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As filed with the Securities and Exchange Commission on March 19, 2002.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ACCENTURE LTD
(Exact Name of Registrant as Specified in its Charter)
| Bermuda |
54161 |
98-0341111 | ||
| (State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
Cedar House
41 Cedar Avenue
Hamilton HM12, Bermuda
(441) 296-8262
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Douglas G. Scrivner
Accenture Ltd
1661 Page Mill Road
Palo Alto, CA 94304
(650) 213-2000
(Name and Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
Copies to:
| John B. Tehan Alan D. Schnitzer Simpson Thacher & Bartlett 425 Lexington Avenue New York, NY 10017 Telephone: (212) 455-2000 Facsimile: (212) 455-2502 |
John J. Huber Raymond Y. Lin Latham & Watkins 885 Third Avenue New York, NY 10022 Telephone: (212) 906-1200 Facsimile: (212) 751-4864 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after this Registration Statement becomes effective.
If any of the
securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If delivery of the prospectus is
expected to be made pursuant to Rule 434 under the Securities Act, check the following box. ¨
CALCULATION OF REGISTRATION FEE
| Title of each class of securities to be registered |
Amount to be registered(1) |
Proposed maximum offering price per share(2) |
Proposed maximum aggregate offering price(2) |
Amount of Registration fee | |||||||
| Class A common shares |
115,000,000 |
$ |
28.62 |
$ |
3,291,300,000 |
$ |
302,800 | ||||
(1) |
Includes 15,000,000 Class A common shares salable upon exercise of the underwriters’ overallotment options. |
(2) |
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, and based on the average of the high and
low prices of the Class A common shares on March 15, 2002 as reported on the New York Stock Exchange. |
The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
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Explanatory Note:
This Registration Statement contains two forms of a prospectus: one to be used in connection with an offering in the United States and one to be used in a concurrent international offering outside the United States.
The two prospectuses are identical except for the front cover page, the “Underwriting” section and the back cover page. Each of these pages for the U.S. prospectus is followed by the alternate page to be used in the international
prospectus. Each of the alternate pages for the international prospectus is labeled “Alternate Page for International Prospectus.” Final forms of each prospectus will be filed with the Securities and Exchange Commission under Rule 424(b).
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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated March 19, 2002.
 |
100,000,000 Class A Common Shares |
This is an offering of Class A
common shares of Accenture Ltd. This prospectus relates to an offering of shares in the United States. In addition,
shares are being offered outside the United States in an international offering.
Accenture Ltd is offering 10,185,884 of the Class A common shares to be sold in the offering. The selling shareholders identified in this prospectus are offering an additional 89,814,116 Class A common shares.
The Class A common shares are listed on the New York Stock Exchange under the symbol “ACN.” The last reported sale price of the Class A common shares on March 15, 2002 was
$28.99 per share.
See “Risk Factors” beginning on page 13 to read about factors you should consider before buying the Class A common shares.
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Share |
Total | |||||
| Initial price to public |
$ |
|
$ |
| ||
| Underwriting discount |
$ |
|
$ |
| ||
| Proceeds, before expenses, to Accenture Ltd |
$ |
|
$ |
| ||
| Proceeds, before expenses, to the selling shareholders |
$ |
|
$ |
| ||
To the extent that the U.S. underwriters sell more than
Class A common shares, the U.S. underwriters have the option to purchase up to an additional Class A
common shares from Accenture Ltd at the initial price to public less the underwriting discount. The international underwriters have a similar option to purchase up to
additional Class A common shares.
The underwriters expect to deliver the shares in
New York, New York on , 2002.
| Goldman, Sachs & Co. |
Morgan Stanley |
Prospectus dated
, 2002.
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[Alternate Page for International Prospectus]
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion. Dated March 19, 2002.
| |
100,000,000 Class A Common Shares |
This is an offering of Class A
common shares of Accenture Ltd. This prospectus relates to an offering of shares outside the United States. In addition,
shares are being offered in the United States.
Accenture Ltd is offering 10,185,884 of
the Class A common shares to be sold in the offering. The selling shareholders identified in this prospectus are offering an additional 89,814,116 Class A common shares.
The Class A common shares are listed on the New York Stock Exchange under the symbol “ACN.” The last reported sale price of the Class A common shares on March 15, 2002 was $28.99 per share.
See “Risk Factors” beginning on page 13 to read about factors you should consider before buying the Class A common shares.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved
of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Share |
Total | |||||
| Initial price to public |
$ |
|
$ |
| ||
| Underwriting discount |
$ |
|
$ |
| ||
| Proceeds, before expenses, to Accenture Ltd |
$ |
|
$ |
| ||
| Proceeds, before expenses, to the selling shareholders |
$ |
|
$ |
| ||
To the extent that the international underwriters sell more than
Class A common shares, the international underwriters have the option to purchase up to an additional
Class A common shares from Accenture Ltd at the initial price to public less the underwriting discount. The U.S. underwriters have a similar option to purchase up to additional
Class A common shares.
The underwriters expect to deliver the shares in New York,
New York on , 2002.
| Goldman Sachs International |
Morgan Stanley |
Prospectus dated
, 2002.
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You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different
information. We are not making an offer to sell these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the
front cover of this prospectus.
The Bermuda
Monetary Authority has classified us as non-resident of Bermuda for exchange control purposes. Accordingly, the Bermuda Monetary Authority does not restrict our ability to convert currency, other than Bermuda dollars, held for our account to any
other currency, to transfer funds in and out of Bermuda or to pay dividends to non-Bermuda residents who are shareholders, other than in Bermuda dollars. The permission of the Bermuda Monetary Authority is required for the issue and transfer of our
shares under the Exchange Control Act 1972 of Bermuda and regulations under it.
We have obtained the permission of the Bermuda
Monetary Authority for the issue of the Accenture Ltd Class A common shares that we may sell and for the transfer of the Accenture Ltd Class A common shares which the selling shareholders may sell in the offering described in this prospectus. In
addition, we have obtained the permission of the Bermuda Monetary Authority for the free issue and transferability of Accenture Ltd Class A common shares following the offering. Approvals or permissions received from the Bermuda Monetary Authority
do not constitute a guaranty by the Bermuda Monetary Authority as to our performance or our creditworthiness. Accordingly, in giving those approvals or permissions, the Bermuda Monetary Authority will not be liable for our performance or default or
for the correctness of any opinions or statements expressed in this document.
We have filed this document as a prospectus with
the Registrar of Companies in Bermuda under Part III of the Companies Act 1981 of Bermuda. In accepting this document for filing, the Registrar of Companies accepts no responsibility for the financial soundness of any proposals or for the
correctness of any opinions or statements expressed in this document.
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This summary highlights some of the information contained elsewhere in this prospectus. We
urge you to read the entire prospectus carefully, including the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections and our historical financial statements and
related notes included elsewhere in this prospectus, before making an investment decision.
Accenture
Accenture is the world’s leading management consulting and technology services organization. We have more than 75,000 employees based in over 110
offices in 47 countries delivering to our clients a wide range of consulting, technology and outsourcing services. We operate globally with one common brand and business model. We work with clients of all sizes and have extensive relationships with
the world’s leading companies and governments. We serve 88 of the Fortune Global 100 and more than half of the Fortune Global 500. In total, we have served more than 4,000 clients on nearly 18,000 engagements over the past five
fiscal years.
Our business consists of using our industry knowledge, our service offering expertise and our insight into and
access to existing and emerging technologies to identify new business and technology trends and formulate and implement solutions for clients under demanding time constraints. We help clients around the world identify and enter new markets, increase
revenues in existing markets and deliver their products and services more effectively and efficiently. We deliver our services and solutions through the following five operating groups, which together comprise 18 industry groups. Our industry focus
enables our professionals to provide business and management consulting, technology and outsourcing services with an understanding of industry evolution, business issues and applicable technologies, and ultimately to deliver solutions tailored to
each client’s industry.
| Communications & High Tech |
Financial Services |
Products |
Resources |
Government | ||||
| ŸCommunications ŸElectronics
& High Tech ŸMedia &
Entertainment |
ŸBanking ŸHealth Services ŸInsurance |
ŸAutomotive
ŸConsumer Goods & Services ŸIndustrial Equipment ŸPharmaceuticals & Medical Products ŸRetail ŸTransportation & Travel Services |
ŸChemicals
ŸEnergy ŸForest Products ŸMetals & Mining ŸUtilities |
• Government | ||||
| Percent of revenues before reimbursements for the 12 months ended November 30,
2001 | ||||||||
| 27% |
25% |
21% |
17% |
10% | ||||
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We develop and deliver a full spectrum of services and solutions that address business
opportunities and challenges common across industries through eight service lines and several of our solution units. Our service lines are responsible for developing our knowledge capital, world-class skills and innovative capabilities for clients
across all of the industries we serve. Our solution units develop asset-based scalable solutions that can be offered to multiple clients. We organize our service lines and the solution units that serve multiple industries into two capability groups,
based on their applicability: Business Consulting and Technology & Outsourcing.
| Business Consulting |
Technology & Outsourcing | |
| Ÿ Strategy &
Business Architecture Service Line Ÿ Customer Relationship Management Service Line Ÿ Supply Chain Management Service Line Ÿ Human Performance Service Line Ÿ Finance & Performance Management Service Line Ÿ e-peopleserve Solution Unit Ÿ Accenture Learning Solution Unit |
Ÿ Technology Research
& Innovation Service Line Ÿ Solutions Engineering Service Line Ÿ Solutions Operations Service Line Ÿ Avanade Solution Unit | |
Our affiliates and alliances enhance our management consulting and technology
services business. If a capability that we do not already possess is of strategic importance and value to us but is in an area that is best developed in a business model outside our client service business, we may form a new business, sometimes with
one or more third parties, to develop that capability. We call these businesses “affiliates.” In general, we expect the capabilities developed by these new businesses to be used by our own professionals as well as by other companies. We
enter into alliances because today’s business environment demands more speed, flexibility and resources than typically exist at any single company. We seek to form alliances with leading companies and organizations whose capabilities complement
our own, whether by extending or deepening a service offering, delivering a new technology or business process or helping us extend our services to new geographies. Although we have not generated material revenues from our affiliates and alliances,
we believe that our approach of enhancing the service offerings of our operating groups and service lines with the insight into and access to emerging business models, solutions and technologies provided by our affiliates and alliances, which we
refer to as our “network of businesses,” provides us with a fundamental advantage in delivering value to our clients.
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. We derive substantially all of our revenues from
contracts for management and technology service offerings and solutions that we develop, implement and manage for our clients. Substantially all of our contracts include time-and-materials or fixed-price terms.
Our leading position in the management consulting and technology services markets results from the fact that we have more consulting professionals than
any other consulting firm, with nearly 54,000 professionals working within our operating groups, complemented by nearly 8,000 professionals dedicated full time to our service lines. In addition, we have deep industry knowledge in 18 distinct
industry groups and broad service offering expertise through our service lines and solution units. In total, we have more than 75,000 employees, not including those of our affiliates, who provide global scale and reach through over 110 offices in 47
countries. Based on our knowledge of our business and the business of our competitors, we believe that no other consulting firm provides as broad a range of management and technology services and solutions to as many industry groups in as many
geographic markets as we do.
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Our Corporate Information
Accenture Ltd is organized under the laws of Bermuda. We maintain a registered office in Bermuda at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda. Our telephone number in Bermuda
is (441) 296-8262. We also have major offices in the world’s leading business centers, including New York, Chicago, Dallas, Los Angeles, San Francisco, London, Frankfurt, Madrid, Milan, Paris, Sydney and Tokyo. In total, we have over 110
offices in 47 countries around the world. Our Internet address is www.accenture.com. Information contained on our Web site is not a part of this prospectus.
We use the term “partner” in this prospectus to refer to the partners and shareholders of the series of related partnerships and corporations through which we operated our business prior to our transition to
a corporate structure in fiscal 2001. These individuals became our executive employees following our transition to a corporate structure but have the “partner” title. Where the context permits, the term also refers to our employees and
others who have been or are in the future named as “partners” in this executive sense. In using the term “partner,” we do not mean to imply any intention of the parties to create a separate legal entity. We have more than 2,700
partners.
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-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. See “Certain Relationships and Related Transactions—Relationship with Andersen Worldwide and Arthur Andersen.”
Organizational Structure
Accenture Ltd is a Bermuda holding company with no material assets other than an equity interest in our subsidiary, Accenture SCA, a Luxembourg partnership limited by shares. Accenture Ltd’s only business is to hold this interest and
to act as the sole general partner of Accenture SCA. As the general partner of Accenture SCA and as a result of Accenture Ltd’s majority voting interest in Accenture SCA, Accenture Ltd controls Accenture SCA’s management and operations and
consolidates Accenture SCA’s results in its financial statements. We operate our business through subsidiaries of Accenture SCA.
Some of our partners and former partners own shares in Accenture SCA or Accenture Canada Holdings Inc., an indirect subsidiary of Accenture SCA. Subject to contractual transfer restrictions, these partners have the option to redeem or
exchange each of these shares for a Class A common share or, at our option, cash generally equal to the market value of a Class A common share. Generally, these partners and former partners also own a corresponding number of Accenture Ltd Class X
common shares which entitle their holders to vote at Accenture Ltd shareholder meetings but do not carry any economic rights.
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Immediately following the offering and the transactions related to the offering, our partners
will own approximately 73% of the equity in our business, or approximately 72% if the underwriters exercise their overallotment options in full, and will own or control shares representing, in the aggregate, approximately 73% of the voting interest
in Accenture Ltd or approximately 72% if the underwriters exercise their overallotment options in full. Information in this prospectus reflects our estimate of selling shareholder participation in the offering.
You should read “Accenture Organizational Structure,” “Certain Relationships and Related Transactions” and “Description of
Share Capital” for additional information about our corporate structure.
Share Management Plan
We recognize the need to address three important objectives related to the ownership of our shares: increased public float, broader ownership of the
Accenture Ltd Class A common shares and the orderly entry of our shares into the market. We also recognize the needs of our partners to diversify their portfolios and to achieve additional liquidity over time. To balance these objectives, and to
effectively incentivize our current and future partners, we are undertaking the offering and the related transactions and expect to implement a number of arrangements which we refer to collectively as our “Share Management Plan.” These
arrangements include our current plans to:
• |
agree with many of our partners and former partners to further restrict the transfer of their equity interests in Accenture until July 24, 2005, except in Accenture-approved
transactions such as the offering, as described in “Certain Relationships and Related Transactions—Share Management Plan—Common Agreements”; |
• |
allow our partners and former partners to transfer their equity interests to their heirs or charitable donees in connection with estate and/or tax planning strategies, provided
these transferees agree to be bound by the restrictions on transfer described above; |
• |
provide our partners and former partners with quarterly opportunities to sell or redeem, in Accenture-approved transactions with us or third parties, at or below market prices,
equity interests as to which the transfer restrictions imposed prior to our initial public offering are no longer in effect; and |
• |
preserve Accenture’s partnership culture and sense of stewardship by creating a share employee compensation trust that will acquire Class A common shares to fund equity
awards to our future partners. |
In addition, our agreements and arrangements with partners and former
partners described above are intended to allow us the flexibility to accommodate changes and additions to the Share Management Plan.
We expect that our partners and former partners will, any time they sell shares in Accenture-approved underwritten public offerings, including this offering, pay to us an amount equal to 3% of the gross proceeds from the sale of the shares,
less the amount of any underwriting discount. Similarly, our partners and former partners participating in any quarterly share transactions will pay to us an amount equal to 3 1/2% of the gross proceeds, less any brokerage costs. We will apply these amounts to cover our expenses in connection with these transactions, with the excess being applied to fund the share
employee compensation trust.
For more information about our Share Management Plan, please see “Certain
Relationships and Related Transactions—Share Management Plan.”
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Recent Developments
We expect revenues before reimbursements to be approximately $2.91 billion for the three months ended February 28, 2002 compared with $2.88 billion for the corresponding period of fiscal
2001. The revenue increase was achieved against a strong corresponding period in fiscal 2001 and in an economic environment that remained difficult throughout the quarter. We continued to achieve strong growth in the geographic region comprising
Europe, the Middle East and Africa.
Operating income is expected to be $385 million to $400 million, or 13% to 14% of revenues
before reimbursements.
Net income before minority interest, including investment writedowns, is expected to be between $23
million and $33 million. Diluted earnings per share on the same basis are expected to be $0.02 to $0.03.
During the second
quarter of 2002 we recorded a charge of $212 million, before and after tax, related to investment writedowns of our venture and investment portfolio. Excluding these investment writedowns, net income before minority interest is expected to be
between $235 million and $245 million. Diluted earnings per share on the same basis are expected to be approximately $0.23.
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 includes the $212 million charge, related to 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.
These preliminary results are subject to
quarterly review procedures and final reconciliations and adjustments.
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The Offering
Class A common shares offered by Accenture Ltd(1) |
10,185,884 Class A common shares. For local tax reasons in certain jurisdictions outside the United States, we intend to use proceeds from the offering to acquire or redeem an
aggregate of 10,185,884 Class A common shares, Accenture SCA Class I common shares and Accenture Canada Holdings exchangeable shares from our partners and former partners in these jurisdictions. |
Class A common shares offered by the selling shareholders |
89,814,116 Class A common shares. To obtain the Accenture Ltd Class A common shares they will sell in the offering, some of the selling shareholders will redeem or exchange an
aggregate of 63,789,769 Accenture SCA Class I common shares and Accenture Canada Holdings exchangeable shares for Accenture Ltd Class A common shares on a one-for-one basis immediately prior to the offering.
|
Class A common shares outstanding immediately before the offering and transactions related to the offering(2) |
406,927,672 Class A common shares (or 1,002,102,972 Class A common shares if all Accenture SCA Class I common shares not held by Accenture Ltd and all Accenture Canada Holdings
exchangeable shares are redeemed or exchanged for newly issued Class A common shares on a one-for-one basis). |
Class A common shares outstanding immediately after the offering and transactions related to the offering(2) |
476,216,492 Class A common shares (or 1,002,102,972 Class A common shares if all Accenture SCA Class I common shares not held by Accenture Ltd and all Accenture Canada Holdings
exchangeable shares are redeemed or exchanged for newly issued Class A common shares on a one-for-one basis). |
(1) |
Unless otherwise indicated, all information in this prospectus is provided assuming no exercise of the underwriters’ options to purchase up to an aggregate of 15,000,000
additional Class A common shares from Accenture Ltd. |
(2) |
Class A common shares outstanding and other information in this prospectus based thereon do not reflect: |
• |
6,311,537 Class A common shares underlying restricted share units that are not fully vested; and |
• |
90,358,584 Class A common shares issuable pursuant to options. |
(footnote
continued)
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Class A common shares outstanding and other information in this prospectus based thereon reflect Class A common shares underlying fully
vested restricted share units and assume the acquisition by Accenture Ltd of an equivalent amount of Accenture SCA common shares in connection with these restricted share units. We intend to accelerate the delivery of 10,092,801 Class A common
shares underlying fully vested restricted share units granted in connection with our initial public offering and originally scheduled to be delivered on July 19, 2002 to immediately prior to the offering to allow partners holding these restricted
share units to participate in the offering as selling shareholders. Immediately before the offering and the transactions related to the offering there are 68,112,102 Class A common shares underlying fully vested restricted share units, and
immediately after the offering and the transactions related to the offering there will be 58,019,301 Class A common shares underlying fully vested restricted share units.
Use of proceeds |
For local tax reasons in certain jurisdictions outside the United States, we intend to use the net proceeds from Accenture Ltd’s sale of 10,185,884 Class A common shares in
the offering to acquire or redeem an aggregate of 10,185,884 Class A common shares, Accenture SCA Class I common shares and Accenture Canada Holdings exchangeable shares from some of our partners and former partners in these jurisdictions at a price
equal to the initial price to public less the underwriting discount. We intend to use any proceeds from an exercise of the underwriters’ overallotment options to fund the share employee compensation trust.
|
The partners and former partners that are selling shareholders in the offering or from whom we intend to acquire or redeem shares as described above have each agreed to pay to
us an amount equal to 3% of the gross proceeds from the disposition of their shares, less the amount of any underwriting discount. We will apply these amounts to cover the expenses of the offering, with the excess being applied to fund the share
employee compensation trust. |
Voting rights |
Each Class A common share and each Class X common share entitles its holder to one vote per share on all matters submitted to a vote of shareholders of Accenture Ltd.
Immediately following the offering and the transactions related to the offering, our partners will own or control Class A common shares and Class X common shares representing, in the aggregate, approximately 73% of the voting interest in Accenture
Ltd, or approximately 72% if the underwriters exercise their overallotment options in full. All of our partners who hold Class A or Class X common shares have entered into a voting agreement that requires them to vote as a group with respect to all
matters voted upon by shareholders of Accenture Ltd. For a
|
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discussion of the voting agreement, see “Certain Relationships and Related Transactions—Voting Agreement.” Our partners will effectively control us for as long as they continue to
hold a significant block of voting rights. Upon redemption or exchange of Accenture SCA Class I common shares and Accenture Canada Holdings exchangeable shares, Accenture Ltd will redeem a corresponding number of Accenture Ltd Class X common 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 exchangeable shares outstanding. |
Dividend policy |
We currently do not anticipate that Accenture Ltd or Accenture SCA will pay dividends. |
Transfer restrictions |
We expect that many of our current and former partners, including all of the current and former partners that will be participating in the offering and the transactions related
to the offering, will agree not to transfer their equity interests in Accenture until July 24, 2005, except for sales in underwritten public offerings, share repurchases, sales or redemptions or other transactions, in each case as approved by
Accenture, or to estate and/or tax planning vehicles approved by Accenture. See “Certain Relationships and Related Transactions—Share Management Plan.” The existing transfer restrictions in the voting agreement and the transfer rights
agreement, which generally restrict sales until July 24, 2002 and then permit sales in increasing amounts over the subsequent seven years, will continue to apply to our partners and former partners. These transfer restrictions will be waived,
however, to permit the Accenture-approved transactions described above, including the offering and the transactions related to the offering. See “Certain Relationships and Related Transactions—Voting Agreement” and
“—Accenture SCA Transfer Rights Agreement.” See also “Risk Factors—Risks That Relate to Your Ownership of Our Class A Common Shares—Our share price may decline due to the large number of Class A common shares eligible
for future sale.” |
New York Stock Exchange symbol |
“ACN” |
Risk factors |
For a discussion of some of the factors you should consider before buying our Class A common shares, see “Risk Factors.” |
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Summary Financial Data
The following unaudited summary historical and pro forma as adjusted financial information should be read in conjunction with “Selected Financial Data,” our historical
financial statements and related notes included elsewhere in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| Historical |
Pro forma asadjusted |
Historical |
Pro forma as adjusted |
Historical |
||||||||||||||||||||||||||||||||
| Year ended August 31, |
Year ended August 31, 2001 |
Three months ended November 30, 2000 |
Three months ended November 30, 2000 |
Three months ended November 30, 2001 |
||||||||||||||||||||||||||||||||
| 1997 |
1998 |
1999 |
2000 |
2001 |
||||||||||||||||||||||||||||||||
| (in millions) |
||||||||||||||||||||||||||||||||||||
| Income Statement Data: |
||||||||||||||||||||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||||||||||||||
| Revenues before reimbursements |
$ |
6,275 |
|
$ |
8,215 |
|
$ |
9,550 |
|
$ |
9,752 |
|
$ |
11,444 |
|
$ |
11,444 |
|
$ |
2,831 |
|
$ |
2,831 |
|
$ |
2,989 |
| |||||||||
| Reimbursements |
|
1,172 |
|
|
1,425 |
|
|
1,529 |
|
|
1,788 |
|
|
1,904 |
|
|
1,904 |
|
|
407 |
|
|
407 |
|
|
420 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Revenues |
|
7,447 |
|
|
9,640 |
|
|
11,079 |
|
|
11,540 |
|
|
13,348 |
|
|
13,348 |
|
|
3,238 |
|
|
3,238 |
|
|
3,409 |
| |||||||||
| Operating expenses:* |
||||||||||||||||||||||||||||||||||||
| Cost of services:* |
||||||||||||||||||||||||||||||||||||
| Cost of services before reimbursable expenses* |
|
3,470 |
|
|
4,700 |
|
|
5,457 |
|
|
5,486 |
|
|
6,200 |
|
|
6,925 |
|
|
1,384 |
|
|
1,711 |
|
|
1,806 |
| |||||||||
| Reimbursable expenses |
|
1,172 |
|
|
1,425 |
|
|
1,529 |
|
|
1,788 |
|
|
1,904 |
|
|
1,904 |
|
|
407 |
|
|
407 |
|
|
420 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Cost of services* |
|
4,642 |
|
|
6,125 |
|
|
6,986 |
|
|
7,274 |
|
|
8,104 |
|
|
8,829 |
|
|
1,791 |
|
|
2,118 |
|
|
2,226 |
| |||||||||
| Sales and marketing* |
|
611 |
|
|
696 |
|
|
790 |
|
|
883 |
|
|
1,217 |
|
|
1,507 |
|
|
202 |
|
|
327 |
|
|
361 |
| |||||||||
| General and administrative costs* |
|
819 |
|
|
1,036 |
|
|
1,271 |
|
|
1,297 |
|
|
1,516 |
|
|
1,560 |
|
|
376 |
|
|
405 |
|
|
408 |
| |||||||||
| Reorganization and rebranding costs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
848 |
|
|
— |
|
|
30 |
|
|
— |
|
|
— |
| |||||||||
| Restricted share unit-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
967 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Total operating expenses* |
|
6,072 |
|
|
7,857 |
|
|
9,047 |
|
|
9,454 |
|
|
12,652 |
|
|
11,896 |
|
|
2,399 |
|
|
2,850 |
|
|
2,995 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Operating income* |
|
1,375 |
|
|
1,783 |
|
|
2,032 |
|
|
2,086 |
|
|
696 |
|
|
1,452 |
|
|
839 |
|
|
388 |
|
|
414 |
| |||||||||
| Gain (loss) on investments, net |
|
— |
|
|
— |
|
|
92 |
|
|
573 |
|
|
107 |
|
|
107 |
|
|
219 |
|
|
219 |
|
|
(95 |
) | |||||||||
| Interest income |
|
— |
|
|
— |
|
|
60 |
|
|
67 |
|
|
80 |
|
|
80 |
|
|
23 |
|
|
23 |
|
|
15 |
| |||||||||
| Interest expense |
|
(19 |
) |
|
(17 |
) |
|
(27 |
) |
|
(24 |
) |
|
(44 |
) |
|
(59 |
) |
|
(5 |
) |
|
(10 |
) |
|
(9 |
) | |||||||||
| Other income (expense) |
|
4 |
|
|
(6 |
) |
|
(5 |
) |
|
51 |
|
|
17 |
|
|
17 |
|
|
7 |
|
|
7 |
|
|
(8 |
) | |||||||||
| Equity in gains (losses) of affiliates |
|
— |
|
|
(1 |
) |
|
(6 |
) |
|
(46 |
) |
|
(61 |
) |
|
(61 |
) |
|
(20 |
) |
|
(20 |
) |
|
6 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Income before taxes* |
|
1,360 |
|
|
1,759 |
|
|
2,146 |
|
|
2,707 |
|
|
795 |
|
|
1,536 |
|
|
1,063 |
|
|
607 |
|
|
323 |
| |||||||||
| Provision for taxes (1) |
|
118 |
|
|
74 |
|
|
123 |
|
|
243 |
|
|
503 |
|
|
614 |
|
|
53 |
|
|
245 |
|
|
123 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Income before minority interest and accounting change* |
|
1,242 |
|
|
1,685 |
|
|
2,023 |
|
|
2,464 |
|
|
292 |
|
|
922 |
|
|
1,010 |
|
|
362 |
|
|
200 |
| |||||||||
| Minority interest |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
577 |
|
|
(545 |
) |
|
— |
|
|
(214 |
) |
|
(118 |
) | |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Income before accounting change* |
|
1,242 |
|
|
1,685 |
|
|
2,023 |
|
|
2,464 |
|
|
869 |
|
|
377 |
|
|
1,010 |
|
|
148 |
|
|
82 |
| |||||||||
| Cumulative effect of accounting change |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
188 |
|
|
— |
|
|
188 |
|
|
— |
|
|
— |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Partnership income before partner distributions* (2) |
$ |
1,242 |
|
$ |
1,685 |
|
$ |
2,023 |
|
$ |
2,464 |
|
$ |
1,198 |
|
|||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||
| Net income* |
$ |
1,057 |
|
$ |
377 |
|
$ |
148 |
|
$ |
82 |
| ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
* |
Historical information excludes payments for partner distributions in respect of 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. |
(2) |
Partnership income before partner distributions is not comparable to net income of a corporation similarly determined. Partnership income in respect of periods ended on or
prior to May 31, 2001 is not executive compensation in the customary sense 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 our historical financial statements. |
11
Table of Contents
| Historical |
Pro forma as adjusted |
Historical |
Pro forma as adjusted |
Historical | |||||||||||||||||
| Year ended August 31, |
Year ended August 31, 2001 |
Three months ended November 30, 2000 |
Three months ended November 30, 2000 |
Three months ended November 30, 2001 | |||||||||||||||||
| 1997 |
1998 |
1999 |
2000 |
2001 |
|||||||||||||||||
| Earnings Per Share Data: |
|||||||||||||||||||||
| Earnings per share: |
|||||||||||||||||||||
| —basic |
$ |
0.91 |
$ |
0.36 |
$ |
0.20 | |||||||||||||||
| |
|
|
|
|
| ||||||||||||||||
| —diluted |
$ |
0.91 |
$ |
0.36 |
$ |
0.20 | |||||||||||||||
| |
|
|
|
|
| ||||||||||||||||
| Weighted average shares: |
|||||||||||||||||||||
| —basic |
|
412,705,954 |
|
412,705,954 |
|
410,488,771 | |||||||||||||||
| |
|
|
|
|
| ||||||||||||||||
| —diluted |
|
1,008,163,290 |
|
1,008,163,290 |
|
1,014,448,500 | |||||||||||||||
| |
|
|
|
|
| ||||||||||||||||
| As of August 31, |
As of November 30, | |||||||||||||||||
| 1997 |
1998 |
1999 |
2000 |
2001 |
2001 | |||||||||||||
| (in millions) | ||||||||||||||||||
| Balance Sheet Data: |
||||||||||||||||||
| Cash and cash equivalents |
$ |
325 |
$ |
736 |
$ |
1,111 |
$ |
1,271 |
$ |
1,880 |
$ |
1,130 | ||||||
| Working capital |
|
175 |
|
531 |
|
913 |
|
1,015 |
|
401 |
|
713 | ||||||
| Total assets |
|
2,550 |
|
3,704 |
|
4,615 |
|
5,451 |
|
6,061 |
|
5,423 | ||||||
| Long-term debt |
|
192 |
|
157 |
|
127 |
|
99 |
|
1 |
|
4 | ||||||
| Total partners’ capital |
|
761 |
|
1,507 |
|
2,208 |
|
2,368 |
|
— |
|
— | ||||||
| Shareholders’ equity |
|
— |
|
— |
|
— |
|
— |
|
282 |
|
353 | ||||||
12
Table of Contents
You should carefully consider each of the risks described below and all of the other
information in this prospectus before deciding to invest in our Class A common shares.
Risks That Relate to Our Business
A significant or prolonged economic downturn could have a material adverse effect on our results of operations.
Our results of operations are affected by the level of business activity of our clients, which in turn is affected by the level of economic activity in
the industries and markets that they serve. In addition, our business tends to lag behind economic cycles in an industry. A decline in the level of business activity of our clients could have a material adverse effect on our revenues and profit
margin. Current economic conditions have caused some clients to reduce or defer their expenditures for consulting services. This has caused a reduction in our growth rate, particularly in the Americas and in our Communications & High Tech and
Financial Services operating groups, in the first quarter of this fiscal year as compared with fiscal 2001. While total revenues before reimbursements for the first quarter of fiscal 2002 increased by 6% over the first quarter of fiscal 2001,
revenues before reimbursements for the first quarter of fiscal 2002 for our Communications & High Tech and Financial Services operating groups declined by 14% and 6%, respectively, over the first quarter of fiscal 2001. Revenues before
reimbursements for the first quarter of fiscal 2002 for our Americas geographic area decreased by 7% over the first quarter of fiscal 2001. We have implemented and will continue to implement cost-savings initiatives to manage our expenses as a
percentage of revenues. However, we may not be able to reduce the rate of growth in our costs on a timely basis or control our costs to maintain our margins.
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.
Our success will depend, in part, on our ability to develop and implement management and technology services and solutions that anticipate
and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis, and our offerings may not be successful in the
marketplace. Also, services, solutions and technologies developed by our competitors may make our service or solution offerings uncompetitive or obsolete. Any one of these circumstances could have a material adverse effect on our ability to obtain
and successfully complete important client engagements.
Our business is also dependent, in part, upon continued growth in the
use of technology in business by our clients and prospective clients and their customers and suppliers. The growth in the use of technology slows down in a challenging economic environment, such as the one we are experiencing now. Use of new
technology for commerce generally requires the understanding and acceptance of a new way of conducting business and exchanging information. Companies that have already invested substantial resources in traditional means of conducting commerce and
exchanging information may be particularly reluctant or slow to adopt a new approach that may make some of their existing personnel and infrastructure obsolete.
We may face damage to our professional reputation or legal liability if our clients are not satisfied with our services.
As a professional services firm, we depend to a large extent on our relationships with our clients and our reputation for high-caliber professional services and integrity to attract and retain clients. As a result, if
a client is not satisfied with our services or solutions, including those of subcontractors we employ, it
13
Table of Contents
may be more damaging in our business than in other businesses. Moreover, if we fail to meet our contractual obligations or fail to disclose our financial or other arrangements with our alliance
partners, we could be subject to legal liability or loss of client relationships. Our exposure to legal liability may be increased in the case of business transformation outsourcing contracts in which we become more involved in our clients’
operations. Our contracts typically include provisions to limit our exposure to legal claims relating to our services and the solutions we develop, but these provisions may not protect us or may not be enforceable in all cases.
Our services or solutions may infringe upon the intellectual property rights of others.
We cannot be sure that our services and solutions, or the solutions of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we
may have infringement claims asserted against us or against our clients. These claims may harm our reputation, cost us money and prevent us from offering some services or solutions. Historically in our contracts, we have generally agreed to
indemnify our clients for any expenses or liabilities resulting from claimed infringements of the intellectual property rights of third parties. In some instances, the amount of these indemnities may be greater than the revenues we receive from the
client. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, injure our reputation or require us to enter into royalty or licensing arrangements. We may not be able to enter into these royalty
or licensing arrangements on acceptable terms. Depending on the circumstances, we may be required to grant a specific client greater rights in intellectual property developed in connection with an engagement than we otherwise do, in which case we
seek to cross license the use of the intellectual property. However, in very limited situations, we forego rights to the use of intellectual property we help create and in these cases, this limits our ability to reuse that intellectual property for
other clients. Any limitation on our ability to provide a service or solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new or modified solutions for future projects.
Our engagements with clients may not be profitable.
Unexpected costs or delays could make our contracts unprofitable. 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, the risks associated with all of these types of contracts are often similar. When making proposals for engagements, we estimate the costs and timing for completing the projects. These estimates reflect our
best judgment regarding the efficiencies of our methodologies and professionals as we plan to deploy them on projects. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements, including
delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on our profit margin.
Under many of our contracts the payment of some or all of our fees is conditioned upon our performance. We estimate that a majority of our contracts have
some fixed-price, incentive-based or other pricing terms that condition some or all of our fees on our ability to deliver defined goals. For example, we are entering into an increasing number of transformational outsourcing contracts under which
payment of all or a portion of our fees is contingent upon our clients meeting cost-saving or other contractually-defined goals. Our failure to meet contractually-defined goals or a client’s expectations in any type of contract may result in an
unprofitable engagement.
Our contracts can be terminated by our clients with short notice. Our
clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under exclusive long-term contracts. Approximately 75% of our consulting engagements are less than twelve months in duration. While our accounting systems
identify the duration of our engagements, these systems do not track whether
14
Table of Contents
contracts can be terminated upon short notice and without penalty. However, we estimate that the majority of our contracts can be terminated by our clients with short notice and without
significant penalty. The advance notice of termination required for contracts of shorter duration and lower revenue is typically 30 days. Longer-term, larger and more complex contracts generally require a longer notice period for termination and may
include an early termination charge to be paid to us. Additionally, large client projects involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages of a project or that a client will
cancel or delay additional planned engagements. These terminations, cancellations or delays could result from factors unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the
client or the economy generally. When contracts are terminated, we lose the associated revenues and we may not be able to eliminate associated costs in a timely manner.
We may fail to collect amounts extended to clients. In limited circumstances we extend financing to our clients, which we may fail to collect. A client must
meet established criteria to receive financing, and any significant extension of credit requires approval by senior levels of our management. We have extended $180 million of financing as of November 30, 2001, which is in line with historical
levels.
If our affiliates or alliances do not succeed, we may not be successful in implementing our growth strategy.
We have committed a substantial amount of time and financial resources to our affiliates and in our relationships with our alliance partners
and we plan to commit substantial additional financial resources in the future. The benefits we anticipate from these relationships are an important component of our growth strategy. If these relationships do not succeed, we may fail to obtain the
benefits we hope to derive or lose the financial resources we have committed. Similarly, we may be adversely affected by the failure of one or more of our affiliates or alliances, which could lead to reduced marketing exposure, diminished sales and
a decreased ability to develop and gain access to solutions. Moreover, because most of our alliance relationships are nonexclusive, our alliance partners are able to form closer or preferred arrangements with our competitors. Poor performance or
failures of our affiliates or alliances could have a material and adverse impact on our growth strategy, which, in turn, could adversely affect our financial condition and results of operations.
Our global operations pose complex management, foreign currency, legal, tax and economic risks, which we may not adequately address.
We have offices in 47 countries around the world. 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. As a result, we are subject to a number of risks, including:
• |
the absence in some jurisdictions of effective laws to protect our intellectual property rights; |
• |
multiple and possibly overlapping and conflicting tax laws; |
• |
restrictions on the movement of cash; |
• |
the burdens of complying with a wide variety of national and local laws; |
• |
political instability; |
• |
currency fluctuations; |
15
Table of Contents
• |
longer payment cycles; |
• |
restrictions on the import and export of certain technologies; |
• |
price controls or restrictions on exchange of foreign currencies; and |
• |
trade barriers. |
The consulting, technology and
outsourcing markets are highly competitive, and we may not be able to compete effectively.
The consulting, technology
and outsourcing markets in which we operate include a large number of participants and are highly competitive. Our primary competitors include:
• |
large accounting, consulting and other professional service firms; |
• |
information technology service providers; |
• |
application service providers; |
• |
service groups of packaged software vendors and resellers; and |
• |
service groups of computer equipment companies. |
In addition,
a client may choose to use its own resources, rather than engage an outside firm for the types of services we provide.
Our
marketplace is experiencing rapid changes in its competitive landscape. Some of our competitors have sought access to public and private capital and others have merged or consolidated with better-capitalized partners. These changes may create more
or larger and better-capitalized competitors with enhanced abilities to compete for market share generally and our clients specifically, in some cases, through significant economic incentives to clients to secure contracts. These competitors may
also be better able to compete for skilled professionals by offering them large compensation incentives. In addition, one or more of our competitors may develop and implement methodologies which result in superior productivity and price reductions
without adversely affecting the competitors’ profit margins. Many of our competitors are taking greater advantage of the lower labor costs in certain countries to allow them to reduce prices. Any of these circumstances may impose additional
pricing pressure on us, which would have an adverse effect on our revenues and profit margin.
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 success
and ability to grow are dependent, in part, on our ability to hire and retain large numbers of talented people. We hired approximately 17,000 new employees in fiscal year 2000 and more than 20,000 new employees in fiscal year 2001. The cumulative
rate of turnover among our employees was approximately 22% for fiscal year 2000, 12% for fiscal year 2001 and 9% on an annualized basis for the three months ended November 30, 2001, excluding involuntary terminations. The inability to attract
qualified employees in sufficient numbers to meet demand or the loss of a significant number of our employees could have a serious negative effect on us, including our ability to obtain and successfully complete important client engagements and thus
maintain or increase our revenues.
We regularly benchmark our employee compensation to the marketplace in all countries in
which we operate. We make annual adjustments to remain competitive based on the individual markets and the demand for top talent. We also adjust compensation levels within some of our larger countries, such as the United States and the United
Kingdom, to reflect different labor pools. In some cases these increases are greater than the general rate of inflation due to other market forces, including the demand for technical talent. To attract and retain the number of employees we need to
grow our business, we may have to increase our compensation levels in the future. This would adversely affect our operating margins.
16
Table of Contents
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 face additional retention risk because of our transition to a corporate structure in fiscal 2001. Our partners received our equity in lieu of the interests in the partnerships and corporations that they previously
held. Our partners, on average, received approximately 329,000 Accenture Ltd Class A common shares, Accenture SCA Class I common shares or Accenture Canada Holdings exchangeable shares (with a value of approximately $9,537,710, based on the last
reported sale price of the Class A common shares on the New York Stock Exchange on March 15, 2002 of $28.99 per share), and the median number of Accenture Ltd Class A common shares, Accenture SCA Class I common shares or Accenture Canada Holdings
exchangeable shares received by our partners was approximately 355,000 (with a value of approximately $10,291,450, based on the last reported sale price of the Class A common shares on the New York Stock Exchange on March 15, 2002 of $28.99 per
share). Their ownership of this equity is not dependent upon their continued employment. In addition, in connection with our transition to a corporate structure, our partners accepted significant reductions in their cash compensation. The
substitution of equity, equity-based incentives and other employee benefits in lieu of higher cash compensation may not be sufficient to retain and motivate these individuals in the near or long term. There is no guarantee that the non-competition
agreements we have entered into with our partners are sufficiently broad to prevent them from leaving us for our competitors or other opportunities or that these agreements will be enforceable in all cases.
In connection with our initial public offering and our transition to a corporate structure in fiscal 2001, our non-partner employees also received
equity incentives. These incentives to attract, retain and motivate employees may not be as effective as the opportunity, which existed prior to our transition to a corporate structure, to hold a partnership interest in Accenture. If these
incentives and others adopted from time to time are not effective, our ability to hire, retain and motivate skilled professionals will suffer.
We
have only a limited ability to protect our intellectual property rights, which are important to our success.
Our
success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property. Existing laws of some countries in which we provide services or solutions may offer only limited protection of our intellectual
property rights. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to protect our intellectual property rights. The steps we take in this
regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.
Our profitability will suffer if we are not able to maintain our pricing and utilization rates and control our costs.
Our profit margin, and therefore our profitability, is largely a function of the rates we are able to recover for our services and the
utilization rate, or chargeability, of our professionals. Accordingly, if we are not able to maintain the pricing for our services or an appropriate utilization rate for our professionals without corresponding cost reductions, we will not be able to
sustain our profit margin and our profitability will suffer. For example, we are currently experiencing pressure on the pricing for our systems integration services. The rates we are able to recover for our services are affected by a number of
factors, including:
• |
our clients’ perception of our ability to add value through our services; |
• |
competition; |
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• |
introduction of new services or products by us or our competitors; |
• |
pricing policies of our competitors; and |
• |
general economic conditions. |
Our
utilization rates are also affected by a number of factors, including:
• |
seasonal trends, primarily as a result of our hiring cycle and holiday and summer vacations; |
• |
our ability to transition employees from completed projects to new engagements; |
• |
our ability to forecast demand for our services and thereby maintain an appropriate headcount in the appropriate areas of our workforce; and |
• |
our ability to manage attrition. |
Our profitability is also a function of our ability to control our costs and improve our efficiency. Current and future cost reduction initiatives may not be sufficient to maintain our margins if the current challenging economic environment
continues for several quarters. Further, as we increase the number of our professionals and execute our strategy for growth, we may not be able to manage a significantly larger and more diverse workforce, control our costs or improve our efficiency.
Our quarterly revenues, operating results and profitability will vary from quarter to quarter, which may result in increased volatility of our
share price.
Our quarterly revenues, operating results and profitability have varied in the past and are likely to vary
significantly from quarter to quarter, making them difficult to predict. This may lead to volatility in our share price. The factors that are likely to cause these variations are:
• |
seasonality; |
• |
the business decisions of our clients regarding the use of our services; |
• |
the timing of projects and their termination; |
• |
the timing and extent of gains and losses on our portfolio of investments; |
• |
the timing of revenue or income or loss from affiliates; |
• |
our ability to transition employees quickly from completed projects to new engagements; |
• |
the introduction of new products or services by us or our competitors; |
• |
changes in our pricing policies or those of our competitors; |
• |
our ability to manage costs, including personnel costs and support services costs; |
• |
costs related to possible acquisitions of other businesses; and |
• |
global economic and political conditions and related risks, including acts of terrorism. |
Risks That Relate to Your Ownership of Our Class A Common Shares
We will continue to be controlled by our
partners, whose interests may differ from those of our other shareholders.
Upon completion of the offering and the
transactions related to the offering our partners will own or control shares representing, in the aggregate, a 73% voting interest in Accenture Ltd, or 72% if the underwriters exercise their overallotment options in full. These shares are subject to
a voting agreement, which requires our partners to vote as a group with respect to all matters submitted to shareholders. Our partners’ voting interest in Accenture Ltd may increase to the extent additional employees we name as partners are
required to become parties to the voting agreement. See “Certain Relationships and Related Transactions—Voting Agreement” for a discussion of these voting arrangements.
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As long as our partners continue to own or control a significant block of voting rights, they
will control us. This enables them, without the consent of the public shareholders, to:
• |
elect the board of directors and remove directors; |
• |
control our management and policies; |
• |
determine the outcome of most corporate transactions or other matters submitted to the shareholders for approval, including mergers, amalgamations and the sale of all or
substantially all of our assets; and |
• |
act in their own interest as partners, which may conflict with or not be the same as the interests of shareholders who are not partners. |
Furthermore, as a result of a partner matters agreement, our partners will continue to have influence with respect to a variety of matters
over which neither shareholders nor employees of a public company typically have input. The partner matters agreement provides mechanisms for our partners to:
• |
select, for three to five years after our initial public offering, five partner nominees for election to membership on the board of directors of Accenture Ltd;
|
• |
make a non-binding recommendation to the board of directors of Accenture Ltd through a committee of partners regarding the selection of a chief executive officer of Accenture
Ltd in the event a new chief executive officer is appointed within the first four years after our initial public offering; |
• |
vote on new partner admissions; |
• |
approve the partners’ income plan as described below; and |
• |
hold a non-binding vote with respect to any decision to eliminate or materially change the current practice of allocating partner compensation on a relative, or
“unit,” basis. |
Under the terms of the partner matters agreement, a partners’ income
committee, consisting of the chief executive officer and partners he or she appoints, reviews evaluations and recommendations concerning the performance of partners and determines relative levels of income participation, or unit allocation. Based on
its review, the committee prepares a partners’ income plan, which then must be submitted to the partners in a partner matters vote. If the plan is approved by a 66 2/3% partner matters vote, it is (1) subject to the impact on overall unit allocation of determinations by the board of directors or the compensation committee of the board of directors of the unit
allocation for the executive officers, binding with respect to the income participation or unit allocation of all partners other than the principal executive officers of Accenture Ltd (including the chief executive officer), unless otherwise
determined by the board of directors and (2) submitted to the compensation committee of the board of directors as a recommendation with respect to the income participation or unit allocation of the chief executive officer and the other principal
executive officers of Accenture Ltd. See “Certain Relationships and Related Transactions—Partner Matters Agreement.”
In addition, immediately after the offering and the transactions related to the offering, Accenture Ltd will own shares representing a 64% voting interest in Accenture SCA and certain of our partners and former
partners will own shares representing a 36% voting interest in Accenture SCA. Accenture SCA is organized under Luxembourg law, and a 66 2/3% shareholder vote is required to amend the articles of association of Accenture SCA, liquidate Accenture SCA, sell all or substantially all of the assets of Accenture SCA and to authorize the general partner to increase the issued share
capital of Accenture SCA. Luxembourg law requires a unanimous shareholder vote for a migration of Accenture SCA to a different jurisdiction and for the levying of an assessment on the Accenture SCA shares. Accordingly,
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there is the possibility that our partners holding an equity interest in Accenture SCA could block Accenture Ltd from causing Accenture SCA to take any of these actions. See “Accenture
Organizational Structure” for a discussion of our organizational structure.
Our share price may decline due to the large number of Class A
common shares eligible for future sale.
Sales of substantial amounts of Accenture Ltd Class A common shares, or the
perception of these sales, may adversely affect the price of the Class A common shares and impede our ability to raise capital through the issuance of equity securities in the future. A substantial number of Class A common shares are eligible for
future sale as described below:
• |
802,000,279 Class A common shares held by our partners and former partners or issuable upon redemption or exchange of Accenture SCA Class I common shares and Accenture Canada
Holdings exchangeable shares held by our partners and former partners are subject to contractual transfer restrictions. We expect that many of our current and former partners, including all of the current and former partners that will be
participating in the offering and the transactions related to the offering, will agree not to transfer their equity interests in Accenture until July 24, 2005, except for sales in underwritten public offerings, share repurchases, sales or
redemptions or other transactions, in each case as approved by Accenture, or to estate and/or tax planning vehicles approved by Accenture. See “Certain Relationships and Related Transactions—Share Management Plan—Common
Agreements.” The existing transfer restrictions in the voting agreement and the transfer rights agreement, which generally restrict sales until July 24, 2002 and then permit sales in increasing amounts over the subsequent seven years, will
continue to apply to our partners and former partners. These transfer restrictions will be waived, however, to permit the Accenture-approved transactions described above. These contractual restrictions on transfer may not be enforceable in all
cases. See “Certain Relationships and Related Transactions—Voting Agreement” and “—Accenture SCA Transfer Rights Agreement.” Accenture expects to approve the transfer by its partners of 100,000,000 of these Class A
common shares in connection with the offering and to approve additional transfers from time to time prior to 2005. These Class A common shares will also be subject to the underwriters’ lock-up described under “Underwriting.”
|
• |
In addition, 69,404,361 Class A common shares underlying restricted share units granted in connection with our initial public offering generally are scheduled to be delivered
as follows: |
| Number of Shares |
Scheduled Delivery Date | |
| 11,762,697 |
July 19, 2002 | |
| 17,494,371 |
January 19, 2003 | |
| 8,374,688 |
July 19, 2003 | |
| 19,433,929 |
July 19, 2004 | |
| 1,893,227 |
July 19, 2005 | |
| 1,893,186 |
July 19, 2006 | |
| 1,893,227 |
July 19, 2007 | |
| 1,893,382 |
July 19, 2008 | |
| 4,765,654 |
July 19, 2009 |
We intend to accelerate the delivery of 10,092,801 of the 11,762,697 Class A
common shares originally scheduled to be delivered on July 19, 2002 to immediately prior to the offering to allow partners holding these restricted share units to participate in the offering as selling shareholders. In addition, 4,999,928 Class A
common shares underlying restricted share units granted since our initial public offering generally are scheduled to be delivered over a period of eight years, beginning on July 19, 2002 and 19,350 Class A common shares underlying restricted share
units granted to certain directors generally are scheduled to be delivered 12 months after the grant date.
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24,405,415 of these Class A common shares underlie restricted share units granted to current
partners, and we expect that, when delivered, these Class A common shares will be subject to contractual restrictions on transfer. See “Certain Relationships and Related Transactions—Share Management Plan.”
• |
In addition, 89,233,584 Class A common shares are issuable pursuant to options granted in connection with our initial public offering, of which 14,275,000 generally will become
exercisable in five equal annual installments beginning on July 19, 2002, 74,658,584 generally will become exercisable in four equal annual installments beginning on July 19, 2002 and 300,000 generally will become exercisable on January 19, 2005. In
addition, 1,125,000 Class A common shares are issuable pursuant to options granted since our initial public offering. These options generally will become exercisable in five equal annual installments beginning on the first anniversary of their grant
dates. |
15,575,000 of these Class A common shares are issuable pursuant to options which have been granted to
current partners, and we expect that, when delivered, these Class A common shares will be subject to contractual restrictions on transfer. See “Certain Relationships and Related Transactions—Share Management Plan.”
See “Shares Eligible for Future Sale” for a discussion of the Class A common shares that may be sold in the public market in the
future.
We may need additional capital in the future, which may not be available to us. The raising of additional capital may dilute your
ownership in us.
We may need to raise additional funds through public or private debt or equity financings 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. |
Any additional capital raised through the sale of equity may dilute your ownership percentage in us. Furthermore, any additional financing we may need may not be available on terms favorable to us, or at all.
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.
We are organized under
the laws of Bermuda, and a significant portion of our assets are located outside the United States. It may not be possible to enforce court judgments obtained in the United States against us in Bermuda or in countries, other than the United States,
where we have assets based on the civil liability provisions of the federal or state securities laws of the United States. In addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments
of United States courts obtained against us or our directors or officers based on the civil liabilities provisions of the federal or state securities laws of the United States or would hear actions against us or those persons based on those laws. We
have been advised by our legal advisors in Bermuda that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment
for the payment of money rendered by any federal or state court in the United States based on civil liability,
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whether or not based solely on United States federal or state securities laws, would not automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in countries,
other than the United States, where we have assets.
Bermuda law differs from the laws in effect in the United States and may afford less
protection to shareholders.
Our shareholders may have more difficulty protecting their interests than would
shareholders of a corporation incorporated in a jurisdiction of the United States. As a Bermuda company, we are governed by the Companies Act 1981 of Bermuda. The Companies Act differs in some material respects from laws generally applicable to
United States corporations and shareholders, including the provisions relating to interested directors, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. See “Description of Share Capital.”
Under Bermuda law, the duties of directors and officers of a company are generally owed to the company only. Shareholders of
Bermuda companies do not generally have rights to take action against directors or officers of the company, and may only do so in limited circumstances. Officers of a Bermuda company must, in exercising their powers and performing their duties, act
honestly and in good faith with a view to the best interests of the company and must exercise the care and skill that a reasonably prudent person would exercise in comparable circumstances. Directors have a duty not to put themselves in a position
in which their duties to the company and their personal interests may conflict and also are under a duty to disclose any personal interest in any contract or arrangement with the company or any of its subsidiaries. If a director or officer of a
Bermuda company is found to have breached his duties to that company, he may be held personally liable to the company in respect of that breach of duty. A director may be liable jointly and severally with other directors if it is shown that the
director knowingly engaged in fraud or dishonesty. In cases not involving fraud or dishonesty, the liability of the director will be determined by the Bermuda courts on the basis of their estimation of the percentage of responsibility of the
director for the matter in question, in light of the nature of the conduct of the director and the extent of the causal relationship between his conduct and the loss suffered.
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This prospectus contains 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,
uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or
forecast in these forward-looking statements. The reasons for this include changes in general economic and political conditions, including fluctuations in exchange rates, and the factors discussed under the section entitled “Risk Factors.”
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Accenture Ltd is a Bermuda holding company with no material assets
other than Class I and Class II common shares in our subsidiary, Accenture SCA, a Luxembourg partnership limited by shares. Accenture Ltd’s only business is to hold these shares and to act as the sole general partner of Accenture SCA. As the
general partner of Accenture SCA and as a result of Accenture Ltd’s majority voting interest in Accenture SCA, Accenture Ltd controls Accenture SCA’s management and operations and consolidates Accenture SCA’s results in its financial
statements. We operate our business through subsidiaries of Accenture SCA. Accenture SCA reimburses Accenture Ltd for its expenses but does not pay Accenture Ltd any fees.
Prior to our transition to a corporate structure in fiscal 2001, we operated as a series of related partnerships and corporations under the control of our partners. In connection with
our transition to a corporate structure, our partners generally exchanged all of their interests in these partnerships and corporations for Accenture Ltd Class A common shares or, in the case of partners in certain countries, Accenture SCA Class I
common shares or exchangeable shares issued by Accenture Canada Holdings Inc., an indirect subsidiary of Accenture SCA. Generally, partners who received Accenture SCA Class I common shares or Accenture Canada Holdings exchangeable shares also
received a corresponding number of Accenture Ltd Class X common shares which entitle their holders to vote at Accenture Ltd shareholders’ meetings but do not carry any economic rights.
Immediately after the offering and the transactions related to the offering, our partners will own approximately 73% of the equity in our business, or approximately 72% if the
underwriters exercise their overallotment options in full, and will own or control shares representing, in the aggregate, approximately 73% of the voting interest in Accenture Ltd, or approximately 72% if the underwriters exercise their
overallotment options in full.
You should read “Certain Relationships and Related Transactions” and “Description
of Share Capital” for additional information about our corporate structure.
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Our organizational structure is as shown in the diagram below. The percentage interests give
effect to the offering and the transactions related to the offering. The diagram does not display the subsidiaries of Accenture SCA and does not reflect exercise of the underwriters’ overallotment options.
(1) |
Includes non-partner employees and former partners. |
(2) |
Generally consists of our partners in countries other than Australia, Canada, Denmark, France, Italy, New Zealand, Norway, Spain, Sweden and the United States.
|
(3) |
Generally consists of our partners or former partners in Australia, Canada, Denmark, France, Italy, New Zealand, Norway, Spain, Sweden and the United States; certain of these
Accenture partners did not receive Accenture Ltd Class X common shares and two Dutch foundations, Stichting Naritaweg I and Stichting Naritaweg II, hold these shares. Accenture partners in Canada and New Zealand do not hold Accenture Ltd Class A
common shares or Accenture SCA Class I common shares, but instead hold Accenture Canada Holdings exchangeable shares. Each of these exchangeable shares is exchangeable at the option of the holder for an Accenture Ltd Class A common share on a
one-for-one basis and entitles its holder to receive distributions equal to any distributions to which an Accenture Ltd Class A common share entitles its holder. |
Each Class A common share and each Class X common share of Accenture Ltd entitles its holder to one vote on all matters submitted to a vote of shareholders of Accenture Ltd. The holder
of a Class X common share is not, however, entitled to receive dividends or to receive payments upon a liquidation of Accenture Ltd.
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Each Class I common share and each Class II common share of Accenture SCA entitles its holder
to one vote on all matters submitted to a vote of shareholders of Accenture SCA. Each Accenture SCA Class II common share entitles Accenture Ltd to receive a dividend or liquidation payment equal to 10% of any dividend or liquidation payment to
which an Accenture SCA Class I common share entitles its holder. Accenture Ltd holds all of the Class II common shares of Accenture SCA. In the opinion of our counsel, under Accenture SCA’s articles of association, shares in Accenture SCA held
by Accenture Ltd are actions de commandité, or general partnership interests, and shares in Accenture SCA held by our partners are actions de commanditaires, or limited partnership interests. Accenture Ltd, as general
partner of Accenture SCA, has unlimited liability for the liabilities 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 any time 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 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. In addition, each of our partners in the United States, Australia
and Norway has agreed that we may cause that partner to exchange that partner’s Accenture SCA Class I common shares for Accenture Ltd Class A common shares on a one-for-one basis if Accenture Ltd holds more than 40% of the issued share capital
of Accenture SCA and we receive a satisfactory opinion from counsel or a professional tax advisor that such exchange should be without tax cost to that partner. 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 redemption
price and exchange ratio would require adjustment. In order to maintain Accenture Ltd’s economic interest in Accenture SCA, Accenture Ltd will acquire additional Accenture SCA common shares each time it issues additional Accenture Ltd Class A
common shares.
Holders of Accenture Canada Holdings exchangeable shares may exchange their shares for Accenture Ltd Class A
common shares at any time on a one-for-one basis. Accenture 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 entitles its holder to receive distributions equal to any distributions to which an Accenture Ltd Class A common share entitles its holder.
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, or $0.0000225 per 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 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 Accenture Canada Holdings 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 exchangeable shares outstanding.
To obtain the Accenture Ltd Class A common shares that they will sell in the offering, certain selling shareholders will redeem or exchange Accenture
SCA Class I common shares or Accenture Canada Holdings exchangeable shares for Accenture Ltd Class A common shares on a one-for-one basis immediately prior to the offering. Accenture Ltd will redeem a corresponding number of Accenture Ltd Class X
common shares at that time.
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The net proceeds to Accenture Ltd from the offering, based on a price of
$ per share (the last reported sale price of the Class A common shares on the New York Stock Exchange on
, 2002), after deducting estimated underwriting discounts and offering expenses payable by us, will be approximately
$ million, or $ million if the underwriters fully exercise the overallotment options we have granted to them.
For local tax reasons in certain jurisdictions outside the United States, we intend to use the net proceeds from Accenture Ltd’s sale of 10,185,884
Class A common shares in the offering to acquire or redeem an aggregate of 10,185,884 Class A common shares, Accenture SCA Class I common shares and Accenture Canada Holdings exchangeable shares from some of our partners and former partners in these
jurisdictions at a price equal to the initial price to public less the underwriting discount. We intend to use any proceeds from an exercise of the underwriters’ overallotment options to fund the share employee compensation trust.
The partners and former partners that are selling shareholders in the offering or from whom we intend to acquire or redeem shares as
described above have each agreed to pay to us an amount equal to 3% of the gross proceeds from the disposition of their shares, less the amount of any underwriting discount. We will apply these amounts to cover the expenses of the offering, with the
excess being applied to fund the share employee compensation trust.
Pending specific application of the net proceeds, we intend
to invest them in short-term marketable securities.
We currently do not anticipate that Accenture Ltd or Accenture SCA will pay
dividends.
We may from time to time enter into financing agreements that contain financial covenants and restrictions, some of
which may limit the ability of Accenture Ltd and Accenture SCA to pay dividends.
Future dividends on the Class A common shares
of Accenture Ltd, if any, will be at the discretion of its board of directors and will depend on, among other things, our results of operations, cash requirements and surplus, financial condition, contractual restrictions and other factors that the
board of directors may deem relevant.
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Trading in the Accenture Ltd Class A common shares commenced
on the New York Stock Exchange on July 19, 2001 under the symbol “ACN.” The table below sets forth, on a per share basis for the periods indicated, the high and low sale prices for the Class A common shares as reported by the New York
Stock Exchange.
| Price Range | ||||||
| High |
Low | |||||
| Calendar Year 2001 |
||||||
| Third Quarter (commencing July 19, 2001) |
$ |
15.65 |
$ |
11.61 | ||
| Fourth Quarter |
$ |
28.00 |
$ |
12.12 | ||
| Calendar Year 2002 |
||||||
| First Quarter (through March 15, 2002) |
$ |
30.50 |
$ |
23.13 | ||
The closing sale price of Class A common shares as reported by the New York Stock
Exchange on March 15, 2002 was $28.99. As of February 28, 2002, there were 838 holders of record of the Class A common shares.
There is no trading market for the Accenture Ltd Class X common shares. As of February 28, 2002, there were 1,742 holders of record of the Class X common shares.
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The following table sets forth our consolidated capitalization as of November 30,
2001:
• |
on a historical basis; and |
• |
as adjusted to reflect the offering and the transactions related to the offering. |
This table should be read in conjunction with our historical financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” appearing elsewhere in this prospectus.
| As of November 30, 2001 | |||||||
| Historical |
As adjusted | ||||||
| (in millions) | |||||||
| Cash and cash equivalents |
$ |
1,130 |
|
$ |
| ||
| |
|
|
|
| |||
| Short-term bank borrowings |
$ |
217 |
|
$ |
| ||
| Current portion of long-term debt |
|
1 |
|
||||
| Long-term debt |
|
4 |
|
||||
| Minority interest |
|
526 |
|
||||
| Shareholders’ equity: |
|||||||
| Preferred shares, 2,000,000,000 shares authorized; 0 shares issued and outstanding, actual and as adjusted |
|
— |
|
||||
| Class A common shares, par value $0.0000225 per share, 20,000,000,000 shares authorized; 343,308,444 shares issued, actual;
shares issued, as adjusted |
|
— |
|
||||
| Class X common shares, par value $0.0000225 per share, 1,000,000,000 shares authorized; 591,161,472 shares issued and outstanding,
actual; shares issued and outstanding, as adjusted |
|
— |
|
||||
| Restricted share units (related to Class A common shares), 68,273,504 units issued and outstanding, actual;
units issued and outstanding, as adjusted |
|
989 |
|
||||
| Additional paid-in capital |
|
833 |
|
||||
| Treasury shares, at cost, 1,622,400 shares, actual;
shares, as adjusted |
|
(21 |
) |
||||
| Retained deficit |
|
(1,354 |
) |
||||
| Accumulated other comprehensive loss |
|
(94 |
) |
||||
| |
|
|
|
| |||
| Total shareholders’ equity |
|
353 |
|
||||
| |
|
|
|
| |||
| Total capitalization |
$ |
1,101 |
|
$ |
| ||
| |
|
|
|
| |||
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The following selected financial data have been presented on a historical
cost basis for all periods presented. The data as of August 31, 2000 and 2001 and for the years ended August 31, 1999, 2000 and 2001 are derived from the audited historical financial statements and related notes which are included elsewhere in this
prospectus. The data as of November 30, 2001 and for the three months ended November 30, 2000 and 2001 are derived from the historical unaudited financial statements and related notes which are included elsewhere in this prospectus. The data as of
August 31, 1999 and for the year ended August 31, 1998 are derived from audited historical financial statements and related notes which are not included in this prospectus. The data as of August 31, 1997 and 1998 and for the year ended August 31,
1997 are derived from unaudited historical financial statements and related notes which are not included in this prospectus. The selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our historical financial statements and related notes included elsewhere in this prospectus.
| Year ended August 31, |
Three months ended November 30, |
|||||||||||||||||||||||||||
| 1997 |
1998 |
1999 |
2000 |
2001 |
2000 |
2001 |
||||||||||||||||||||||
| (in millions) |
||||||||||||||||||||||||||||
| Income Statement Data: |
||||||||||||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||||||
| Revenues before reimbursements |
$ |
6,275 |
|
$ |
8,215 |
|
$ |
9,550 |
|
$ |
9,752 |
|
$ |
11,444 |
|
$ |
2,831 |
|
$ |
2,989 |
| |||||||
| Reimbursements |
|
1,172 |
|
|
1,425 |
|
|
1,529 |
|
|
1,788 |
|
|
1,904 |
|
|
407 |
|
|
420 |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Revenues |
|
7,447 |
|
|
9,640 |
|
|
11,079 |
|
|
11,540 |
|
|
13,348 |
|
|
3,238 |
|
|
3,409 |
| |||||||
| Operating expenses:* |
||||||||||||||||||||||||||||
| Cost of services:* |
||||||||||||||||||||||||||||
| Cost of services before Reimbursable expenses* |
|
3,470 |
|
|
4,700 |
|
|
5,457 |
|
|
5,486 |
|
|
6,200 |
|
|
1,384 |
|
|
1,806 |
| |||||||
| Reimbursable expenses |
|
1,172 |
|
|
1,425 |
|
|
1,529 |
|
|
1,788 |
|
|
1,904 |
|
|
407 |
|
|
420 |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Cost of services* |
|
4,642 |
|
|
6,125 |
|
|
6,986 |
|
|
7,274 |
|
|
8,104 |
|
|
1,791 |
|
|
2,226 |
| |||||||
| Sales and marketing* |
|
611 |
|
|
696 |
|
|
790 |
|
|
883 |
|
|
1,217 |
|
|
202 |
|
|
361 |
| |||||||
| General and administrative costs* |
|
819 |
|
|
1,036 |
|
|
1,271 |
|
|
1,297 |
|
|
1,516 |
|
|
376 |
|
|
408 |
| |||||||
| Reorganization and rebranding costs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
848 |
|
|
30 |
|
|
— |
| |||||||
| Restricted share unit-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
967 |
|
|
— |
|
|
— |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Total operating expenses* |
|
6,072 |
|
|
7,857 |
|
|
9,047 |
|
|
9,454 |
|
|
12,652 |
|
|
2,399 |
|
|
2,995 |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Operating income* |
|
1,375 |
|
|
1,783 |
|
|
2,032 |
|
|
2,086 |
|
|
696 |
|
|
839 |
|
|
414 |
| |||||||
| Gain (loss) on investments, net |
|
— |
|
|
— |
|
|
92 |
|
|
573 |
|
|
107 |
|
|
219 |
|
|
(95 |
) | |||||||
| Interest income |
|
— |
|
|
— |
|
|
60 |
|
|
67 |
|
|
80 |
|
|
23 |
|
|
15 |
| |||||||
| Interest expense |
|
(19 |
) |
|
(17 |
) |
|
(27 |
) |
|
(24 |
) |
|
(44 |
) |
|
(5 |
) |
|
(9 |
) | |||||||
| Other income (expense) |
|
4 |
|
|
(6 |
) |
|
(5 |
) |
|
51 |
|
|
17 |
|
|
7 |
|
|
(8 |
) | |||||||
| Equity in gains (losses) of affiliates |
|
— |
|
|
(1 |
) |
|
(6 |
) |
|
(46 |
) |
|
(61 |
) |
|
(20 |
) |
|
6 |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Income before taxes* |
|
1,360 |
|
|
1,759 |
|
|
2,146 |
|
|
2,707 |
|
|
795 |
|
|
1,063 |
|
|
323 |
| |||||||
| Provision for taxes (1) |
|
118 |
|
|
74 |
|
|
123 |
|
|
243 |
|
|
503 |
|
|
53 |
|
|
123 |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Income before minority interest and accounting change* |
|
1,242 |
|
|
1,685 |
|
|
2,023 |
|
|
2,464 |
|
|
292 |
|
|
1,010 |
|
|
200 |
| |||||||
| Minority interest |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
577 |
|
|
— |
|
|
(118 |
) | |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Income before accounting change* |
|
1,242 |
|
|
1,685 |
|
|
2,023 |
|
|
2,464 |
|
|
869 |
|
|
1,010 |
|
|
82 |
| |||||||
| Cumulative effect of change in accounting |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
188 |
|
|
188 |
|
|
— |
| |||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Partnership income before partner distributions* (2) |
$ |
1,242 |
|
$ |
1,685 |
|
$ |
2,023 |
|
$ |
2,464 |
|
$ |
1,198 |
|
|||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
| Net income* |
$ |
1,057 |
|
$ |
82 |
| ||||||||||||||||||||||
| |
|
|
|
|
| |||||||||||||||||||||||
* |
Excludes payments for partner distributions in respect of 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. |
(2) |
Partnership income before partner distributions is not comparable to net income of a corporation similarly determined. Partnership income in respect of periods ended on or
prior to May 31, 2001 is not executive compensation in the customary sense 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 our historical financial statements for periods prior to May 31, 2001. |
30
Table of Contents
| Year ended August 31, |
Three months ended November 30, | ||||||||||||||
| 1997 |
1998 |
1999 |
2000 |
2001 |
2000 |
2001 | |||||||||
| Earnings Per Share Data: |
|||||||||||||||
| Earnings per share: |
|||||||||||||||
| —basic |
$ |
0.20 | |||||||||||||
| |
| ||||||||||||||
| —diluted |
$ |
0.20 | |||||||||||||
| |
| ||||||||||||||
| Weighted average shares: |
|||||||||||||||
| —basic |
|
410,488,771 | |||||||||||||
| |
| ||||||||||||||
| —diluted |
|
1,014,448,500 | |||||||||||||
| |
| ||||||||||||||
| As of August 31, |
As of November 30, | |||||||||||||||||
| 1997 |
1998 |
1999 |
2000 |
2001 |
2001 | |||||||||||||
| (in millions) | ||||||||||||||||||
| Balance Sheet Data: |
||||||||||||||||||
| Cash and cash equivalents |
$ |
325 |
$ |
736 |
$ |
1,111 |
$ |
1,271 |
$ |
1,880 |
$ |
1,130 | ||||||
| Working capital |
|
175 |
|
531 |
|
913 |
|
1,015 |
|
401 |
|
713 | ||||||
| Total assets |
|
2,550 |
|
3,704 |
|
4,615 |
|
5,451 |
|
6,061 |
|
5,423 | ||||||
| Long-term debt |
|
192 |
|
157 |
|
127 |
|
99 |
|
1 |
|
4 | ||||||
| Total partners’ capital |
|
761 |
|
1,507 |
|
2,208 |
|
2,368 |
|
— |
|
— | ||||||
| Shareholders’ equity |
|
— |
|
— |
|
— |
|
— |
|
282 |
|
353 | ||||||
31
Table of Contents
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-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.
32
Table of Contents
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.
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.
33
Table of Contents
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.
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.
34
Table of Contents
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).
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.
35
Table of Contents
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 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.
36
Table of Contents
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 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.
37
Table of Contents
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.
| Year ended August 31, |
Three months ended 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. |
38
Table of Contents
We provide services through five operating groups. The following table provides unaudited
financial information for each of these operating groups.
| Year ended August 31, |
Three months ended 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
39
Table of Contents
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.
40
Table of Contents
Pro Forma Consolidated Income Statement For the Year Ended August 31, 2001
(Unaudited)
| As reported |
Adjustments |
Pro forma |
As adjusted adjustments |
Pro forma as adjusted |
% of 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. |
41
Table of Contents
Pro Forma Consolidated Income Statement for the Three Months Ended November 30, 2000
(Unaudited)
| As reported |
Adjustments |
Pro forma |
As adjusted adjustments |
Pro forma as adjusted |
% of 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. |
42
Table of Contents
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. |
43
Table of Contents
(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 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
44
Table of Contents
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%.
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
45
Table of Contents
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.
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
46
Table of Contents
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.
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.
47
Table of Contents
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.
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
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Table of Contents
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.
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.
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Table of Contents
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% 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.
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Table of Contents
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. 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
51
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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 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.
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Table of Contents
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.
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.
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Table of Contents
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, 1999 |
February 29, 2000 |
May 31, 2000 |
August 31, 2000 |
November 30, 2000 |
February 28, 2001 |
May 31, 2001 |
August 31, 2001 |
November 30, 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 |
|
$ |
2,778 |
|
$ |
2,989 |
| |||||||||
| Reimbursements |
|
364 |
|
|
436 |
|
|
501 |
|
|
487 |
|
|
407 |
|
|
502 |
|
|
566 |
|
|
429 |
|
|
420 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Revenues |
|
2,776 |
|
|
2,708 |
|
|
3,062 |
|
|
2,994 |
|
|
3,238 |
|
|
3,384 |
|
|
3,519 |
|
|
3,207 |
|
|
3,409 |
| |||||||||
| 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 |
|
|
1,690 |
|
|
1,806 |
| |||||||||
| Reimbursable expenses |
|
364 |
|
|
436 |
|
|
501 |
|
|
487 |
|
|
407 |
|
|
502 |
|
|
566 |
|
|
429 |
|
|
420 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Cost of services* |
|
1,720 |
|
|
1,740 |
|
|
1,841 |
|
|
1,974 |
|
|
1,791 |
|
|
2,062 |
|
|
2,132 |
|
|
2,119 |
|
|
2,226 |
| |||||||||
| Sales and marketing* |
|
199 |
|
|
222 |
|
|
230 |
|
|
232 |
|
|
202 |
|
|
251 |
|
|
318 |
|
|
446 |
|
|
361 |
| |||||||||
| General and administrative costs* |
|
318 |
|
|
322 |
|
|
296 |
|
|
360 |
|
|
376 |
|
|
389 |
|
|
365 |
|
|
386 |
|
|
408 |
| |||||||||
| Reorganization and rebranding costs* |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
30 |
|
|
159 |
|
|
588 |
|
|
71 |
|
|
— |
| |||||||||
| Restricted share unit-based compensation |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
967 |
|
|
— |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Total operating expenses* |
|
2,237 |
|
|
2,284 |
|
|
2,367 |
|
|
2,566 |
|
|
2,399 |
|
|
2,861 |
|
|
3,403 |
|
|
3,989 |
|
|
2,995 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Operating income (loss)* |
|
539 |
|
|
424 |
|
|
695 |
|
|
428 |
|
|
839 |
|
|
523 |
|
|
116 |
|
|
(782 |
) |
|
414 |
| |||||||||
| Gain (loss) on investments, net |
|
68 |
|
|
200 |
|
|
266 |
|
|
39 |
|
|
219 |
|
|
(30 |
) |
|
(9 |
) |
|
(73 |
) |
|
(95 |
) | |||||||||
| Interest income |
|
14 |
|
|
13 |
|
|
18 |
|
|
22 |
|
|
23 |
|
|
20 |
|
|
17 |
|
|
20 |
|
|
15 |
| |||||||||
| Interest expense |
|
(7 |
) |
|
(5 |
) |
|
(6 |
) |
|
(6 |
) |
|
(5 |
) |
|
(6 |
) |
|
(16 |
) |
|
(17 |
) |
|
(9 |
) | |||||||||
| Other income (expense) |
|
6 |
|
|
14 |
|
|
12 |
|
|
19 |
|
|
7 |
|
|
17 |
|
|
(3 |
) |
|
(4 |
) |
|
(8 |
) | |||||||||
| Equity in gains (losses) of affiliates |
|
(4 |
) |
|
(3 |
) |
|
(2 |
) |
|
(37 |
) |
|
(20 |
) |
|
(21 |
) |
|
(11 |
) |
|
(9 |
) |
|
6 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Income (loss) before taxes* |
|
616 |
|
|
643 |
|
|
983 |
|
|
465 |
|
|
1,063 |
|
|
503 |
|
|
94 |
|
|
(865 |
) |
|
323 |
| |||||||||
| Provision for taxes |
|
42 |
|
|
71 |
|
|
81 |
|
|
49 |
|
|
53 |
|
|
83 |
|
|
285 |
|
|
82 |
|
|
123 |
| |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Income (loss) before minority interest and accounting change |
|
574 |
|
|
572 |
|
|
902 |
|
|
416 |
|
|
1,010 |
|
|
420 |
|
|
(191 |
) |
|
(947 |
) |
|
200 |
</ | |||||||||