -------- -------- --------
Debt and equity securities (cost method)
--Issued by public entities, short-term. $ 600 $395,620 $ -- $ --
--Issued by public entities, long-term.. 31,442 159,205 41,787 33,096
--Issued by non-public entities......... 134,094 174,573 271,532 298,523
Warrants
--Issued by public entities, long-term.. 30,100 199,483 52,420 52,420
--Issued by non-public entities......... 30,946 27,161 1,081 1,081
Long-Term Debt
The fair value of Long-term debt, including current maturities, was
estimated to be $132,362 and $1,887 at August 31, 2000 and 2001, respectively,
based on the borrowing rates currently available to Accenture for loans with
similar terms and average maturities.
Foreign Exchange Instruments
Market quoted exchange rates are used to determine the fair value of the
instruments. The notional values and fair values of derivative foreign exchange
instruments at August 31, are as follows:
2000 2001
---------------- ---------------
Notional Fair Notional Fair
Value Value Value Value
-------- ------- -------- ------
Foreign currency forward exchange contracts--
To sell................................... $100,768 $ 3,300 $ 87,563 $1,542
To buy.................................... 107,361 (2,814) 127,067 (513)
Option contracts
Put options............................... $ 84,732 $12,269 $ -- $ --
Call options.............................. 26,264 -- -- --
8. INCOME TAXES
Prior to its transition to a corporate structure, Accenture operated
through partnerships in many countries and generally was not subject to income
taxes in those countries. Taxes related to income earned by the partnerships
were the responsibility of the individual partners. In some non-U.S. countries,
Accenture operated through corporations and was subject to local income taxes.
In addition, Accenture was subject to local unincorporated business taxes in
some jurisdictions. Effective with the transition to a corporate structure on
May 31, 2001, Accenture became subject to U.S. federal and other national,
state and local corporate income taxes.
F-21
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
The components of the provision for income taxes reflected on the
Consolidated Income Statement for the year ended August 31, 2001 include the
following:
Current taxes:
U.S. federal....................... $ 382,690
U.S. state and local............... 66,080
Non-U.S............................ 330,590
---------
Total current tax expense...... 779,360
---------
Deferred taxes:
U.S. federal....................... (85,520)
U.S. state and local............... (19,612)
Non-U.S............................ (171,612)
---------
Total deferred tax expense..... (276,744)
---------
Total................................. $ 502,616
=========
A reconciliation of the U.S. federal statutory income tax rate to
Accenture's effective income tax rate for the year ended August 31, 2001 is set
forth below:
U.S. federal statutory income tax rate...... 35.0%
U.S. state and local taxes, net............. 1.0
Other....................................... 3.0
Rate benefit for partnership period......... (49.0)
Revaluation of deferred tax liabilities(1).. 13.6
Costs of transition to a corporate structure 59.6
-----
Effective income tax rate................ 63.2%
=====
--------
(1) The revaluation of deferred tax liabilities upon change in tax status is a
deferred tax expense recognized upon Accenture's change in tax status from
partnership to corporate form.
F-22
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Significant components of Accenture's deferred tax assets and liabilities
at August 31, 2001 are as follows:
Deferred tax assets:
Pensions......................... $ 122,376
Revenue recognition.............. 78,336
Compensation and benefits........ 190,799
Investments...................... 54,473
Tax credit carryforwards......... 16,632
Net operating loss carryforwards. 15,935
Depreciation and amortization.... 70,028
Other............................ 37,410
---------
585,989
Valuation allowance(1)....... (76,187)
---------
Total deferred tax assets........ 509,802
---------
Deferred tax liabilities:
Pensions......................... (21,822)
Revenue recognition.............. (55,787)
Compensation and benefits........ (17,482)
Investments...................... (30,717)
Depreciation and amortization.... (56,961)
Other............................ (27,386)
---------
Total deferred tax liabilities... (210,155)
---------
Net deferred tax assets............. $ 299,647
=========
--------
(1) Accenture has recognized a valuation allowance of $76,187 relating to the
ability to recognize the tax benefits associated with capital losses on
certain U.S. investments and with specific tax net operating loss
carryforwards and tax credit carryforwards of certain non-U.S. operations.
Accenture has net operating loss carryforwards at August 31, 2001 of
$48,938. Of this amount, $42,209 expires at various dates through 2011 and
$6,729 has an indefinite carryforward period. Accenture has tax credit
carryforwards at August 31, 2001 of $16,632 that expire at various dates
through 2016.
If Accenture or one of its non-U.S. subsidiaries were classified as a
foreign personal holding company, Accenture's U.S. shareholders would be
required to include in income, as a dividend, their pro rata share of
Accenture's (or Accenture's relevant non-U.S. subsidiary's) undistributed
foreign personal holding company income.
Because of the application of complex U.S. tax rules regarding attribution
of ownership, Accenture meets the definition of a foreign personal holding
company this year. However, there is no foreign personal holding company income
that its U.S. shareholders are required to include in income this year. In the
event that Accenture has net foreign personal holding company income, Accenture
may distribute a dividend to shareholders to avoid having taxable income
imputed under these rules. Under certain
F-23
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
circumstances, such a distribution could create additional income tax costs to
Accenture. Since Accenture does not have any foreign personal holding company
income this year, no such taxes have been provided.
9. PARTNERS' CAPITAL
Partners' capital represented the capital of partners who were the owners
of Accenture Member Firms. Paid-in-capital was repayable within 60 days
following a partner's resignation, retirement or death. Interest was paid to
the partners on their paid-in capital accounts and recorded as a distribution
of partners' income. Undistributed earnings, contained within Partners'
Capital, represented Partnership Income Before Distributions which had not been
paid to the partners. Partners were not paid interest on Undistributed
earnings. The average balance of the Undistributed earnings and Paid-in-capital
during the years ended August 31, 1999 and 2000 was $1,687,197 and $1,853,190,
respectively.
Upon retirement, all qualifying Accenture partners or their qualifying
surviving spouses were entitled to receive basic retirement benefits for life.
This plan was eliminated for active partners after May 15, 2001 in connection
with the transition to a corporate structure. All qualifying participants prior
to May 15, 2001 will receive basic retirement benefits for life. The amount of
annual benefit payments is periodically adjusted for cost-of-living adjustments
at the beginning of each calendar year. Basic retirement benefits of $1,268 in
1999, $1,759 in 2000 and $2,268 in 2001 were paid to retired partners. The
projected benefit obligation ("PBO") and the accrued benefit cost of the basic
retirement benefits at August 31, 2001 is $63,537 as the plan is not funded.
The accumulated benefit obligation at August 31, 2001 was $59,588. The PBO was
estimated based on a discount rate of 8% and an assumed rate of increase in
future benefits of 1.9%.
In respect of periods ended on or prior to May 15, 2001, early retirement
benefits were paid to certain Accenture partners who retired between the ages
of 56 and 62. Partners retiring after age 56 and prior to age 62 received early
retirement benefits based on two years' earnings on a straight-line declining
basis that resulted in no payout to partners retiring at age 62. Retired
partners could elect to receive early retirement benefits in the form of a
lump-sum payment or ten-year installment payments. This plan was eliminated for
active partners after May 15, 2001, in connection with the transition to a
corporate structure.
Early retirement benefits of $12,483 in 1999, $28,967 in 2000 and $37,685
in 2001 were paid to retired partners. The amount due for early retirement
benefits is $283,097 at August 31, 2001, which is being paid out over the
period through 2010.
Both the basic and early retirement benefit liabilities were recorded as
reductions of partners' capital as of May 31, 2001, as payments related to
these obligations were previously recorded as distributions of partners' income.
In connection with the transition to a corporate structure, Accenture
returned partners' paid-in-capital of $549,811. In addition, undistributed
earnings as of May 31, 2001 are expected to be paid to the partners in one or
more installments on or prior to December 31, 2001. At August 31, 2001,
$818,888 of undistributed earnings was included in Due to related parties on
the Consolidated Balance Sheet.
F-24
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Effective September 1, 2000, 1,286 employees were admitted as partners of
Accenture, which approximately doubled the number of partners. This increased
number of partner admissions was designed to incentivize Accenture's
professionals at an earlier stage in their careers. As a result, the
Consolidated financial statements for the year ended August 31, 2001 reflect
compensation expense for these 1,286 additional partners only for the three
month period from June 1, 2001 to August 31, 2001, as compared to twelve months
of compensation expense for these individuals for the years ended August 31,
1999 and 2000.
10. SHAREHOLDERS' EQUITY
Class A Common Shares
Holders of Accenture Ltd's Class A common shares are entitled to one vote
per share. Shareholders of Accenture Ltd do not have cumulative voting rights.
Each Class A common share is entitled to a pro rata part of any dividend at the
times and in the amounts, if any, which Accenture Ltd's board of directors from
time to time determines to declare, subject to any preferred dividend rights
attaching to any preferred shares. Finally, each Class A common share is
entitled on a winding-up of Accenture Ltd to be paid a pro rata part of the
value of the assets of Accenture Ltd remaining after payment of its
liabilities, subject to any preferred rights on liquidation attaching to any
preferred shares.
On July 24, 2001, Accenture Ltd issued 115 million Class A common shares in
an initial public offering. Accenture's proceeds from the initial public
offering, net of underwriting discounts of $78,200 and other estimated expenses
of $19,667, were $1,569,633. On August 14, 2001, an additional 16.05 million
Class A common shares were issued in connection with the exercise of the
underwriters' over allotment option, resulting in net proceeds of $221,811. Of
these net proceeds, $355,000 were used to repay amounts outstanding under
revolving credit facilities, a portion was used to cover the costs incurred in
connection with the transition to a corporate structure, and the balance was
used for working capital, which was previously funded by the partners, and for
general corporate purposes.
In August 2001, Accenture's board of directors authorized the repurchase of
up to $150,000 of the Class A common shares of Accenture Ltd.
Class X Common Shares
Holders of Accenture Ltd's Class X common shares are entitled to one vote
per share. Class X common shares are not entitled to dividends and are not
entitled to be paid any amount upon winding up of Accenture Ltd. Most of
Accenture's partners receiving Accenture SCA Class I common shares or Accenture
Canada Holdings Inc. exchangeable shares in connection with the transition to a
corporate structure received a corresponding number of Accenture Ltd Class X
common shares. Accenture Ltd may, at its option, redeem any Class X common
share for a redemption price equal to the par value of the Class X common
share. Accenture Ltd may not, however, redeem any Class X common share of a
holder if such redemption would reduce the number of Class X common shares held
by that holder to a number that is less than the number of Accenture SCA Class
I common shares or Accenture Canada Holdings Inc. exchangeable shares held by
that holder, as the case may be. Accenture Ltd will redeem Accenture Ltd Class
X common shares upon redemption or exchange of Accenture SCA Class I common
shares and
F-25
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Accenture Canada Holdings Inc. exchangeable shares so that the aggregate number
of Class X common shares outstanding at any time does not exceed the aggregate
number of Accenture SCA Class I common shares and Accenture Canada Holdings
Inc. exchangeable shares outstanding.
Voting Agreement
Persons and Shares Covered
Accenture Ltd and each of the Accenture partners who own Accenture Ltd
Class A or Class X common shares have entered into a voting agreement and each
other person who becomes a partner will be required to enter into the voting
agreement. The parties to the voting agreement, other than Accenture Ltd, are
referred to as "covered persons."
The Accenture Ltd shares covered by the voting agreement generally include
(1) any Accenture Ltd Class X common shares that are held by a partner, (2) any
Accenture Ltd Class A common shares beneficially owned by a partner at the time
in question and also as of or prior to the offering and (3) any Accenture Ltd
Class A common shares if they are received from Accenture while an employee, a
partner or in connection with becoming a partner or otherwise acquired if the
acquisition is required by Accenture. The shares covered by the voting
agreement are referred to as "covered shares." Accenture Ltd Class A common
shares purchased by a covered person in the open market or, subject to certain
limitations, in a subsequent underwritten public offering, will not generally
be subject to the voting agreement. When a covered person ceases to be an
employee of Accenture, the shares held by that covered person will no longer be
subject to the voting provisions of the voting agreement described below.
Transfer Restrictions
By entering into the voting agreement, each covered person has agreed,
among other things, to:
. except as described below, maintain beneficial ownership of his or her
covered shares received on or prior to the date of the offering for a
period of eight years thereafter; and
. maintain beneficial ownership of at least 25% of his or her covered
shares received on or prior to the date of the offering as long as he or
she is an employee of Accenture.
Covered persons who continue to be employees of Accenture will be permitted
to transfer a percentage of the covered shares owned by them on each
anniversary of the offering commencing on the first anniversary of Accenture
Ltd's initial public offering and in increasing amounts over the subsequent
seven years. Class X common shares of Accenture Ltd may not be transferred at
any time, except upon the death of a holder of Class X common shares or with
the consent of Accenture Ltd. Accenture Canada Holdings Inc. exchangeable
shares held by covered persons are also subject to the transfer restrictions in
the voting agreement.
Voting
Under the voting agreement, prior to any vote of the shareholders of
Accenture Ltd, a separate, preliminary vote of the covered shares owned by
covered persons who are employees of Accenture will be
F-26
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
taken on each matter upon which a vote of the shareholders is proposed to be
taken. Subsequently, all of these covered shares will be voted in the vote of
the shareholders of Accenture Ltd in accordance with the majority of the votes
cast in the preliminary vote.
Notwithstanding the foregoing, in elections of directors, all covered
shares owned by covered persons who are employees of Accenture will be voted in
favor of the election of those persons receiving the highest numbers of votes
cast in the preliminary vote. In the case of a vote for an amendment to
Accenture Ltd's constituent documents, or with respect to an amalgamation,
liquidation, dissolution, sale of all or substantially all of its property and
assets or any similar transaction with respect to Accenture Ltd, all covered
shares owned by covered persons who are employees will be voted against the
proposal unless at least 66 2/3% of the votes in the preliminary vote are cast
in favor of that proposal, in which case all of these covered shares will be
voted in favor of the proposal.
So long as the covered shares owned by covered persons that are employees
of Accenture represent a majority of the outstanding voting power of Accenture
Ltd, partners from any one country will not have more than 50% of the voting
power in any preliminary vote under the voting agreement.
Term and Amendment
The voting agreement will continue in effect until the earlier of 50 years
from the date of the voting agreement and the time it is terminated by the vote
of 66 2/3% of the votes represented by the covered shares owned by covered
persons who are employees of Accenture. The transfer restrictions will not
terminate upon the expiration or termination of the voting agreement unless
they have been previously waived or terminated under the terms of the voting
agreement. The voting agreement may generally be amended at any time by the
affirmative vote of 66 2/3% of the votes represented by the covered shares
owned by covered persons who are employees of Accenture. Amendment of the
transfer restrictions also requires the consent of Accenture Ltd.
Waivers and Adjustments
The transfer restrictions and the other provisions of the voting agreement
may be waived at any time by the partners' representatives in specified
circumstances. Subject to the foregoing, the provisions of the voting agreement
may generally be waived by the affirmative vote of 66 2/3% of the votes
represented by the covered shares owned by covered persons who are employees of
Accenture. A general waiver of the transfer restrictions also requires the
consent of Accenture Ltd.
11. MINORITY INTEREST
Accenture SCA Class I Common Shares
Partners in Australia, Denmark, France, Italy, Norway, Spain, Sweden and
the United States received Accenture SCA Class I common shares. Each Class I
common share of Accenture SCA entitles its holder to one vote on all matters
submitted to a vote of shareholders of Accenture SCA. Subject to contractual
transfer restrictions, Accenture SCA is obligated, at the option of the holder,
to redeem any outstanding Accenture SCA Class I common share at a redemption
price per share generally equal to the market price of an Accenture Ltd Class A
common share at the time of the redemption. Accenture SCA
F-27
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
may, at its option, pay this redemption price with cash or by delivering
Accenture Ltd Class A common shares on a one-for-one basis. This one-for-one
redemption price and exchange ratio will be adjusted if Accenture Ltd holds
more than a de minimis amount of assets (other than its interest in Accenture
SCA and assets it holds only transiently prior to contributing them to
Accenture SCA) or incurs more than a de minimis amount of liabilities (other
than liabilities for which Accenture SCA has a corresponding liability to
Accenture Ltd). Accenture Ltd does not intend to hold any material assets other
than its interest in Accenture SCA or to incur any material liabilities such
that this one-for-one exchange ratio would require an adjustment.
Accenture SCA Transfer Rights Agreement
Persons and Shares Covered
Accenture SCA and each of the partners who own shares of Accenture SCA have
entered into a transfer rights agreement. The parties to the transfer rights
agreement, other than Accenture SCA, are referred to as "covered persons."
The Accenture SCA shares covered by the transfer rights agreement generally
include all Class I common shares of Accenture SCA owned by a covered person.
The shares covered by the transfer rights agreement are referred to as "covered
shares."
Transfer Restrictions
The articles of association of Accenture SCA provide that shares of
Accenture SCA (other than those held by Accenture Ltd) may be transferred only
with the consent of the Accenture SCA supervisory board or its delegate, the
Accenture SCA partners committee. In addition, by entering into the transfer
rights agreement, each party (other than Accenture Ltd) agrees, among other
things, to:
. except as described below, maintain beneficial ownership of his or her
covered shares received on or prior to the date of the offering for a
period of eight years thereafter; and
. maintain beneficial ownership of at least 25% of his or her covered
shares received on or prior to the date of the offering as long as he or
she is an employee of Accenture.
Covered persons who continue to be employees of Accenture will be permitted
to transfer a percentage of the covered shares owned by them on each
anniversary of the offering commencing on the first anniversary of Accenture
Ltd's initial public offering and in increasing amounts over the subsequent
seven years.
In addition, at any time after the third anniversary of the date of the
consummation of the transition to a corporate structure, covered persons
holding Accenture SCA Class I common shares may, without restriction, require
Accenture SCA to redeem any Accenture SCA Class I common share held by such
holder for a redemption price per share generally equal to the lower of the
market price of an Accenture Ltd Class A common share and $1. Accenture SCA
may, at its option, pay this redemption price in cash or by delivering
Accenture Ltd Class A common shares.
All transfer restrictions applicable to a covered person under the transfer
rights agreement terminate upon death.
F-28
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Term and Amendment
The transfer rights agreement will continue in effect until the earlier of
50 years from the date of the transfer rights agreement and the time it is
terminated by the vote of 66 2/3% of the votes represented by the covered
shares owned by covered persons who are employees of Accenture. The transfer
restrictions will not terminate upon the expiration or termination of the
transfer rights agreement unless they have been previously waived or terminated
under the terms of the transfer rights agreement. The transfer rights agreement
may generally be amended at any time by the affirmative vote of 66 2/3% of the
votes represented by the covered shares owned by covered persons who are
employees of Accenture. Amendment of the transfer restrictions also requires
the consent of Accenture SCA.
Waivers and Adjustments
The transfer restrictions and other provisions of the transfer rights
agreement may be waived at any time by the Accenture SCA partners committee in
specified circumstances. Subject to the foregoing, the provisions of the
transfer rights agreement may generally be waived by the affirmative vote of
66 2/3% of the votes represented by the covered shares owned by covered persons
who are employees of Accenture. A general waiver of the transfer restrictions
also requires the consent of Accenture SCA.
Accenture Canada Holdings Inc. Exchangeable Shares
Partners resident in Canada and New Zealand received Accenture Canada
Holdings Inc. exchangeable shares and Accenture Ltd Class X common shares.
Holders of Accenture Canada Holdings Inc. exchangeable shares may exchange
their shares for Accenture Ltd Class A common shares on a one-for-one basis.
Accenture Canada Holdings Inc. may, at its option, satisfy this exchange with
cash at a price per share generally equal to the market price of an Accenture
Ltd Class A common share at the time of the exchange. Each exchangeable share
of Accenture Canada Holdings Inc. entitles its holder to receive distributions
equal to any distributions to which an Accenture Ltd Class A common share
entitles its holder.
Minority Interest Income/Expense
Upon completion of the transition to a corporate structure in May 2001, the
minority ownership percentage in Accenture SCA and Accenture Canada Holdings
Inc. aggregated 74%. This minority interest percentage declined to 59% by
August 31, 2001 due to shares issued in connection with the initial public
offering and restricted share units granted and vested prior to August 31,
2001. The calculation of the minority interest percentage at August 31, 2001
reflects the assumed issuance to Accenture Ltd of the 68,481,815 Accenture SCA
Class I common shares that will be issued in connection with the delivery of
the 68,481,815 Accenture Ltd Class A common shares underlying 68,481,815
restricted share units which generally are considered fully vested and will be
issued for no consideration solely upon the passage of time.
Minority interest income of $577,188 reflected in the Consolidated Income
Statement for the year ended August 31, 2001 represents the pro rata ownership
interest of the minority shareholders in the $946,970 of loss before minority
interest of Accenture SCA for the three months ended August 31, 2001.
F-29
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
12. EMPLOYEE SHARE PLANS
Share Incentive Plan
The Accenture Ltd 2001 Share Incentive Plan (the "share incentive plan")
permits the grant of nonqualified share options, incentive stock options, share
appreciation rights, restricted shares, restricted share units and other
share-based awards to employees, directors, third-party consultants, former
United States employees or former partners of, or other persons who perform
services for, Accenture Ltd and its affiliates. A maximum of 375 million Class
A common shares may be subject to awards under the share incentive plan. Class
A common shares covered by awards that expire, terminate or lapse will again be
available for the grant of awards under the share incentive plan. The share
incentive plan is administered by a committee of the board of directors of
Accenture Ltd, which may delegate its duties and powers in whole or in part as
it determines.
Options
Accenture shall determine the exercise price for each option, provided,
however, that an incentive share option must generally have an exercise price
that is at least equal to the fair market value of the Class A common shares on
the date the option is granted.
Options currently outstanding under the share incentive plan have a maximum
term of ten years. Options vest under varying schedules. At August 31, 2001,
241,798,292 shares were available for future grants under the share incentive
plan. The following tables summarize information about share options activity
during the year.
Stock option activity for fiscal 2001 was as follows:
Weighted
Average
Shares Exercise Price
---------- --------------
Outstanding, beginning of year -- $ --
Granted.................... 96,360,395 14.54
Exercised.................. -- --
Forfeited.................. 539,964 14.51
Expired.................... -- --
---------- ------
Outstanding, end of year...... 95,820,431 $14.54
========== ======
The following table summarizes information about stock options outstanding
at August 31, 2001:
Weighted Average Remaining
Range of Exercise Prices Shares Outstanding Contractual Life (Years)
------------------------ ------------------ --------------------------
$14.50 90,267,779 9.9
15.15 5,442,744 9.9
15.50 109,908 9.9
----------- ---
95,820,431 9.9
=========== =========
Options exercisable, end of year.............. --
Options available for grant, end of year...... 241,798,292
Weighted average fair value of options granted $ 7.74
F-30
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Pro Forma Fair Value Disclosures
Accenture elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") in accounting for its
employee share options rather than, as discussed below, the alternative fair
value accounting provided for under SFAS 123, "Accounting for Stock-Based
Compensation". Under APB 25, because the exercise price of Accenture's employee
share options equals the market price of the underlying shares on the date of
grant, no compensation expense is recognized in Accenture's financial
statements.
Pro forma information regarding net income and earnings per share is
required by SFAS 123. This information is required to be determined as if
Accenture had accounted for its employee share options under the fair value
method of that statement. The fair value of options granted in 2001 reported
below was estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
2001
--------------------
Stock Option Plans Partners Non-partners
------------------ -------- ------------
Expected life (in years)................................... 6 5
Risk-free interest rate.................................... 4.93% 4.73%
Volatility................................................. 50% 50%
Dividend yield............................................. 0% 0%
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
following pro forma information reflects the amortized expense from the date of
grant:
2001
----------
Net income........................................................... $1,057,403
Pro forma expenses--estimated fair value of options.................. 5,201
----------
Pro forma net income................................................. $1,052,202
==========
Restricted Share Units and Other Share-Based Awards
Under the share incentive plan, the committee may grant awards of
restricted share units, Class A common shares, restricted shares and awards
that are valued in whole or in part by reference to, or are otherwise based on
the fair market value of, Class A common shares. The restricted share units and
other share-based awards will be subject to the terms and conditions
established by the committee.
Under the share incentive plan, participants may be granted restricted
share units without cost to the participant. Each restricted share unit awarded
to a participant represents an unfunded, unsecured right, which is
nontransferable except in the event of death, of the participant to receive a
Class A common share on the date specified in the participant's award
agreement. The restricted share units granted under this plan vest at various
times, generally ranging from immediate vesting to vesting over a five year
period. In fiscal 2001, 68,481,815 restricted share units were granted to
participants with a weighted average fair value of $1,025,563, while, $967,110
was charged to expense which was net of $26,270 related to cancelled
liabilities on the deferred bonus plan for employees.
F-31
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Employee Share Purchase Plan
The Accenture Ltd 2001 Employee Share Purchase Plan is a nonqualified plan
and allows eligible employee participants to purchase Class A common shares at
a discount through payroll deductions or contributions. Eligible employees may
elect to contribute 1% to 10% of their compensation each offering period to
purchase Class A common shares under the plan, but are not permitted to
purchase, during any calendar year, Class A common shares with an aggregate
fair market value in excess of $25. The purchase price will be set by the
committee, but cannot be less than 85% of the lesser of the fair market value
of the shares on the first or last day of the offering period. A maximum of 75
million Class A common shares may be issued under the plan. As of August 31,
2001, there were no offerings and 75 million shares were reserved for future
issuance.
13. PROFIT SHARING AND RETIREMENT PLANS
In the United States, Accenture maintains and administers a trusteed profit
sharing plan that includes 19,800 active Accenture employees. The annual profit
sharing contribution is determined by management. The contribution to the
profit sharing plan was $79,708 in 1999, $87,189 in 2000 and $97,439 in 2001,
which approximated 6% of plan members' compensation.
In the United States, and certain other countries, Accenture also maintains
and administers noncontributory retirement and postretirement medical plans for
active, retired and resigned Accenture employees. Benefits under the
noncontributory employee retirement plans are based on years of service and
compensation during the years immediately preceding retirement. Plan assets of
the noncontributory employee retirement plans consist of investments in
equities, fixed income securities and cash equivalents. Annual contributions
are made at such times and in amounts as required by law and may, from time to
time, exceed minimum funding requirements.
In addition, certain postemployment benefits are provided to former or
inactive employees after employment but before retirement, including severance
benefits, disability-related benefits (including worker's compensation) and
continuation of benefits such as healthcare benefits and life insurance
coverage. These costs are substantially provided for on an accrual basis.
The following schedules provide information concerning the material defined
benefit pension and postretirement benefit plans.
F-32
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Pension Benefits Other Benefits
------------------ ------------------
2000 2001 2000 2001
-------- -------- -------- --------
Changes in projected benefit obligation
Projected benefit obligation, beginning of year $314,425 $308,599 $ 28,392 $ 30,463
Service cost................................... 49,626 39,825 3,205 4,136
Interest cost.................................. 21,232 21,465 2,123 2,426
Amendments..................................... -- 1,558 -- --
Participants contributions..................... 260 223 -- --
Actuarial (gain)/loss.......................... (64,802) 33,082 (3,151) 14,895
Benefits paid.................................. (6,432) (9,867) (106) (158)
Exchange rate (gain)........................... (5,710) (7,290) -- --
-------- -------- -------- --------
Projected benefit obligation, end of year...... $308,599 $387,595 $ 30,463 $ 51,762
======== ======== ======== ========
Changes in plan assets
Fair value of plan assets, beginning of year... $278,172 $310,066 $ 12,552 $ 15,126
Expected return on plan assets................. 27,038 23,964 1,033 1,147
Actuarial (loss)............................... (1,982) (53,617) (488) (265)
Employer contributions......................... 16,072 108,349 2,135 4,305
Participants contributions..................... 260 223 -- --
Benefits paid.................................. (6,432) (9,867) (106) (158)
Exchange rate (loss)........................... (3,062) (5,139) -- --
-------- -------- -------- --------
Fair value of plan assets, end of year......... $310,066 $373,979 $ 15,126 $ 20,155
======== ======== ======== ========
Reconciliation of funded status
Funded status.................................. $ 1,467 $(13,616) $(15,337) $(31,607)
Unrecognized transitional obligation........... 2,553 1,717 1,083 997
Unrecognized loss/(gain)....................... (70,290) 22,788 2,166 17,324
Unrecognized prior service cost................ 12,154 11,419 -- --
-------- -------- -------- --------
(Accrued) benefit cost as of 6/30.............. (54,116) 22,308 (12,088) (13,286)
Contribution between 6/30 - 8/31............... -- -- 3,308 2,261
Adjustment..................................... 685 -- -- --
-------- -------- -------- --------
Prepaid (accrued) benefit cost as of 8/31...... $(53,431) $ 22,308 $ (8,780) $(11,025)
======== ======== ======== ========
Amounts recognized in the Combined and
Consolidated Balance Sheets consist of:
Prepaid benefit cost........................... $ 560 $ 60,023 $ -- $ --
Accrued benefit liability...................... (53,991) (37,715) (8,780) (11,025)
-------- -------- -------- --------
Net amount recognized at year-end.............. $(53,431) $ 22,308 $ (8,780) $(11,025)
======== ======== ======== ========
Components of pension expense
Service cost................................... $ 49,626 $ 39,825 $ 3,205 $ 4,136
Interest cost.................................. 21,232 21,465 2,123 2,426
Expected return on plan assets................. (27,038) (23,964) (1,033) (1,147)
Amortization of transitional obligation........ 667 601 87 87
Amortization of loss........................... (326) (5,230) 142 --
Amortization of prior service cost............. 2,293 2,293 -- --
-------- -------- -------- --------
Total.......................................... $ 46,454 $ 34,990 $ 4,524 $ 5,502
======== ======== ======== ========
F-33
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Pension
Benefits Other Benefits
---------- ------------------
2000 2001 2000 2001
---- ---- -------- --------
Weighted-average assumptions
Discount rate.......................... 7.07% 6.83% 8.00% 7.50%
Expected return on plan assets......... 7.78% 7.99% 8.0%/6.0% 8.0%/6.0%
Rate of increase in future compensation 7.37% 7.62% N/A N/A
The projected benefit obligations and fair value of plan assets for defined
benefit pension plans with projected benefit obligations in excess of plan
assets were $308,599 and $310,066, respectively, as of August 31, 2000 and
$387,595 and $373,979, respectively, as of August 31, 2001. The accumulated
benefit obligations and fair value of plan assets for plans with accumulated
benefit obligations in excess of plan assets were $38,300 and $19,800,
respectively, as of August 31, 2000 and $41,000 and $17,300, respectively, as
of August 31, 2001.
Assumed Health Care Cost Trend
Annual rate increases in the per capita cost of health care benefits of
10.0% (under 65) and 11.5% (over 65) were assumed for the plan year ending June
30, 2002. The trend rate assumptions are changed beginning for the plan year
ending June 30, 2002. The rate is assumed to decrease on a straight-line basis
to 5.0% for the plan year ending June 30, 2009 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plan. A one percentage point change in
assumed health care cost trend would have the following effects:
One Percentage Point Increase
----------------------------
2000 2001
------- -------
Effect on total of service and interest cost components $ 875 $ 1,445
Effect on year-end postretirement benefit obligation... 5,600 7,336
One Percentage Point Decrease
----------------------------
2000 2001
------- -------
Effect on total of service and interest cost components $ (796) $(1,256)
Effect on year-end postretirement benefit obligation... (4,500) (6,367)
F-34
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Deferred Bonus Plan
On September 1, 2000, Accenture implemented a deferred bonus plan for
employees based on tenure and performance. The plan provided for a loyalty
award, which vested immediately, and a performance award, which vested over a
period of three years. In connection with the grant of restricted share units,
Accenture terminated the deferred bonus plan for employees on July 19, 2001. At
August 31, 2001, the liability for the liquidated investments was $73,218,
which will be paid out in the first quarter of fiscal 2002 in partial
settlement of vested benefits. For the remaining vested, and unvested benefits,
7,968,826 restricted share units were granted to employees on July 19, 2001.
14. LEASE COMMITMENTS
Accenture has various lease agreements, principally for office space, with
various renewal options. Rental expense (net of sublease income from third
parties of $2,154 in 1999, $3,273 in 2000 and $12,911 in 2001) including
operating costs and taxes, was $196,577 in 1999, $217,675 in 2000 and $207,757
in 2001. Future minimum rental commitments under non-cancelable operating
leases as of August 31, 2001, are as follows:
2002............................................................. $ 216,732
2003............................................................. 186,537
2004............................................................. 163,499
2005............................................................. 132,614
2006............................................................. 111,151
Thereafter....................................................... 420,704
----------
$1,231,237
==========
15. REORGANIZATION AND REBRANDING
Reorganization and rebranding costs include one-time costs, beginning
September 2000, to rename the organization Accenture and other costs related to
the transition to a corporate structure. Reorganization and rebranding costs
were $848,615 for the year ended August 31, 2001 and included $157,000 of
amortization of intangible assets acquired in connection with the Memorandum of
Understanding with AW-SC and AA, as described in Note 16. The intangible assets
related to the forbearance by AW-SC and Arthur Andersen to use, and the limited
use by Accenture of, the Andersen Consulting name or variations of that name
and related domain names. The intangible assets were amortized over periods
ranging from three to six months.
16. RELATED PARTIES
In prior years, Accenture engaged in various transactions with AA/AW-SC,
which was then a related party as described in Note 1. Below is a summary of
those transactions.
F-35
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
1999 2000
------- -------
Nature of Transaction
Rental expense.............................. $36,353 $23,948
Andersen Worldwide costs allocated.......... 24,163 18,975
Professional education and development costs 52,582 38,577
Professional services....................... 31,880 34,710
Interest expense............................ 12,955 3,950
The Combined Income Statements Before Partner Distributions include
expenses that were allocated to Accenture by AW-SC on a specific identification
basis. In addition, AW-SC incurred certain costs on behalf of Accenture which
were allocated to Accenture primarily based on square footage, partner units,
net assets employed or number of training participants.
Until August 7, 2000, AW-SC, as an agent for the Accenture and AA Member
Firms, facilitated various MFIAs among the individual Accenture and AA Member
Firms. Amounts due to AW-SC from Accenture Member Firms under these MFIAs were
$279,776 in 1999 and $313,832 in 2000.
On December 17, 1997, the Accenture Member Firms requested binding
arbitration, pursuant to their respective MFIAs with AW-SC, of claims that the
AA Member Firms and AW-SC, among other things, had breached or failed to
perform material obligations owed to the Accenture Member Firms. The MFIAs
provided that performance thereunder should continue if reasonably possible
pending the resolution of the arbitration subject to the right to discharge
payment obligations at issue in such an arbitration by placing amounts in
escrow. On August 18, 1998, certain Accenture Member Firms placed into escrow
$195,000, which represented the majority of the $232,548 payable under the
member firm agreements to AA Member Firms for 1998. Accenture Member Firms
placed the remaining $37,548 into escrow on December 22, 1998. On August 27,
1999, $50,000 was placed into escrow, representing a portion of the $279,776
payable under the member firm agreements to AA Member Firms for 1999. Accenture
Member Firms placed the remaining $229,776 into escrow in December 1999. Under
the terms of the escrow agreement these funds, including interest earned, could
only be distributed out of escrow in accordance with the Final Award of the
Tribunal in the aforementioned arbitration.
By its Final Award dated July 28, 2000, and notified to the parties on
August 7, 2000, the Tribunal appointed by the International Chamber of Commerce
("ICC") ruled that AW-SC had breached its material obligations under the MFIAs
in fundamental respects and the Accenture Member Firms were excused from any
further obligations to AW-SC and AA Member Firms under the MFIAs as of August
7, 2000. The ruling further stated that the escrowed funds plus accrued
interest should be paid to AA as directed by AW-SC and allocated the costs of
the proceeding among the parties. The escrowed funds, along with net
accumulated interest on investments, were transferred to AA by the escrow agent
on various dates in September, 2000.
On December 19, 2000, AW-SC, Arthur Andersen LLP and the other AA Member
Firms, APSC, Accenture LLP and the other Accenture Member Firms, on their own
behalves and on behalf of their respective partners, shareholders, other
principals and affiliates, executed a binding Memorandum of Understanding
("MOU") to implement the award of the arbitrator in the ICC arbitration
described above and the separation of the Accenture Member Firms from AW-SC and
AA.
F-36
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
The MOU provided for the release to AA of $512,324 previously placed in
escrow, plus accumulated interest, and for payments to AA of $556,000,
including the payment for 2000 of $313,832 referred to above, the purchase by
APSC of intangible assets for $157,000 and a payment to AA of $85,000,
including settlement of all interfirm payables. In addition, pursuant to the
MOU, Accenture and AA entered into (1) a six-year services agreement under
which AA will provide certain services to Accenture for payments to AA of
$60,000 per year, (2) a five-year agreement under which AA will provide certain
training facilities to Accenture for payments to AA of $60,000 per year, and
(3) a five-year agreement under which Accenture will provide $22,500 per year
of certain services at no cost to AA; each agreement was effective January 1,
2001.
Accenture recorded all elements of the MOU at fair value, and recorded the
excess of our contractual obligations over fair value as a reduction of
undistributed earnings because the related transactions were entered into in
connection with the separation of the Accenture member firms from AW-SC and AA.
In addition, Accenture recorded an accrual of $190,962 equal to the excess
of the contractual obligations under the service agreements referred to above
over the fair value of the services to be provided thereunder and recorded a
reduction of undistributed earnings of $268,781 for the accrual for the
services contracts and other cash payments. Payments due under the five-year
and six-year services agreements will be based upon rates established by AA
that Accenture has determined will exceed the rates that they charge for
similar services to unrelated parties (the fair value of those services). The
excess of the present value of the amounts payable to AA over the fair value of
those services has been recorded as a liability and a distribution to partners
as of December 2000. Accenture is obligated to provide AA up to $22,500 per
year of services valued at then current retail billing rates for five years.
The present value of the fair value of these services determined by reference
to the fees usually received for such services has been recorded as a liability
and as a distribution to partners as of December 2000. These liabilities, which
aggregated $190,962, are reported as distributions to partners because the
liabilities were incurred in connection with Accenture's separation from AA.
At August 31, 2001, amounts due to/from AA/AW-SC and Accenture are no
longer classified as related party balances. Amounts due to/due from related
parties at August 31, 2001 are payable to/receivable from those individuals who
were partners of Accenture prior to May 31, 2001.
17. COMMITMENTS AND CONTINGENCIES
At August 31, 2001, Accenture or its present personnel had been named as a
defendant in various litigation matters involving present or former clients.
All of these are civil in nature. Based on the present status of these
litigation matters, the management of Accenture believes the liability will not
ultimately have a material effect on the results of operations or the financial
position and cash flows of Accenture.
18. SEGMENT REPORTING
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance.
F-37
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Accenture's chief operating decision maker is the Chief Executive Officer.
The operating segments are managed separately because each operating segment
represents a strategic business unit that serves different markets. The
reportable operating segments are the five operating groups (formerly known as
market units), which are Communications & High Tech, Financial Services,
Government, Products and Resources.
In the first quarter of fiscal 2002, Accenture made certain changes in the
format of information presented to the Chief Executive Officer. The most
significant of these changes was the elimination of interest expense from the
five operating groups' operating income and the elimination of interest credit
from Other's operating income. Also, the consolidated affiliated companies'
revenue and operating income (loss) results are included in the five operating
groups' results rather than being reported in Other. Segment results for all
periods presented have been revised to reflect these changes.
Reportable Segments
Comm. &
Year ended High Financial
August 31, 1999 Tech Services Government Products Resources Other Total
--------------- ---------- ---------- ---------- ---------- ---------- --------- -----------
Revenues before reimbursements $2,498,460 $2,736,416 $ 777,028 $1,699,066 $1,812,369 $ 26,517 $ 9,549,856
Depreciation (1).............. 59,745 67,459 18,285 31,651 39,892 -- 217,032
Operating income (loss)....... 557,169 824,206 102,733 263,360 285,196 (970) 2,031,694
========== ========== ========== ========== ========== ========= ===========
Assets at August 31 (2)....... $ 368,414 $ 227,894 $ 141,795 $ 154,383 $ 169,884 $ 20,750 $ 1,083,120
Comm. &
Year ended High Financial
August 31, 2000 Tech Services Government Products Resources Other Total
--------------- ---------- ---------- ---------- ---------- ---------- --------- -----------
Revenues before reimbursements $2,806,506 $2,541,900 $ 796,862 $1,932,302 $1,660,868 $ 13,647 $ 9,752,085
Depreciation (1).............. 65,425 62,633 19,005 43,805 46,210 -- 237,078
Operating income (loss)....... 671,111 666,620 79,618 416,053 264,070 (11,353) 2,086,119
========== ========== ========== ========== ========== ========= ===========
Assets at August 31 (2)....... $ 492,220 $ 302,138 $ 123,933 $ 188,252 $ 178,750 $ 6,418 $ 1,291,711
Comm. &
Year ended High Financial
August 31, 2001 Tech Services Government Products Resources Other Total
--------------- ---------- ---------- ---------- ---------- ---------- --------- -----------
Revenues before reimbursements $3,238,256 $2,893,567 $1,003,235 $2,356,440 $1,933,225 $ 18,997 $11,443,720
Depreciation (1).............. 76,901 65,897 21,053 45,316 47,905 -- 257,072
Operating income (loss)....... 448,452 536,783 75,292 363,085 235,126 (962,982) 695,756
========== ========== ========== ========== ========== ========= ===========
Assets at August 31 (2)....... $ 500,762 $ 325,641 $ 161,584 $ 219,486 $ 258,146 $ 17,523 $ 1,483,142
--------
(1) This amount includes depreciation on property and equipment controlled by
each operating segment as well as an allocation for depreciation on
property and equipment they do not directly control.
(2) Operating segment assets directly attributed to an operating segment and
provided to the chief operating decision maker include Receivables from
clients, Unbilled services, Deferred revenue and a portion of Other
long-term assets that represent balances for clients with extended payment
terms.
F-38
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
Geographic Information
Revenues for the years ended August 31, are indicated below. Revenues are
attributed to geographic areas based on the country of assignment of the
partners and employees performing the services.
1999 2000 2001
----------- ----------- -----------
Americas.... $ 6,070,883 $ 6,259,859 $ 7,204,523
EMEAI (1)... 4,244,441 4,391,095 5,203,225
Asia/Pacific 764,075 888,996 940,124
----------- ----------- -----------
Total.... $11,079,399 $11,539,950 $13,347,872
=========== =========== ===========
At August 31, long-lived assets, which represent property and equipment,
net were as follows:
1999 2000 2001
-------- -------- --------
Americas.... $446,089 $500,133 $567,987
EMEAI (1)... 169,053 158,184 199,296
Asia/Pacific 43,575 47,191 55,035
-------- -------- --------
Total.... $658,717 $705,508 $822,318
======== ======== ========
--------
(1) EMEAI includes Europe, the Middle East, Africa and India.
The accounting policies of the operating segments are the same as those
described in Note 1, Summary of Significant Accounting Policies, except for the
one-time cost of restricted share units and interest expense as described above.
19. ACCENTURE SCA
Because Accenture Ltd's only business is to hold its equity interest in
Accenture SCA and to act as the sole general partner of Accenture SCA, there
are no material differences between the consolidated financial statements of
Accenture Ltd and consolidated financial statements that would be prepared for
Accenture SCA except (1) the minority interest included in Accenture SCA
consolidated financial statements would be limited to the Accenture Canada
Holdings Inc. exchangeable shares and (2) the shareholders' equity section of
an Accenture SCA consolidated balance sheet would reflect the Accenture SCA
Class I common shares and the Accenture SCA Class II common shares, as shown
below.
For the year ended August 31, 2001
--------------------------------------
Accenture Ltd, Accenture
as reported Adjustments SCA
-------------- ----------- -----------
Revenues...................................... $13,347,872 $ -- $13,347,872
Operating income.............................. 695,756 -- 695,756
Income before taxes........................... 794,857 -- 794,857
Income before minority interest and accounting
change...................................... 292,241 -- 292,241
Minority interest............................. 577,188 (569,248) 7,940
Income before accounting change............... 869,429 (569,248) 300,181
Net income.................................... $ 1,057,403 $(569,248) $ 488,155
F-39
ACCENTURE LTD
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(In thousands of U.S. dollars except share data)
August 31, 2001
---------------------------------
Accenture
Ltd, as Accenture
reported Adjustments SCA
---------- ----------- ----------
Current assets............................ $4,579,637 $ -- $4,579,637
Non-current assets........................ 1,481,719 -- 1,481,719
---------- --------- ----------
Total assets.............................. $6,061,356 -- $6,061,356
========== ========= ==========
Current liabilities....................... $4,178,820 -- $4,178,820
Non-current liabilities................... 1,192,422 -- 1,192,422
Minority interest......................... 407,926 (402,336) 5,590
Shareholders' equity...................... 282,188 402,336 684,524
---------- --------- ----------
Total liabilities and shareholders' equity $6,061,356 $ -- $6,061,356
========== ========= ==========
20. QUARTERLY DATA (unaudited)
Quarterly financial information for 2000 and 2001 is as follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Annual
---------- ---------- ---------- ---------- -----------
Fiscal 2000
-----------
Revenues................................ $2,775,448 $2,708,626 $3,061,692 $2,994,184 $11,539,950
Operating income........................ 539,150 424,373 694,662 427,934 2,086,119
Partnership income before partner
distributions......................... 573,524 571,907 902,436 416,027 2,463,894
Fiscal 2001
-----------
Revenues................................ $3,238,292 $3,384,059 $3,519,264 $3,206,257 $13,347,872
Operating income (loss)................. 839,403 522,698 115,572 (781,917) 695,756
Income (loss) before accounting change.. 1,010,467 419,539 (190,795) (369,782) 869,429
Partnership income (loss) before partner
distributions......................... 1,198,441 419,539 (190,795) 1,427,185
Net income (loss)....................... (369,782) (369,782)
Earnings (loss) per share:
Basic and diluted (1)................ n/a n/a n/a (1.25) n/a
Common stock prices per share:
High................................. n/a n/a n/a 15.50 n/a
Low.................................. n/a n/a n/a 14.05 n/a
--------
n/a = not applicable
(1) Certain common share equivalents have been excluded from the earnings
(loss)-per-share calculation as their effect is antidilutive. In addition,
for the purpose of the above calculation of earnings (loss)-per-share, the
weighted average number of shares is based upon the periods the shares have
been outstanding. The weighted average basic shares were 295,392,338 and
the diluted shares were 899,711,420.
F-40
SIGNATURES
Pursuant to the requirements 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.
ACCENTURE LTD
By: /s/ DOUGLAS G. SCRIVNER
-----------------------------------
Name: Douglas G. Scrivner
Title: General Counsel and Secretary
Date: April 12, 2002
S-1