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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

     
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 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

(Exact name of Registrant as specified in its charter)
     
Bermuda
(State or other jurisdiction of
incorporation or organization) 		  98-0341111
(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 June 30, 2004 was 557,779,466 (which number does not include 25,037,347 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 June 30, 2004 was 369,167,374.

 

 

ACCENTURE LTD

INDEX

             
Part I.
   Financial Information
   Page
Item 1.
   Financial Statements (unaudited)        
 
   Consolidated Balance Sheets as of May 31, 2004 and August 31, 2003     3  
 
   Consolidated Income Statements for the three and nine months ended May 31, 2004        
 
   and 2003     4  
 
   Consolidated Shareholders' Equity Statement for the nine months ended May 31, 2004     5  
 
   Consolidated Cash Flows Statements for the nine months ended May 31, 2004        
 
   and 2003     6  
 
   Notes to Consolidated Financial Statements     7  
Item 2.
   Management's Discussion and Analysis of Financial Condition and Results of Operations     15  
Item 3.
   Quantitative and Qualitative Disclosures About Market Risk     31  
Item 4.
   Controls and Procedures     32  
Part II.
   Other Information        
Item 1.
   Legal Proceedings     32  
Item 2.
   Repurchases of Common Stock     33  
Item 6.
   Exhibits and Reports on Form 8-K     34  
Signature
         35  

2

 

PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

ACCENTURE LTD

CONSOLIDATED BALANCE SHEETS

May 31, 2004 and August 31, 2003
(In thousands of U.S. dollars, except share and per share amounts)

                 
    May 31,   August 31,
    2004
   2003
    (Unaudited)        
ASSETS                
CURRENT ASSETS:
                
Cash and cash equivalents
   $ 3,514,647     $ 2,332,161  
Restricted cash
     —       83,280  
Short-term investments
     325,739       —  
Receivables from clients, net
     1,475,889       1,416,153  
Unbilled services
     1,163,019       828,515  
Deferred income taxes, net
     155,805       147,040  
Other current assets
     278,875       230,062  
 
    
 		      
 		  
Total current assets
     6,913,974       5,037,211  
 
    
 		      
 		  
NON-CURRENT ASSETS:
                
Unbilled services
     171,757       132,522  
Long-term investments
     309,360       33,330  
Property and equipment, net
     608,522       650,455  
Goodwill
     210,852       188,659  
Deferred income taxes, net
     308,940       326,286  
Other non-current assets
     148,523       90,777  
 
    
 		      
 		  
Total non-current assets
     1,757,954       1,422,029  
 
    
 		      
 		  
TOTAL ASSETS
   $ 8,671,928     $ 6,459,240  
 
    
 		      
 		  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
CURRENT LIABILITIES:
                
Short-term bank borrowings
   $ 45,670     $ 43,500  
Current portion of long-term debt
     11,737       2,662  
Accounts payable
     529,989       573,201  
Deferred revenues
     903,454       676,841  
Accrued payroll and related benefits
     1,318,038       974,319  
Income taxes payable
     927,538       671,026  
Deferred income taxes, net
     22,532       22,390  
Other accrued liabilities
     518,962       387,157  
 
    
 		      
 		  
Total current liabilities
     4,277,920       3,351,096  
 
    
 		      
 		  
NON-CURRENT LIABILITIES:
                
Long-term debt
     3,076       13,955  
Retirement obligation
     526,016       575,973  
Deferred income taxes, net
     3,874       3,572  
Other non-current liabilities
     680,306       836,850  
 
    
 		      
 		  
Total non-current liabilities
     1,213,272       1,430,350  
 
    
 		      
 		  
MINORITY INTEREST
     1,328,381       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, 582,148,956 and 458,628,873 shares issued as of May 31, 2004 and August 31, 2003, respectively
     13       10  
Class X common shares, par value $0.0000225 per share, 1,000,000,000 shares authorized, 414,868,136 and 508,723,411 shares issued and outstanding as of May 31, 2004 and August 31, 2003, respectively
     9       11  
Restricted share units (related to Class A common shares), 31,711,809 and 33,803,376 units issued and outstanding as of May 31, 2004 and August 31, 2003, respectively
     462,352       495,024  
Additional paid-in capital
     2,151,176       1,526,387  
Treasury shares, at cost, 1,963,845 and 5,229,487 shares at May 31, 2004 and August 31, 2003, respectively
     (35,331 )     (88,198 )
Treasury shares owned by Accenture Ltd Share Employee Compensation Trust, at cost, 22,320,050 and 18,081,800 shares at May 31, 2004 and August 31, 2003, respectively
     (434,236 )     (308,878 )
Retained deficit
     (134,077 )     (641,915 )
Accumulated other comprehensive loss
     (157,551 )     (188,233 )
 
    
 		      
 		  
Total shareholders’ equity
     1,852,355       794,208  
 
    
 		      
 		  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   $ 8,671,928     $ 6,459,240  
 
    
 		      
 		  

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

3

 

ACCENTURE LTD

CONSOLIDATED INCOME STATEMENTS

For the Three and Nine Months Ended May 31, 2004 and May 31, 2003
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)

                                 
    Three Months Ended   Nine Months Ended
    May 31,
   May 31,
    2004
   2003
   2004
   2003
REVENUES:
                                
Revenues before reimbursements
   $ 3,686,662     $ 3,044,836     $ 10,250,456     $ 8,800,990  
Reimbursements
     363,579       373,593       1,056,577       1,133,909  
     
     
     
     
 
Revenues
     4,050,241       3,418,429       11,307,033       9,934,899  
OPERATING EXPENSES:
                                
Cost of services:
                                
Cost of services before reimbursable expenses
     2,379,787       1,939,075       6,743,224       5,529,978  
Reimbursable expenses
     363,579       373,593       1,056,577       1,133,909  
     
     
     
     
 
Cost of services
     2,743,366       2,312,668       7,799,801       6,663,887  
Sales and marketing
     391,233       362,930       1,100,492       1,088,394  
General and administrative costs
     340,549       339,279       996,038       996,043  
Restructuring and reorganization costs (benefit)
     1,936       (570 )     22,976       (14,565 )
     
     
     
     
 
Total operating expenses
     3,477,084       3,014,307       9,919,307       8,733,759  
     
     
     
     
 
OPERATING INCOME
     573,157       404,122       1,387,726       1,201,140  
Gain on investments, net
     337       2,286       4,167       7,556  
Interest income
     16,436       10,681       42,046       30,598  
Interest expense
     (5,403 )     (5,232 )     (16,970 )     (16,269 )
Other income (expense)
     (18,705 )     112       586       25,722  
Equity in gains (losses) of affiliates
     (70 )     682       (1,272 )     143  
     
     
     
     
 
INCOME BEFORE INCOME TAXES
     565,752       412,651       1,416,283       1,248,890  
Provision for income taxes
     196,883       135,576       492,867       453,347  
     
     
     
     
 
INCOME BEFORE MINORITY INTEREST
     368,869       277,075       923,416       795,543  
Minority interest
     (158,460 )     (144,934 )     (415,578 )     (417,810 )
     
     
     
     
 
NET INCOME
   $ 210,409     $ 132,141     $ 507,838     $ 377,733  
     
     
     
     
 
Weighted Average Class A Common Shares:
                                
Basic
     558,330,780       466,294,836       541,048,400       467,170,112  
Diluted
     1,000,536,090       985,618,380       1,007,158,708       995,224,416  
Earnings Per Class A Common Share:
                                
Basic
   $ 0.38     $ 0.28     $ 0.94     $ 0.81  
Diluted
   $ 0.37     $ 0.28     $ 0.92     $ 0.80  

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

4

 

ACCENTURE LTD

CONSOLIDATED SHAREHOLDERS’ EQUITY STATEMENT

For the Nine Months Ended May 31, 2004
(U.S. dollars and share amounts in thousands)
(Unaudited)

                                                                                                                         
            Class A   Class X   Restricted                                            
            Common   Common   Share Units                           Treasury Shares—           Accumulated    
            Shares   Shares   Common Shares           Treasury Shares   SECT           Other    
           
 
 
  Additional  
 
  Retained   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
                                                                                                     507,838               507,838  
Other comprehensive income (loss):
                                                                                                                        
Unrealized gains on marketable securities, net of reclassification adjustments
                                                                                                             (657 )     (657 )
Foreign currency translation adjustments
                                                                                                             31,183       31,183  
Minimum pension liability adjustment
                                                                                                             156       156  
 
                                                                                                            
 		          
Other comprehensive income (loss)
                                                                                                             30,682          
 
                                                                                                                    
 		  
Comprehensive income
                                                                                                                     538,520  
Income tax benefit on stock-based compensation plans
                                                             14,849                                                       14,849  
Purchases of common shares
                     (749 )                                     (17,741 )     (32,506 )     (1,282 )     (165,915 )     (7,113 )                     (216,162 )
Transfer of shares from SECT
                                                                     (40,557 )     (2,875 )     40,557       2,875                       —  
Vesting of restricted share units, net
                                             10,164       494       914                                                       11,078  
Purchases/redemptions of Accenture SCA Class I common shares and Canada Holdings Inc. exchangeable shares
                             (2 )     (93,855 )                     (1,925,111 )                                                     (1,925,113 )
Issuance of Class A common shares:
                                                                                                                        
Employee share purchase plan
                     4,777                                       76,264       58,426       3,358                                       134,690  
Employee stock options
                     5,053                                       67,406       49,547       2,962                                       116,953  
Restricted share units
                     1,483                       (42,836 )     (2,585 )     24,879       17,957       1,102                                       —  
In September 2003 secondary offering
             2       69,695                                       1,421,873                                                       1,421,875  
In May 2004 secondary offering
             1       43,261                                       988,172                                                       988,173  
Minority interest
                                                             (26,716 )                                                     (26,716 )
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  
Balance at May 31, 2004
   $ —     $ 13       582,149     $ 9       414,868     $ 462,352       31,712     $ 2,151,176     $ (35,331 )     (1,964 )   $ (434,236 )     (22,320 )   $ (134,077 )   $ (157,551 )   $ 1,852,355  
 
    
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		      
 		  

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

5

 

ACCENTURE LTD
CONSOLIDATED CASH FLOWS STATEMENTS

For the Nine Months Ended May 31, 2004 and 2003
(In thousands of U.S. dollars)
(Unaudited)

                 
    2004
   2003
CASH FLOWS FROM OPERATING ACTIVITIES:
                
Net income
   $ 507,838     $ 377,733  
Adjustments to reconcile net income to net cash provided by operating activities— Depreciation and amortization
     197,958       179,458  
Reorganization benefit
     (84,280 )     (14,565 )
Gain on investments, net
     (4,167 )     (7,556 )
Loss (gain) on disposal of property and equipment, net
     7,560       (5,881 )
Stock-based compensation expense
     47,126       37,796  
Deferred income taxes, net
     9,972       29,122  
Minority interest
     415,578       417,810  
Other items, net
     7,225       13,931  
Change in assets and liabilities—
               
(Increase) decrease in receivables from clients, net
     (13,406 )     3,089  
(Increase) decrease in other current assets
     (28,741 )     62,420  
Increase in unbilled services, current and non-current
     (343,619 )     (121,397 )
Increase in other non-current assets
     (53,462 )     (28,441 )
Decrease in accounts payable
     (54,335 )     (38,383 )
Increase in deferred revenues
     207,470       89,137  
Increase (decrease) in accrued payroll and related benefits.
     317,817       (86,091 )
Increase in income taxes payable
     266,432       213,882  
Increase (decrease) in other accrued liabilities
     93,487       (28,560 )
Decrease in other non-current liabilities
     (133,819 )     (14,625 )
     
     
 
Net cash provided by operating activities
     1,362,634       1,078,879  
     
     
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                
Proceeds from sales of investments
     210,599       102,772  
Proceeds from sales of property and equipment
     4,618       17,241  
Purchases of businesses and investments, net of cash acquired
     (17,950 )     (8,403 )
Purchases of available-for-sale investments
     (815,294 )     —  
Purchases of property and equipment
     (179,891 )     (133,761 )
     
     
 
Net cash used in investing activities
     (797,918 )     (22,151 )
     
     
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                
Contract termination payment
     —       (147,569 )
Distribution of partners’ pre-incorporation retirement benefits
     (13,194 )     —  
Issuance of Accenture Ltd Class A common shares
     2,661,691       196,315  
Purchase of Accenture Ltd Class A common shares
     (216,162 )     (179,976 )
Purchase of Accenture SCA Class I common shares
     (1,925,113 )     (240,023 )
Proceeds from issuance of long-term debt
     435       832  
Repayment of long-term debt
     (2,553 )     (3,625 )
Proceeds from issuance of short-term bank borrowings
     89,659       77,143  
Repayments of short-term bank borrowings
     (86,225 )     (87,950 )
Decrease (increase) in restricted cash of Accenture Share Employee Compensation Trust
     83,280       (71,483 )
     
     
 
Net cash provided by (used in) financing activities
     591,818       (456,336 )
Effect of exchange rate changes on cash and cash equivalents
     25,952       44,826  
     
     
 
NET INCREASE IN CASH AND CASH EQUIVALENTS
     1,182,486       645,218  
CASH AND CASH EQUIVALENTS, beginning of period
     2,332,161       1,316,976  
     
     
 
CASH AND CASH EQUIVALENTS, end of period
   $ 3,514,647     $ 1,962,194  
     
     
 

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 nine months ended May 31, 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 re