UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2004 |
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number: 001-16565
ACCENTURE LTD
| Bermuda | 98-0341111 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Canon’s Court
22 Victoria Street
Hamilton HM 12, Bermuda
(Address of principal executive offices)
(441) 296-8262
(Registrant’s telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes x No o
The number of shares of the Registrant’s Class A common shares, par value $0.0000225 per share, outstanding as of April 2, 2004 was 510,598,520 (which number does not include 24,845,235 issued shares held by subsidiaries of the Registrant). The number of shares of the Registrant’s Class X common shares, par value $0.0000225 per share, outstanding as of April 2, 2004 was 415,464,720.
ACCENTURE LTD
INDEX
| Page |
||||||
Part I.
|
Financial Information | |||||
Item 1.
|
Financial Statements (unaudited) | |||||
| Consolidated Balance Sheets as of February 29, 2004 and August 31, 2003 | 3 | |||||
| Consolidated Income Statements for the three and six months ended February 29, 2004 and February 28, 2003 | 4 | |||||
| Consolidated Shareholders’ Equity Statement for the six months ended February 29, 2004 | 5 | |||||
| Consolidated Cash Flows Statements for the six months ended February 29, 2004 and February 28, 2003 | 6 | |||||
| Notes to Consolidated Financial Statements | 7 | |||||
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||||
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk | 30 | ||||
Item 4.
|
Controls and Procedures | 31 | ||||
Part II.
|
Other Information | |||||
Item 1.
|
Legal Proceedings | 31 | ||||
Item 4.
|
Submission of Matters to a Vote of Security Holders | 31 | ||||
Item 6.
|
Exhibits and Reports on Form 8-K | 32 | ||||
Signature
|
33 | |||||
2
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCENTURE LTD
CONSOLIDATED BALANCE SHEETS
February 29, 2004 and August 31, 2003
(In thousands of U.S. dollars, except share and per share amounts)
| February 29, | August 31, | |||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
CURRENT ASSETS: |
||||||||
Cash and cash equivalents |
$ | 2,853,615 | $ | 2,332,161 | ||||
Restricted cash |
— | 83,280 | ||||||
Short-term investments |
125,898 | — | ||||||
Receivables from clients, net |
1,457,191 | 1,416,153 | ||||||
Unbilled services |
1,048,276 | 828,515 | ||||||
Deferred income taxes, net |
146,451 | 147,040 | ||||||
Other current assets |
251,189 | 230,062 | ||||||
Total current assets |
5,882,620 | 5,037,211 | ||||||
NON-CURRENT ASSETS: |
||||||||
Unbilled services |
150,311 | 132,522 | ||||||
Long-term investments |
212,105 | 33,330 | ||||||
Property and equipment, net |
606,612 | 650,455 | ||||||
Goodwill |
209,877 | 188,659 | ||||||
Deferred income taxes, net |
344,152 | 326,286 | ||||||
Other non-current assets |
113,320 | 90,777 | ||||||
Total non-current assets |
1,636,377 | 1,422,029 | ||||||
TOTAL ASSETS |
$ | 7,518,997 | $ | 6,459,240 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
CURRENT LIABILITIES: |
||||||||
Short-term bank borrowings |
$ | 36,090 | $ | 43,500 | ||||
Current portion of long-term debt |
1,931 | 2,662 | ||||||
Accounts payable |
513,669 | 573,201 | ||||||
Deferred revenues |
935,433 | 676,841 | ||||||
Accrued payroll and related benefits |
1,194,593 | 974,319 | ||||||
Income taxes payable |
860,836 | 671,026 | ||||||
Deferred income taxes, net |
23,120 | 22,390 | ||||||
Other accrued liabilities |
479,798 | 387,157 | ||||||
Total current liabilities |
4,045,470 | 3,351,096 | ||||||
NON-CURRENT LIABILITIES: |
||||||||
Long-term debt |
13,578 | 13,955 | ||||||
Retirement obligation |
597,986 | 575,973 | ||||||
Deferred income taxes, net |
4,040 | 3,572 | ||||||
Other non-current liabilities |
752,676 | 836,850 | ||||||
Total non-current liabilities |
1,368,280 | 1,430,350 | ||||||
MINORITY INTEREST |
940,350 | 883,586 | ||||||
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, 535,066,639
and 458,628,873 shares issued as of February 29, 2004 and August 31, 2003, respectively |
12 | 10 | ||||||
Class X common shares, par value $0.0000225 per share, 1,000,000,000 shares authorized, 429,409,916
and 508,723,411 shares issued and outstanding as of February 29, 2004 and August 31, 2003, respectively |
9 | 11 | ||||||
Restricted share units (related to Class A common shares), 33,762,764 and 33,803,376 units issued and
outstanding as of February 29, 2004 and August 31, 2003, respectively |
494,690 | 495,024 | ||||||
Additional paid-in capital |
1,596,311 | 1,526,387 | ||||||
Treasury shares, at cost, 4,540,230 and 5,229,487 shares at February 29, 2004 and August 31, 2003, respectively |
(70,470 | ) | (88,198 | ) | ||||
Treasury shares owned by Accenture Ltd Share Employee Compensation Trust, at cost,
20,520,050 and 18,081,800 shares at February 29, 2004 and August 31, 2003, respectively |
(389,787 | ) | (308,878 | ) | ||||
Retained deficit |
(344,486 | ) | (641,915 | ) | ||||
Accumulated other comprehensive loss |
(121,382 | ) | (188,233 | ) | ||||
Total shareholders’ equity |
1,164,897 | 794,208 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
$ | 7,518,997 | $ | 6,459,240 | ||||
The accompanying notes are an integral part of these financial statements.
3
ACCENTURE LTD
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended February 29, 2004 and February 28, 2003
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
| Three Months Ended |
Six Months Ended |
|||||||||||||||
| February 29, | February 28, | February 29, | February 28, | |||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
REVENUES: |
||||||||||||||||
Revenues before reimbursements |
$ | 3,302,209 | $ | 2,826,196 | $ | 6,563,794 | $ | 5,756,154 | ||||||||
Reimbursements |
380,095 | 362,827 | 692,998 | 760,316 | ||||||||||||
Revenues |
3,682,304 | 3,189,023 | 7,256,792 | 6,516,470 | ||||||||||||
OPERATING EXPENSES: |
||||||||||||||||
Cost of services: |
||||||||||||||||
Cost of services before reimbursable expenses |
2,212,547 | 1,816,706 | 4,363,437 | 3,590,903 | ||||||||||||
Reimbursable expenses |
380,095 | 362,827 | 692,998 | 760,316 | ||||||||||||
Cost of services |
2,592,642 | 2,179,533 | 5,056,435 | 4,351,219 | ||||||||||||
Sales and marketing |
358,662 | 369,631 | 709,259 | 725,464 | ||||||||||||
General and administrative costs |
316,133 | 286,033 | 655,489 | 656,764 | ||||||||||||
Restructuring costs and reorganization (benefit) |
107,438 | (13,995 | ) | 21,040 | (13,995 | ) | ||||||||||
Total operating expenses |
3,374,875 | 2,821,202 | 6,442,223 | 5,719,452 | ||||||||||||
OPERATING INCOME |
307,429 | 367,821 | 814,569 | 797,018 | ||||||||||||
Gain on investments, net |
3,332 | 1,465 | 3,830 | 5,270 | ||||||||||||
Interest income |
15,187 | 10,824 | 25,610 | 19,917 | ||||||||||||
Interest expense |
(5,816 | ) | (4,501 | ) | (11,567 | ) | (11,037 | ) | ||||||||
Other income |
17,765 | 27,385 | 19,291 | 25,610 | ||||||||||||
Equity in losses of affiliates |
(516 | ) | (9 | ) | (1,202 | ) | (539 | ) | ||||||||
INCOME BEFORE TAXES |
337,381 | 402,985 | 850,531 | 836,239 | ||||||||||||
Provision for taxes |
117,408 | 153,134 | 295,984 | 317,771 | ||||||||||||
INCOME BEFORE MINORITY INTEREST |
219,973 | 249,851 | 554,547 | 518,468 | ||||||||||||
Minority interest |
(96,884 | ) | (131,130 | ) | (257,118 | ) | (272,876 | ) | ||||||||
NET INCOME |
$ | 123,089 | $ | 118,721 | $ | 297,429 | $ | 245,592 | ||||||||
Weighted Average Class A Common Shares: |
||||||||||||||||
Basic |
544,052,062 | 467,077,408 | 531,738,351 | 467,598,703 | ||||||||||||
Diluted |
998,003,396 | 997,771,990 | 1,009,403,593 | 1,000,088,568 | ||||||||||||
Earnings Per Class A Common Share: |
||||||||||||||||
Basic |
$ | 0.23 | $ | 0.25 | $ | 0.56 | $ | 0.53 | ||||||||
Diluted |
$ | 0.22 | $ | 0.25 | $ | 0.55 | $ | 0.52 | ||||||||
The accompanying notes are an integral part of these financial statements.
4
ACCENTURE LTD
CONSOLIDATED SHAREHOLDERS’ EQUITY STATEMENT
For the Six Months Ended February 29, 2004
(U.S. dollars and share amounts in thousands)
(Unaudited)
| Class A Common Shares |
Class X Common Shares |
Restricted Share Units Common Shares |
Additional | Treasury Shares |
Treasury Shares— SECT |
Retained | Accumulated Other Compre- |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred | No. | No. | No. | Paid-in | No. | No. | Earnings | hensive | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares |
$ |
Shares |
$ |
Shares |
$ |
Shares |
Capital |
$ |
Shares |
$ |
Shares |
(Deficit) |
Income(Loss) |
Total |
||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at August 31, 2003 |
$ | — | $ | 10 | 458,629 | $ | 11 | 508,723 | $ | 495,024 | 33,803 | $ | 1,526,387 | $ | (88,198 | ) | (5,229 | ) | $ | (308,878 | ) | (18,082 | ) | $ | (641,915 | ) | $ | (188,233 | ) | $ | 794,208 | |||||||||||||||||||||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
297,429 | 297,429 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss): |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on marketable
securities, net of reclassification
adjustment |
1,618 | 1,618 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation adjustments |
65,077 | 65,077 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum pension liability adjustment |
156 | 156 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
66,851 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive income |
364,280 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax benefit on stock-based
compensation plans |
11,839 | 11,839 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchases of common shares |
(380 | ) | (8,974 | ) | (21,001 | ) | (816 | ) | (121,466 | ) | (5,313 | ) | (151,441 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Transfer of shares from SECT |
(40,557 | ) | (2,875 | ) | 40,557 | 2,875 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Vesting of restricted share units, net |
5,537 | 310 | 460 | 5,997 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchases/redemptions of Accenture SCA Class
I common shares and Canada Holdings Inc.
exchangeable shares |
(2 | ) | (79,313 | ) | (1,642,054 | ) | (1,642,056 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Class A common shares: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee share purchase plan |
2,796 | 28,839 | 37,975 | 1,954 | 66,814 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee stock options |
4,094 | 54,312 | 39,024 | 2,309 | 93,336 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restricted share units |
233 | (5,871 | ) | (350 | ) | 3,584 | 2,287 | 117 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
In September 2003 offering |
2 | 69,695 | 1,421,873 | 1,421,875 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minority interest |
200,045 | 200,045 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at February 29, 2004 |
$ | — | $ | 12 | 535,067 | $ | 9 | 429,410 | $ | 494,690 | 33,763 | $ | 1,596,311 | $ | (70,470 | ) | (4,540 | ) | $ | (389,787 | ) | (20,520 | ) | $ | (344,486 | ) | $ | (121,382 | ) | $ | 1,164,897 | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
5
ACCENTURE LTD
CONSOLIDATED CASH FLOWS
STATEMENTS
For the Six Months Ended February 29, 2004 and February 28, 2003
(In thousands of U.S. dollars)
(Unaudited)
| 2004 |
2003 |
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 297,429 | $ | 245,592 | ||||
Adjustments to reconcile net income to net cash provided by operating
activities— |
||||||||
Depreciation and amortization |
142,819 | 123,035 | ||||||
Reorganization benefit |
(86,216 | ) | (13,995 | ) | ||||
Gain on investments, net |
(3,830 | ) | (5,270 | ) | ||||
Loss (gain) on disposal of property and equipment, net |
4,446 | (6,592 | ) | |||||
Stock-based compensation expense |
31,863 | 23,987 | ||||||
Deferred income taxes, net |
(12,518 | ) | 8,902 | |||||
Minority interest |
257,118 | 272,876 | ||||||
Other items, net |
2,771 | (22,652 | ) | |||||
Change in
assets and liabilities—
| ||||||||
Decrease (increase) in receivables from clients, net |
47,667 | (61,852 | ) | |||||
Decrease in other current assets |
1,456 | 50,768 | ||||||
Increase in unbilled services, current and non-current |
(178,381 | ) | (161,290 | ) | ||||
Increase in other non-current assets |
(23,363 | ) | (942 | ) | ||||
Decrease in accounts payable |
(81,697 | ) | (83,342 | ) | ||||
Increase in deferred revenues |
214,047 | 109,857 | ||||||
Increase in accrued payroll and related benefits |
164,254 | 38,033 | ||||||
Increase in income taxes payable |
190,137 | 171,400 | ||||||
Increase (decrease) in other accrued liabilities |
47,436 | (71,455 | ) | |||||
Decrease in other non-current liabilities |
(28,954 | ) | (5,188 | ) | ||||
Net cash provided by operating activities |
986,484 | 611,872 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Proceeds from sales of available-for-sale investments |
103,303 | 47,418 | ||||||
Proceeds from sales of property and equipment |
3,114 | 14,859 | ||||||
Purchases of businesses and investments, net of cash acquired |
(6,131 | ) | (3,796 | ) | ||||
Purchase of available-for-sale investments |
(400,251 | ) | — | |||||
Purchases of property and equipment |
(101,240 | ) | (78,967 | ) | ||||
Net cash used in investing activities |
(401,205 | ) | (20,486 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Contract termination payment |
— | (147,569 | ) | |||||
Issuance of Accenture Ltd Class A common shares |
1,582,025 | 106,397 | ||||||
Purchase of Accenture Ltd Class A common shares |
(151,441 | ) | (157,288 | ) | ||||
Purchase of Accenture SCA Class I common shares |
(1,642,056 | ) | (144,026 | ) | ||||
Proceeds from issuance of long-term debt |
395 | 919 | ||||||
Repayment of long-term debt |
(1,912 | ) | (2,800 | ) | ||||
Proceeds from issuance of short-term bank borrowings |
72,990 | 49,752 | ||||||
Repayments of short-term bank borrowings |
(80,214 | ) | (59,146 | ) | ||||
Decrease in restricted cash of Accenture Share Employee
Compensation Trust |
83,280 | 73,857 | ||||||
Net cash used in financing activities |
(136,933 | ) | (279,904 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
73,108 | 56,118 | ||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
521,454 | 367,600 | ||||||
CASH AND CASH EQUIVALENTS, beginning of period |
2,332,161 | 1,316,976 | ||||||
CASH AND CASH EQUIVALENTS, end of period |
$ | 2,853,615 | $ | 1,684,576 | ||||
The accompanying notes are an integral part of these financial statements.
6
ACCENTURE LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of Accenture Ltd, a Bermuda company, and its controlled subsidiary companies (together “Accenture” or 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 for complete financial statements. These financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended August 31, 2003 included in the Company’s Annual Report on Form 10-K filed with the SEC on November 18, 2003. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The results of operations for the three and six months ended February 29, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2004. Certain prior-period amounts have been reclassified to conform to the current-period presentation.
2. RECENTLY ADOPTED ACCOUNTING STANDARDS
In November 2002, the Emerging Issues Task Force (“EITF”) issued a final consensus on Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” In May 2003, the EITF issued additional interpretive guidance regarding the application of Issue 00-21. Issue 00-21, which provides guidance on how and when to recogni