Revenues Increase 15%, to $3.81 Billion; EPS $0.35
NEW YORK; April 7, 2005 – Accenture (NYSE: ACN) today reported financial results for the second quarter of fiscal 2005, ended Feb. 28, 2005, with record net revenues of $3.81 billion and EPS of $0.35, a 59 percent increase over the same quarter last year.
Net revenues grew 15 percent overall, with consulting increasing 14 percent and outsourcing increasing 18 percent. The company achieved net revenue growth across all three of its geographic regions and all five of its operating groups, with exceptional top-line contributions from its Financial Services and Products operating groups.
Financial Highlights
William D. Green, Accenture’s CEO, said, “We had strong top- and bottom-line performance this quarter, with double-digit growth in both EPS and revenues, including 14 percent growth in consulting revenues and 18 percent growth in outsourcing revenues. We had solid quarterly new bookings of $4.88 billion, bringing new bookings for the first half of the year to $8.91 billion. In addition, we made great progress on the operational challenges that we identified in the first quarter, including our free cash flow, client balances and attrition.
“We remain focused on making further operational improvements and are confident in our ability to achieve our financial objectives for the fiscal year while continuing to deliver results for our clients.”
Financial Review
Gross margin (revenues less cost of services, as a percentage of net revenues) was 30.8 percent, compared with 33.0 percent for the second quarter of fiscal 2004.
Selling, general and administrative costs were $738 million, or 19.4 percent of net revenues, compared with $675 million, or 20.4 percent of net revenues, for the second quarter last year.
Accenture recorded net reorganization benefits of $36 million in the second quarter of fiscal 2005. In the second quarter last fiscal year, the company incurred a $107 million restructuring charge as a result of a global real estate consolidation.
Operating income was $472 million, or 12.4 percent of net revenues, for the second quarter of fiscal 2005, compared with $307 million, or 9.3 percent of net revenues, for the second quarter last year. Excluding reorganization benefits and restructuring costs, operating income for the second quarter of fiscal 2005 was $436 million, or 11.4 percent of net revenues, compared with $415 million, or 12.6 percent of net revenues, for the second quarter of fiscal 2004.
The decrease in operating margin was due primarily to three factors: (1) temporary delays in deploying systems under the company’s contracts with a large client; (2) incurred and expected cost-overruns associated with developing reusable assets, in connection with certain client engagements, that will be used to create offerings to support multiple clients; and, to a lesser extent, (3) delivery inefficiencies, including staffing issues that the company identified in the first quarter of fiscal 2005. The company did not accrue variable compensation expense in the second quarter, which partially offset this decline in operating margin.
The company’s effective tax rate for the second quarter of fiscal 2005 was 30.6 percent, compared with 34.8 percent for the same period last year. The 30.6 percent effective tax rate includes the effect of the reduction in the year-to-date tax rate from 34.0 percent to 32.3 percent as a result of changes in the company’s forecasted mix of geographic income and the reduction in reorganization liabilities.
Income before minority interest was $341 million, compared with $220 million for the same period last year.
Accenture’s total cash balance at Feb. 28, 2005 was $3.06 billion, compared with $2.55 billion at Aug. 31, 2004 and $2.27 billion at Nov. 30, 2004. Cash combined with $702 million of fixed-income securities classified as investments on the company’s balance sheet was $3.76 billion at Feb. 28, 2005, compared with $3.15 billion at Aug. 31, 2004 and $3.21 billion at Nov. 30, 2004. For the three months ended Feb. 28, 2005, operating cash flow was $787 million and property and equipment additions were $61 million. Free cash flow, defined as operating cash flow net of property and equipment additions, was $726 million. Total debt at Feb. 28, 2005 was $82 million.
For the six months ended Feb. 28, 2005, operating cash flow was $726 million and property and equipment additions were $116 million. Free cash flow, defined as operating cash flow net of property and equipment additions, was $610 million. For the six months ended Feb. 29, 2004, operating cash flow was $993 million, property and equipment additions were $101 million and free cash flow was $892 million.
Consulting and Outsourcing Net Revenues
Net Revenues by Operating Group
Net revenues for Accenture’s five operating groups were as follows:
Net Revenues by Geographic Region
Net revenues by geographic region were as follows:
Share Repurchase Activity
During the second quarter of fiscal 2005 Accenture repurchased $207 million of its shares, as planned. This included $121 million for purchases of 4.7 million Accenture Ltd Class A common shares and $86 million for 3.5 million Accenture SCA Class I common shares repurchased from partners, retired partners and their permitted transferees. At Feb. 28, 2005, Accenture had $3.05 billion of share repurchase authority remaining, of which $913 million remained for use in connection with the company’s open-market share purchase program. The balance was available for redemptions and purchases from Accenture’s partners, former partners, their permitted transferees and employees.
On March 7, 2005, Accenture closed a tender offer initiated during the second quarter of the fiscal year and purchased 18.7 million Accenture SCA Class I common shares for $501 million. In addition, Accenture expects to purchase or redeem between $600 million and $1.1 billion worth of its shares during the remainder of fiscal year 2005, through both open-market share purchases and its ongoing Share Management Plan transactions.
Business Outlook
Third Quarter Fiscal 2005
For the third quarter of fiscal 2005, Accenture expects net revenues to be in the range of $4.0 billion to $4.2 billion and GAAP diluted earnings per share to be in the range of $0.48 to $0.50. GAAP diluted earnings per share for the third quarter will include a benefit of $0.06 per share from a $69 million reduction in reorganization liabilities that were established in connection with Accenture’s transition to corporate structure in 2001. This reduction was recognized in March 2005.
Full Fiscal Year 2005
For the full fiscal year 2005, Accenture continues to expect net revenue growth to be in the range of 13 percent to 16 percent in U.S. dollars and 9 percent to 12 percent in local currency. The company has revised its guidance for GAAP diluted earnings per share upward to the range of $1.49 to $1.53. For the full fiscal year, reductions in reorganization liabilities are expected to contribute $0.11 per share to diluted earnings per share.
Also for the full fiscal year 2005, Accenture continues to expect operating cash flow to be $1.85 billion to $2.05 billion; property and equipment additions to be $400 million; and free cash flow to be in the range of $1.45 billion to $1.65 billion, although the company currently expects to be at the low end of this range. The company now expects the annual effective tax rate to be in the range of 31 percent to 33 percent. The company reiterated that it is targeting new bookings for fiscal year 2005 in the range of $18 billion to $20 billion.
Conference Call and Webcast Details
Accenture will host a conference call at 4:30 p.m. EDT today to discuss its second-quarter 2005 financial results. To participate, please dial +1 (888) 276-9998 [+1 (612) 332-0335 outside the United States, Puerto Rico and Canada] approximately 15 minutes before the scheduled start of the call. The conference call will also be accessible live on the Investor Relations section of the Accenture Web site at www.accenture.com.
A replay of the conference call will be available online at www.accenture.com and via telephone by dialing +1 (800) 475-6701 [+1 (320) 365-3844 outside the United States, Puerto Rico and Canada] and entering access code 775402 from 9:45 p.m. EDT Thursday, April 7 through 11:59 p.m. EDT Thursday, April 21.
About Accenture
Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With more than 110,000 people in 48 countries, the company generated net revenues of US$13.67 billion for the fiscal year ended Aug. 31, 2004. Its home page is www.accenture.com.
Forward-Looking Statements
This news release contains forward-looking statements relating to our operations and results of operations, the accuracy of which is necessarily subject to risks and uncertainties. Factors that could cause actual results to differ materially from those expressed or implied include general economic conditions and the factors discussed under the "Risk Factors" heading in the Business section of our most recent annual report on Form 10-K filed with the Securities and Exchange Commission. Accenture undertakes no duty to update any forward-looking statements made in this news release or to conform such statements to actual results or changes in Accenture’s expectations.
Non-GAAP Financial Information
This press release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to Accenture’s financial statements as prepared under generally accepted accounting principles (GAAP) are included in this press release. Accenture discloses free cash flow (defined as operating cash flow net of property and equipment additions) as well as operating income excluding reorganization benefits and costs and restructuring costs because Accenture’s management believes doing so provides investors with additional information regarding Accenture’s results of operations. While Accenture’s management believes that these non-GAAP financial measures are useful in evaluating Accenture’s operations, this information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
(1) Minority interest – other is comprised primarily of minority interest attributable to the minority shareholders of Avanade, Inc.
CONSOLIDATED INCOME STATEMENTS
For the Three Months Ended February 28, 2005 and February 29, 2004
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
2005
2004
% of Net Revenues
% of Net Revenues
REVENUES:
Revenues before reimbursements (Net revenues)
$ 3,813,522
100%
$ 3,302,209
100%
Reimbursements
402,862
11%
380,095
12%
Revenues
4,216,384
111%
3,682,304
112%
OPERATING EXPENSES:
Cost of services:
Cost of services before reimbursable expenses
2,638,950
69%
2,212,547
67%
Reimbursable expenses
402,862
11%
380,095
12%
Cost of services
3,041,812
80%
2,592,642
79%
Sales and marketing
376,919
10%
358,662
11%
General and administrative costs
361,478
9%
316,133
10%
Reorganization (benefits) and restructuring costs
(35,777)
(1%)
107,438
3%
Total operating expenses
3,744,432
98%
3,374,875
102%
OPERATING INCOME
471,952
12%
307,429
9%
Gain on investments, net
93
0%
3,332
0%
Interest income
28,063
1%
15,187
0%
Interest expense
(6,300)
0%
(5,816)
0%
Other income (expense)
(2,846)
0%
17,765
1%
Equity in losses of affiliates
-
0%
(516)
0%
INCOME BEFORE INCOME TAXES
490,962
13%
337,381
10%
Provision for income taxes
150,350
4%
117,408
5%
INCOME BEFORE MINORITY INTEREST
340,612
9%
219,973
7%
Minority interest – Accenture SCA and Accenture Canada Holdings Inc
(128,688)
(3%)
(96,987)
(3%)
Minority interest – other (1)
(2,138)
0%
103
0%
NET INCOME
$ 209,786
6%
$ 123,089
4%
CALCULATION OF EARNINGS PER SHARE:
Net income
$ 209,786
$ 123,089
Minority interest – Accenture SCA and Accenture Canada Holdings Inc. (2)
$ 128,688
$ 96,987
Net income for diluted earnings per share calculation
$ 338,474
$ 220,076
EARNINGS PER SHARE:
Basic
$ 0.35
$ 0.23
Diluted
$ 0.35
$ 0.22
WEIGHTED AVERAGE SHARES:
Basic
591,694,862
544,052,062
Diluted
979,750,161
998,003,396
(2) Diluted earnings per share assumes the redemption and exchange of all Accenture SCA Class I common shares and Accenture Canada Holdings Inc. exchangeable shares, respectively, for Accenture Ltd Class A common shares, on a one-for-one basis.
(1) Minority interest – other is comprised primarily of minority interest attributable to the minority shareholders of Avanade, Inc.
CONSOLIDATED INCOME STATEMENTS
For the Six Months Ended February 28, 2005 and February 29, 2004
(In thousands of U.S. dollars, except share and per share data)
(Unaudited)
2005
2004
% of Net Revenues
% of Net Revenues
REVENUES:
Revenues before reimbursements (Net revenues)
$ 7,543,877
100%
$ 6,563,794
100%
Reimbursements
743,879
10%
692,998
11%
Revenues
8,287,756
110%
7,256,792
111%
OPERATING EXPENSES:
Cost of services:
Cost of services before reimbursable expenses
5,154,389
68%
4,363,437
66%
Reimbursable expenses
743,879
10%
692,998
11%
Cost of services
5,898,268
78%
5,056,435
77%
Sales and marketing
735,862
10%
709,259
11%
General and administrative costs
752,293
10%
655,489
10%
Reorganization (benefits) and restructuring costs
(28,769)
0%
21,040
0%
Total operating expenses
7,357,654
98%
6,442,223
98%
OPERATING INCOME
930,102
12%
814,569
12%
Gain on investments, net
14,633
0%
3,830
0%
Interest income
48,184
1%
25,610
0%
Interest expense
(12,616)
0%
(11,567)
0%
Other income (expense)
(5,173)
0%
19,291
0%
Equity in losses of affiliates
-
0%
(1,202)
0%
INCOME BEFORE INCOME TAXES
975,130
13%
850,531
13%
Provision for income taxes
314,967
4%
295,984
5%
INCOME BEFORE MINORITY INTEREST
660,163
9%
554,547
8%
Minority interest – Accenture SCA and Accenture Canada Holdings Inc
(250,369)
(3%)
(257,145)
(4%)
Minority interest – other (1)
(3,735)
0%
27
0%
NET INCOME
$ 406,059
5%
$ 297,429
5%
CALCULATION OF EARNINGS PER SHARE:
Net income
$ 406,059
$ 297,429
Minority interest – Accenture SCA and Accenture Canada Holdings Inc. (2)
$ 250,369
$ 257,145
Net income for diluted earnings per share calculation
$ 656,428
$ 554,574
EARNINGS PER SHARE:
Basic
$ 0.69
$ 0.56
Diluted
$ 0.67
$ 0.55
WEIGHTED AVERAGE SHARES:
Basic
590,746,753
531,738,351
Diluted
979,880,579
1,009,403,593
(2) Diluted earnings per share assumes the redemption and exchange of all Accenture SCA Class I common shares and Accenture Canada Holdings Inc. exchangeable shares, respectively, for Accenture Ltd Class A common shares, on a one-for-one basis.
n/m = not meaningful
SUMMARY OF REVENUES
For the Three and Six Months Ended February 28, 2005 and February 29, 2004
(In thousands of U.S. dollars)
(Unaudited)
Three Months Ended
February 28, February 29,
2004 2003Percent Increase
US $Percent Increase/
(Decrease) Local
CurrencyPercent of Total
2005 Net
Revenues
OPERATING GROUPS
Communication & High Tech
$ 982,088
$ 930,812
6%
1%
26%
Financial Services
859,336
647,531
33%
25%
22%
Government
521,111
467,926
11%
7%
14%
Products
851,394
715,386
19%
14%
22%
Resources
596,493
538,268
11%
5%
16%
Other
3,100
2,286
n/m
n/m
0%
TOTAL Net Revenues
3,813,522
3,302,209
15%
10%
100%
Reimbursements
402,862
380,095
6%
-
-
TOTAL REVENUES
$ 4,216,384
$ 3,682,304
15%
-
-
GEOGRAPHY
Americas
$ 1,542,031
$ 1,501,120
3%
2%
41%
EMEA
1,996,181
1,575,653
27%
17%
52%
Asia Pacific
275,310
225,436
22%
15%
7%
TOTAL Net Revenues
3,813,522
3,302,209
15%
10%
100%
Reimbursements
402,862
380,095
6%
-
-
TOTAL REVENUES
$ 4,216,384
$ 3,682,304
15%
-
-
Six Months Ended
February 28, February 29,
2004 2003Percent Increase
US $Percent Increase/
(Decrease) Local
CurrencyPercent of Total
2005 Net
Revenues
OPERATING GROUPS
Communication & High Tech
$ 1,955,019
$ 1,809,822
8%
4%
26%
Financial Services
1,666,029
1,293,580
29%
21%
22%
Government
1,044,914
946,145
10%
6%
14%
Products
1,713,592
1,416,527
21%
15%
23%
Resources
1,160,885
1,092,895
6%
0%
15%
Other
3,438
4,825
n/m
n/m
0%
TOTAL Net Revenues
7,543,877
6,563,794
15%
9%
100%
Reimbursements
743,879
692,998
7%
-
-
TOTAL REVENUES
$ 8,287,756
$ 7,256,792
14%
-
-
GEOGRAPHY
Americas
$ 3,084,236
$ 2,992,689
3%
2%
41%
EMEA
3,914,367
3,125,783
25%
15%
52%
Asia Pacific
545,274
445,322
22%
17%
7%
TOTAL Net Revenues
7,543,877
6,563,794
15%
9%
100%
Reimbursements
743,879
692,998
7%
-
-
TOTAL REVENUES
$ 8,287,756
$ 7,256,792
14%
-
-
n/m = not meaningful
OPERATING INCOME BY OPERATING GROUP (OG)
For the Three Months Ended February 28, 2005 and February 29, 2004
(In thousands of U.S. dollars)
(Unaudited)
Operating Income as Reported
February 28, 2005
February 29, 2004
Operating Groups
Operating Income
Percent of OG Net Revenues
Operating Income
Percent of OG Net Revenues
Increase (Decrease)
US$
Percent
Communications & High Tech
$ 138,496
14%
$ 59,488
6%
$ 79,008
133%
Financial Services
127,053
15%
62,139
10%
64,914
104%
Government
13,343
3%
43,271
9%
(29,928)
(69%)
Products
97,991
12%
96,015
13%
1,976
2%
Resources
95,069
16%
46,783
9%
48,286
103%
Other
-
n/m
(267)
n/m
267
100%
Total Operating Income
$ 471,952
12%
$ 307,429
9%
$ 164,523
54%
Non-GAAP Operating Income
(Operating Income Excluding Reorganization Benefits and Costs and Restructuring Costs) (1)
February 28, 2005
February 29, 2004
Operating Groups
Non-GAAP Operating Income
Percent of OG Net Revenues
Non-GAAP Operating Income
Percent of OG Net Revenues
Increase (Decrease)
US$
Percent
Communications & High Tech
$ 129,598
13%
$ 86,486
9%
$ 43,112
50%
Financial Services
118,971
14%
85,758
13%
33,213
39%
Government
7,682
1%
59,072
13%
(51,390)
(87%)
Products
89,921
11%
119,546
17%
(29,625)
(25%)
Resources
90,003
15%
64,272
12%
25,731
40%
Other
-
n/m
(267)
n/m
267
100%
Total Operating Income
$ 436,175
11%
$ 414,867
13%
$ 21,308
5%
(1)
For the three months ended February 28, 2005, Accenture recorded net reorganization benefits of $35,777 primarily resulting from final determinations of certain reorganization liabilities established in connection with Accenture’s transition to a corporate structure in 2001, allocated to the operating groups in the following amounts: Communications & High Tech $8,898; Financial Services $8,082; Government $5,661; Products $8,070; and Resources $5,066. For the three months ended February 29, 2004, Accenture recorded restructuring costs of $107,256 relating to the Company’s global consolidation of office space and net reorganization costs of $182 related to certain reorganization liabilities established in connection with Accenture’s transition to a corporate structure in 2001, allocated to the operating groups in the following amounts: Communications & High Tech $26,998; Financial Services $23,619; Government $15,801; Products $23,531; and Resources $17,489. These amounts are excluded from the table.
n/m = not meaningful
OPERATING INCOME BY OPERATING GROUP (OG)
For the Six Months Ended February 28, 2005 and February 29, 2004
(In thousands of U.S. dollars)
(Unaudited)
Operating Income as Reported
February 28, 2005
February 29, 2004
Operating Groups
Operating Income
Percent of OG Net Revenues
Operating Income
Percent of OG Net Revenues
Increase (Decrease)
US$
Percent
Communications & High Tech
$ 287,825
15%
$ 134,520
7%
$ 153,305
114%
Financial Services
222,479
13%
165,819
13%
56,660
34%
Government
59,610
6%
137,174
14%
(77,564)
(57%)
Products
183,859
11%
229,852
16%
(45,993)
(20%)
Resources
176,329
15%
147,204
13%
29,125
20%
Other
-
n/m
-
n/m
-
n/m
Total Operating Income
$ 930,102
12%
$ 814,569
12%
$ 115,533
14%
Non-GAAP Operating Income
(Operating Income Excluding Reorganization Benefits and Costs and Restructuring Costs) (1)
February 28, 2005
February 29, 2004
Operating Groups
Non-GAAP Operating Income
Percent of OG Net Revenues
Non-GAAP Operating Income
Percent of OG Net Revenues
Increase (Decrease)
US$
Percent
Communications & High Tech
$ 280,669
14%
$ 139,808
8%
$ 140,861
101%
Financial Services
215,931
13%
170,487
13%
45,444
27%
Government
55,065
5%
140,266
15%
(85,201)
(61%)
Products
177,412
10%
234,449
17%
(57,037)
(24%)
Resources
172,256
15%
150,599
14%
21,657
14%
Other
-
n/m
-
n/m
-
n/m
Total Operating Income
$ 901,333
12%
$ 835,609
13%
$ 65,724
8%
(1)
For the three months ended February 28, 2005, Accenture recorded net reorganization benefits of $35,777 primarily resulting from final determinations of certain reorganization liabilities established in connection with Accenture’s transition to a corporate structure in 2001, allocated to the operating groups in the following amounts: Communications & High Tech $8,898; Financial Services $8,082; Government $5,661; Products $8,070; and Resources $5,066. For the three months ended February 29, 2004, Accenture recorded restructuring costs of $107,256 relating to the Company’s global consolidation of office space and net reorganization costs of $182 related to certain reorganization liabilities established in connection with Accenture’s transition to a corporate structure in 2001, allocated to the operating groups in the following amounts: Communications & High Tech $26,998; Financial Services $23,619; Government $15,801; Products $23,531; and Resources $17,489. These amounts are excluded from the table.
CONSOLIDATED BALANCE SHEETS
February 28, 2005 and August 31, 2004
(In thousands of U.S. dollars)
February 28, 2005
(Unaudited)August 31, 2004
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$ 3,060,203
$ 2,552,958
Short-term investments
406,456
285,288
Receivables from clients, net
1,816,354
1,662,211
Unbilled services
1,459,331
1,049,870
Other current assets
603,704
606,867
Total current assets
7,346,048
6,157,194
NON-CURRENT ASSETS:
Investments
321,823
340,121
Property and equipment, net
657,444
643,946
Other non-current assets
1,017,524
872,223
Total non-current assets
1,996,791
1,856,290
TOTAL ASSETS
$ 9,342,839
$ 8,013,484
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term debt
$ 45,605
$ 36,715
Accounts payable
734,995
523,931
Deferred revenues
1,321,505
980,461
Accrued payroll and related benefits
1,429,326
1,508,126
Other accrued liabilities
1,423,138
1,389,556
Total current liabilities
4,954,569
4,438,789
NON-CURRENT LIABILITIES:
Long-term debt
36,736
32,161
Other non-current liabilities
1,264,426
1,129,765
Total non-current liabilities
1,301,162
1,161,926
MINORITY INTEREST
1,200,007
940,963
EQUITY:
Shareholders’ equity
1,887,101
1,471,806
Total equity
1,887,101
1,471,806
TOTAL LIABILITIES AND EQUITY
$ 9,342,839
$ 8,013,484