10-Q 1 acn-20150228x10q.htm 10-Q ACN-2015.02.28-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED February 28, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM             TO   
Commission File Number: 001-34448
Accenture plc
(Exact name of registrant as specified in its charter)
 
Ireland
98-0627530
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1 Grand Canal Square,
Grand Canal Harbour,
Dublin 2, Ireland
(Address of principal executive offices)
(353) (1) 646-2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  þ
Accelerated filer ¨
Non-accelerated filer  ¨
Smaller reporting company  ¨
 
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
The number of shares of the registrant’s Class A ordinary shares, par value $0.0000225 per share, outstanding as of March 12, 2015 was 795,393,989 (which number includes 169,139,066 issued shares held by the registrant). The number of shares of the registrant’s Class X ordinary shares, par value $0.0000225 per share, outstanding as of March 12, 2015 was 26,851,979.



ACCENTURE PLC
INDEX
 
 
 
Page

2


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCENTURE PLC
CONSOLIDATED BALANCE SHEETS
February 28, 2015 and August 31, 2014
(In thousands of U.S. dollars, except share and per share amounts)
 
February 28,
2015
 
August 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
4,061,400

 
$
4,921,305

Short-term investments
2,619

 
2,602

Receivables from clients, net
3,688,052

 
3,859,567

Unbilled services, net
1,738,126

 
1,803,767

Deferred income taxes, net
749,227

 
731,820

Other current assets
768,384

 
585,381

Total current assets
11,007,808

 
11,904,442

NON-CURRENT ASSETS:
 
 
 
Unbilled services, net
23,628

 
28,039

Investments
50,130

 
66,783

Property and equipment, net
725,917

 
793,444

Goodwill
2,437,595

 
2,395,894

Deferred contract costs
609,587

 
629,905

Deferred income taxes, net
1,177,211

 
1,152,105

Other non-current assets
959,689

 
959,840

Total non-current assets
5,983,757

 
6,026,010

TOTAL ASSETS
$
16,991,565

 
$
17,930,452

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt and bank borrowings
$
191

 
$
330

Accounts payable
984,539

 
1,064,228

Deferred revenues
2,297,747

 
2,348,034

Accrued payroll and related benefits
2,959,795

 
3,380,748

Accrued consumption taxes
303,718

 
360,430

Income taxes payable
270,521

 
355,274

Deferred income taxes, net
216,365

 
23,937

Other accrued liabilities
461,110

 
625,098

Total current liabilities
7,493,986

 
8,158,079

NON-CURRENT LIABILITIES:
 
 
 
Long-term debt
27,033

 
26,403

Deferred revenues relating to contract costs
513,300

 
544,831

Retirement obligation
1,051,314

 
1,107,931

Deferred income taxes, net
178,382

 
198,734

Income taxes payable
901,771

 
1,303,367

Other non-current liabilities
276,136

 
305,770

Total non-current liabilities
2,947,936

 
3,487,036

COMMITMENTS AND CONTINGENCIES

 

SHAREHOLDERS’ EQUITY:
 
 
 
Ordinary shares, par value 1.00 euro per share, 40,000 shares authorized and issued as of February 28, 2015 and August 31, 2014
57

 
57

Class A ordinary shares, par value $0.0000225 per share, 20,000,000,000 shares authorized, 795,214,118 and 786,868,852 shares issued as of February 28, 2015 and August 31, 2014, respectively
18

 
18

Class X ordinary shares, par value $0.0000225 per share, 1,000,000,000 shares authorized, 26,851,979 and 28,057,398 shares issued and outstanding as of February 28, 2015 and August 31, 2014, respectively
1

 
1

Restricted share units
914,539

 
921,586

Additional paid-in capital
4,056,087

 
3,347,392

Treasury shares, at cost: Ordinary, 40,000 shares as of February 28, 2015 and August 31, 2014; Class A ordinary, 168,768,746 and 158,370,179 shares as of February 28, 2015 and August 31, 2014, respectively
(10,462,277
)
 
(9,423,202
)
Retained earnings
12,615,316

 
11,758,131

Accumulated other comprehensive loss
(1,132,890
)
 
(871,948
)
Total Accenture plc shareholders’ equity
5,990,851

 
5,732,035

Noncontrolling interests
558,792

 
553,302

Total shareholders’ equity
6,549,643

 
6,285,337

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
16,991,565

 
$
17,930,452

The accompanying Notes are an integral part of these Consolidated Financial Statements.

3


ACCENTURE PLC
CONSOLIDATED INCOME STATEMENTS
For the Three and Six Months Ended February 28, 2015 and 2014
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2015
 
2014
 
2015
 
2014
REVENUES:
 
 
 
 
 
 
 
Revenues before reimbursements (“Net revenues”)
$
7,493,329

 
$
7,130,667

 
$
15,389,044

 
$
14,489,416

Reimbursements
438,261

 
436,816

 
885,803

 
877,763

Revenues
7,931,590

 
7,567,483

 
16,274,847

 
15,367,179

OPERATING EXPENSES:
 
 
 
 
 
 
 
Cost of services:
 
 
 
 
 
 
 
Cost of services before reimbursable expenses
5,252,690

 
4,900,525

 
10,609,115

 
9,809,927

Reimbursable expenses
438,261

 
436,816

 
885,803

 
877,763

Cost of services
5,690,951

 
5,337,341

 
11,494,918

 
10,687,690

Sales and marketing
798,644

 
837,255

 
1,706,218

 
1,765,465

General and administrative costs
420,962

 
441,605

 
864,969

 
889,658

Reorganization benefits, net

 

 

 
(18,015
)
Total operating expenses
6,910,557

 
6,616,201

 
14,066,105

 
13,324,798

OPERATING INCOME
1,021,033

 
951,282

 
2,208,742

 
2,042,381

Interest income
9,340

 
7,960

 
19,439

 
14,716

Interest expense
(3,905
)
 
(4,348
)
 
(6,716
)
 
(8,006
)
Other expense, net
(21,508
)
 
(4,766
)
 
(24,487
)
 
(15,386
)
INCOME BEFORE INCOME TAXES
1,004,960

 
950,128

 
2,196,978

 
2,033,705

Provision for income taxes
261,768

 
227,797

 
561,544

 
499,728

NET INCOME
743,192

 
722,331

 
1,635,434

 
1,533,977

Net income attributable to noncontrolling interests in Accenture SCA and Accenture Canada Holdings Inc.
(41,053
)
 
(42,849
)
 
(91,689
)
 
(91,947
)
Net income attributable to noncontrolling interests – other
(11,413
)
 
(8,182
)
 
(21,489
)
 
(18,884
)
NET INCOME ATTRIBUTABLE TO ACCENTURE PLC
$
690,726

 
$
671,300

 
$
1,522,256

 
$
1,423,146

Weighted average Class A ordinary shares:
 
 
 
 
 
 
 
Basic
628,254,759

 
635,929,351

 
628,338,365

 
636,314,554

Diluted
679,165,137

 
693,846,206

 
680,752,956

 
696,091,177

Earnings per Class A ordinary share:
 
 
 
 
 
 
 
Basic
$
1.10

 
$
1.06

 
$
2.42

 
$
2.24

Diluted
$
1.08

 
$
1.03

 
$
2.37

 
$
2.18

Cash dividends per share
$

 
$

 
$
1.02

 
$
0.93

The accompanying Notes are an integral part of these Consolidated Financial Statements.

4


ACCENTURE PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended February 28, 2015 and 2014
(In thousands of U.S. dollars)
(Unaudited)

 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2015
 
2014
 
2015
 
2014
NET INCOME
$
743,192

 
$
722,331

 
$
1,635,434

 
$
1,533,977

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
 
 
 
 
 
 
 
Foreign currency translation
(152,849
)
 
(10,053
)
 
(343,000
)
 
80,960

Defined benefit plans
4,287

 
4,947

 
8,129

 
7,968

Cash flow hedges
56,381

 
24,319

 
73,929

 
97,317

OTHER COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ACCENTURE PLC
(92,181
)
 
19,213

 
(260,942
)
 
186,245

Other comprehensive income (loss) attributable to noncontrolling interests
4,230

 
(693
)
 
9,379

 
10,993

COMPREHENSIVE INCOME
$
655,241

 
$
740,851

 
$
1,383,871

 
$
1,731,215




 


 
 
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO ACCENTURE PLC
$
598,545

 
$
690,513

 
$
1,261,314

 
$
1,609,391

Comprehensive income attributable to noncontrolling interests
56,696

 
50,338

 
122,557

 
121,824

COMPREHENSIVE INCOME
$
655,241

 
$
740,851

 
$
1,383,871

 
$
1,731,215

 The accompanying Notes are an integral part of these Consolidated Financial Statements.


5


ACCENTURE PLC
CONSOLIDATED SHAREHOLDERS’ EQUITY STATEMENT
For the Six Months Ended February 28, 2015
(In thousands of U.S. dollars and share amounts)
(Unaudited)
 
Ordinary
Shares
 
Class A
Ordinary
Shares
 
Class X
Ordinary
Shares
 
Restricted
Share
Units
 
Additional
Paid-in
Capital
 
Treasury Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Accenture plc
Shareholders’
Equity
 
Noncontrolling
Interests
 
Total
Shareholders’
Equity
 
$
 
No.
Shares
 
$
 
No.
Shares
 
$
 
No.
Shares
 
 
 
$
 
No.
Shares
 
 
 
 
 
Balance as of August 31, 2014
$
57

 
40

 
$
18

 
786,869

 
$
1

 
28,057

 
$
921,586

 
$
3,347,392

 
$
(9,423,202
)
 
(158,410
)
 
$
11,758,131

 
$
(871,948
)
 
$
5,732,035

 
$
553,302

 
$
6,285,337

Net income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,522,256

 
 
 
1,522,256

 
113,178

 
1,635,434

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(260,942
)
 
(260,942
)
 
9,379

 
(251,563
)
Income tax benefit on share-based compensation plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
185,800

 
 
 
 
 
 
 
 
 
185,800

 
 
 
185,800

Purchases of Class A ordinary shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
60,159

 
(1,189,692
)
 
(14,254
)
 
 
 
 
 
(1,129,533
)
 
(60,159
)
 
(1,189,692
)
Share-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
314,735

 
21,380

 
 
 
 
 
 
 
 
 
336,115

 
 
 
336,115

Purchases/redemptions of Accenture SCA Class I common shares, Accenture Canada Holdings Inc. exchangeable shares and Class X ordinary shares
 
 
 
 
 
 
 
 
 
 
(1,205
)
 
 
 
(77,214
)
 
 
 
 
 
 
 
 
 
(77,214
)
 
(3,892
)
 
(81,106
)
Issuances of Class A ordinary shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee share programs
 
 
 
 

 
7,580

 
 
 
 
 
(344,875
)
 
488,620

 
150,617

 
3,855

 
 
 
 
 
294,362

 
14,825

 
309,187

Upon redemption of Accenture SCA Class I common shares
 
 
 
 
 
 
765

 
 
 
 
 
 
 
3,615

 
 
 
 
 
 
 
 
 
3,615

 
(3,615
)
 

Dividends
 
 
 
 
 
 
 
 
 
 
 
 
23,093

 
 
 
 
 
 
 
(662,544
)
 
 
 
(639,451
)
 
(39,285
)
 
(678,736
)
Other, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
26,335

 
 
 
 
 
(2,527
)
 
 
 
23,808

 
(24,941
)
 
(1,133
)
Balance as of February 28, 2015
$
57

 
40

 
$
18

 
795,214

 
$
1

 
26,852

 
$
914,539

 
$
4,056,087

 
$
(10,462,277
)
 
(168,809
)
 
$
12,615,316

 
$
(1,132,890
)
 
$
5,990,851

 
$
558,792

 
$
6,549,643

The accompanying Notes are an integral part of these Consolidated Financial Statements.


6


ACCENTURE PLC
CONSOLIDATED CASH FLOWS STATEMENTS
For the Six Months Ended February 28, 2015 and 2014
(In thousands of U.S. dollars)
(Unaudited)
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
1,635,434

 
$
1,533,977

Adjustments to reconcile Net income to Net cash provided by operating activities —
 
 
 
Depreciation, amortization and asset impairments
318,755

 
294,467

Reorganization benefits, net

 
(18,015
)
Share-based compensation expense
336,115

 
333,686

Deferred income taxes, net
(4,080
)
 
(154,738
)
Other, net
(182,509
)
 
102,315

Change in assets and liabilities, net of acquisitions —
 
 
 
Receivables from clients, net
(54,725
)
 
(128,496
)
Unbilled services, current and non-current, net
(156,320
)
 
(147,075
)
Other current and non-current assets
(389,521
)
 
(355,142
)
Accounts payable
(39,147
)
 
(74,047
)
Deferred revenues, current and non-current
243,718

 
94,517

Accrued payroll and related benefits
(192,803
)
 
(822,847
)
Income taxes payable, current and non-current
(249,455
)
 
56,866

Other current and non-current liabilities
(91,275
)
 
(241,855
)
Net cash provided by operating activities
1,174,187

 
473,613

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from sales of property and equipment
1,941

 
1,504

Purchases of property and equipment
(133,426
)
 
(135,126
)
Purchases of businesses and investments, net of cash acquired
(119,462
)
 
(609,589
)
Net cash used in investing activities
(250,947
)
 
(743,211
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of ordinary shares
309,187

 
292,820

Purchases of shares
(1,270,798
)
 
(1,460,752
)
Proceeds from long-term debt, net
268

 
551

Cash dividends paid
(678,736
)
 
(630,234
)
Excess tax benefits from share-based payment arrangements
64,892

 
95,986

Other, net
(16,092
)
 
(12,966
)
Net cash used in financing activities
(1,591,279
)
 
(1,714,595
)
Effect of exchange rate changes on cash and cash equivalents
(191,866
)
 
32,582

NET DECREASE IN CASH AND CASH EQUIVALENTS
(859,905
)
 
(1,951,611
)
CASH AND CASH EQUIVALENTS, beginning of period
4,921,305

 
5,631,885

CASH AND CASH EQUIVALENTS, end of period
$
4,061,400

 
$
3,680,274

The accompanying Notes are an integral part of these Consolidated Financial Statements.

7

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)



1. BASIS OF PRESENTATION
The accompanying unaudited interim Consolidated Financial Statements of Accenture plc and its controlled subsidiary companies (collectively, the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. These Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the fiscal year ended August 31, 2014 included in the Company’s Annual Report on Form 10-K filed with the SEC on October 24, 2014.
The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. The Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The results of operations for the three and six months ended February 28, 2015 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2015.
Allowances for Client Receivables and Unbilled Services
As of February 28, 2015 and August 31, 2014, total allowances recorded for client receivables and unbilled services were $83,881 and $82,643, respectively.
Accumulated Depreciation
As of February 28, 2015 and August 31, 2014, total accumulated depreciation was $1,754,052 and $1,752,965, respectively.
Income Taxes
The Company applies an estimated annual effective tax rate to its year-to-date operating results to determine the interim provision for income tax expense. In addition, the Company recognizes taxes related to unusual or infrequent items or resulting from a change in judgment regarding a position taken in a prior year as discrete items in the interim period in which the event occurs.
The Company’s effective tax rates for the three months ended February 28, 2015 and 2014 were 26.0% and 24.0%, respectively. The Company’s effective tax rates for the six months ended February 28, 2015 and 2014 were 25.6% and 24.6%, respectively. During the three months ended February 28, 2015, the Company concluded that certain undistributed earnings of its U.S. subsidiaries would no longer be considered permanently reinvested and recorded an estimated deferred tax liability of $171,276 for withholding taxes that would be payable on the distribution of these earnings. The higher effective tax rates for the three and six months ended February 28, 2015 were primarily due to expenses associated with this increase in deferred tax liabilities and changes in the geographic distribution of earnings, partially offset by higher benefits related to final determinations of tax liabilities for prior years, including a benefit of $169,829 recorded during the three months ended February 28, 2015 related to final settlement of U.S. tax audits for fiscal years 2010 and 2011.
New Accounting Pronouncement
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for the Company beginning September 1, 2017, including interim periods in its fiscal year 2018, and allows for both retrospective and prospective methods of adoption. The Company is in the process of determining the method of adoption and assessing the impact of this ASU on its Consolidated Financial Statements.


8

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


2. EARNINGS PER SHARE
Basic and diluted earnings per share were calculated as follows:
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2015
 
2014
 
2015
 
2014
Basic Earnings per share
 
 
 
 
 
 
 
Net income attributable to Accenture plc
$
690,726

 
$
671,300

 
$
1,522,256

 
$
1,423,146

Basic weighted average Class A ordinary shares
628,254,759

 
635,929,351

 
628,338,365

 
636,314,554

Basic earnings per share
$
1.10

 
$
1.06

 
$
2.42

 
$
2.24

Diluted Earnings per share
 
 
 
 
 
 
 
Net income attributable to Accenture plc
$
690,726

 
$
671,300

 
$
1,522,256

 
$
1,423,146

Net income attributable to noncontrolling interests in Accenture SCA and Accenture
Canada Holdings Inc. (1)
41,053

 
42,849

 
91,689

 
91,947

Net income for diluted earnings per share calculation
$
731,779

 
$
714,149

 
$
1,613,945

 
$
1,515,093

Basic weighted average Class A ordinary shares
628,254,759

 
635,929,351

 
628,338,365

 
636,314,554

Class A ordinary shares issuable upon redemption/exchange of noncontrolling interests (1)
37,311,982

 
40,598,938

 
37,808,602

 
41,097,951

Diluted effect of employee compensation related to Class A ordinary shares (2)
13,475,889

 
17,192,349

 
14,430,675

 
18,587,988

Diluted effect of share purchase plans related to Class A ordinary shares
122,507

 
125,568

 
175,314

 
90,684

Diluted weighted average Class A ordinary shares (2)
679,165,137

 
693,846,206

 
680,752,956

 
696,091,177

Diluted earnings per share
$
1.08

 
$
1.03

 
$
2.37

 
$
2.18

_______________
(1)
Diluted earnings per share assumes the redemption of all Accenture SCA Class I common shares owned by holders of noncontrolling interests and the exchange of all Accenture Canada Holdings Inc. exchangeable shares for Accenture plc Class A ordinary shares on a one-for-one basis. The income effect does not take into account “Net income attributable to noncontrolling interests — other,” since those shares are not redeemable or exchangeable for Accenture plc Class A ordinary shares.
(2)
Diluted weighted average Accenture plc Class A ordinary shares for the three and six months ended February 28, 2014 have been restated to reflect the impact of the issuance of additional restricted share units to holders of restricted share units in connection with the payments of cash dividends during the first quarter of fiscal 2015 and the third quarter of fiscal 2014. This did not result in a change to previously reported Diluted earnings per share.

9

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


3. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive loss attributable to Accenture plc:
 
Three Months Ended February 28,
 
Six Months Ended February 28,
 
2015
 
2014
 
2015
 
2014
Foreign currency translation
 
 
 
 
 
 
 
    Beginning balance
$
(514,747
)
 
$
(323,388
)
 
$
(324,596
)
 
$
(414,401
)
             Foreign currency translation
(153,781
)
 
(15,567
)
 
(341,634
)
 
83,330

             Income tax benefit
1,623

 
3,082

 
3,191

 
1,962

             Portion attributable to noncontrolling interests
(691
)
 
2,432

 
(4,557
)
 
(4,332
)
             Foreign currency translation, net of tax
(152,849
)
 
(10,053
)
 
(343,000
)
 
80,960

    Ending balance
(667,596
)
 
(333,441
)
 
(667,596
)
 
(333,441
)
 
 
 
 
 
 
 
 
Defined benefit plans
 
 
 
 
 
 
 
    Beginning balance
(527,301
)
 
(422,383
)
 
(531,143
)
 
(425,404
)
             Reclassifications into net periodic pension and
post-retirement expense (1)
6,914

 
4,843

 
13,309

 
9,897

             Income tax (expense) benefit
(2,379
)
 
412

 
(4,702
)
 
(1,425
)
             Portion attributable to noncontrolling interests
(248
)
 
(308
)
 
(478
)
 
(504
)
             Defined benefit plans, net of tax
4,287

 
4,947

 
8,129

 
7,968

    Ending balance
(523,014
)
 
(417,436
)
 
(523,014
)
 
(417,436
)
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
    Beginning balance
1,339

 
(139,943
)
 
(16,209
)
 
(212,941
)
             Unrealized gains
96,506

 
5,273

 
117,816

 
93,625

             Reclassification adjustments into Cost of services
(5,642
)
 
34,918

 
(4,722
)
 
71,049

             Income tax expense
(31,192
)
 
(14,441
)
 
(34,821
)
 
(61,200
)
             Portion attributable to noncontrolling interests
(3,291
)
 
(1,431
)
 
(4,344
)
 
(6,157
)
             Cash flow hedges, net of tax
56,381

 
24,319

 
73,929

 
97,317

    Ending balance (2)
57,720

 
(115,624
)
 
57,720

 
(115,624
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss
$
(1,132,890
)
 
$
(866,501
)
 
$
(1,132,890
)
 
$
(866,501
)
 _______________
(1)
Reclassifications into net periodic pension and post-retirement expense are recognized in Cost of services, Sales and marketing and General and administrative costs.
(2)
As of February 28, 2015, $35,975 of net unrealized gains related to derivatives designated as cash flow hedges is expected to be reclassified into Cost of services in the next 12 months.

10

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


4. BUSINESS COMBINATIONS
During the six months ended February 28, 2015, the Company completed individually immaterial acquisitions for total consideration of $119,462, net of cash acquired. The pro forma effects of these acquisitions on the Company’s operations were not material.
Subsequent Event
On March 25, 2015, the Company acquired Agilex Technologies, Inc., a provider of digital solutions for the U.S. federal government. The acquisition enhances Accenture’s digital capabilities in analytics, cloud and mobility for federal agencies. At the date of issuance of the financial statements, the initial business combination accounting was not complete for this acquisition.
 
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill by reportable operating segment were as follows:
 
August 31,
2014
 
Additions/
Adjustments
 
Foreign
Currency
Translation
 
February 28,
2015
Communications, Media & Technology
$
338,855

 
$
3,092

 
$
(16,709
)
 
$
325,238

Financial Services
707,093

 
6,498

 
(20,024
)
 
693,567

Health & Public Service
375,052

 
2,667

 
(4,052
)
 
373,667

Products
836,858

 
6,867

 
(26,796
)
 
816,929

Resources
138,036

 
106,115

 
(15,957
)
 
228,194

Total
$
2,395,894

 
$
125,239

 
$
(83,538
)
 
$
2,437,595

Goodwill includes immaterial adjustments related to prior period acquisitions.
Intangible Assets
The Company’s definite-lived intangible assets by major asset class are as follows:
 
 
February 28, 2015
 
August 31, 2014
Intangible Asset Class
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net Carrying Amount
Customer-related
 
$
342,695

 
$
(100,949
)
 
$
241,746

 
$
334,768

 
$
(88,447
)
 
$
246,321

Technology
 
111,333

 
(45,351
)
 
65,982

 
113,938

 
(41,536
)
 
72,402

Patents
 
116,455

 
(56,353
)
 
60,102

 
135,022

 
(70,299
)
 
64,723

Other
 
29,481

 
(15,975
)
 
13,506

 
37,524

 
(23,090
)
 
14,434

Total
 
$
599,964

 
$
(218,628
)
 
$
381,336

 
$
621,252

 
$
(223,372
)
 
$
397,880


11

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


6. MATERIAL TRANSACTIONS AFFECTING SHAREHOLDERS’ EQUITY
Dividends
The Company’s dividend activity during the six months ended February 28, 2015 was as follows:
 
 
Dividend Per
Share
 
Accenture plc Class A
Ordinary Shares
 
Accenture SCA Class I Common
Shares and Accenture Canada Holdings
Inc. Exchangeable Shares
 
Total Cash
Outlay
Dividend Payment Date
 
 
Record Date
 
Cash Outlay
 
Record Date
 
Cash Outlay
 
November 17, 2014
 
$
1.02

 
October 17, 2014
 
$
639,451

 
October 14, 2014
 
$
39,285

 
$
678,736

The payment of the cash dividends also resulted in the issuance of an immaterial number of additional restricted share units to holders of restricted share units. Diluted weighted average Accenture plc Class A ordinary share amounts have been restated for all prior periods presented to reflect this issuance. For additional information, see Note 2 (Earnings Per Share).
Subsequent Event
On March 23, 2015, the Board of Directors of Accenture plc declared a semi-annual cash dividend of $1.02 per share on its Class A ordinary shares for shareholders of record at the close of business on April 10, 2015. Accenture plc will cause Accenture SCA to declare a semi-annual cash dividend of $1.02 per share on its Class I common shares for shareholders of record at the close of business on April 7, 2015. Both dividends are payable on May 15, 2015. The payment of the cash dividends will result in the issuance of an immaterial number of additional restricted share units to holders of restricted share units.


12

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


7. DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company uses derivative financial instruments to manage foreign currency exchange rate risk. The Company’s derivative financial instruments consist of deliverable and non-deliverable foreign currency forward contracts.
Cash Flow Hedges
For a cash flow hedge, the effective portion of the change in estimated fair value of a hedging instrument is recorded in Accumulated other comprehensive loss as a separate component of Shareholders’ Equity and is reclassified into Cost of services in the Consolidated Income Statements during the period in which the hedged transaction is recognized. For information related to derivatives designated as cash flow hedges that were reclassified into Cost of services during the three and six months ended February 28, 2015 as well as those expected to be reclassified into Cost of services in the next 12 months, see Note 3 (Accumulated Other Comprehensive Loss) to these Consolidated Financial Statements.
Other Derivatives
Realized gains or losses and changes in the estimated fair value of foreign currency forward contracts that have not been designated as hedges were a net loss of $67,060 and $172,590 for the three and six months ended February 28, 2015, respectively. Realized gains or losses and changes in the estimated fair value of foreign currency forward contracts that have not been designated as hedges were a net gain of $11,433 and $98,476 for the three and six months ended February 28, 2014, respectively. Gains and losses on these contracts are recorded in Other expense, net in the Consolidated Income Statements and are offset by gains and losses on the related hedged items.
Fair Value of Derivative Instruments
The notional and fair values of all derivative instruments were as follows:
 
February 28, 2015
 
August 31,
2014
Assets
 
 
 
Cash Flow Hedges
 
 
 
Other current assets
$
55,444

 
$
21,148

Other non-current assets
58,796

 
20,875

Other Derivatives
 
 
 
Other current assets
15,875

 
17,076

Total assets
$
130,115

 
$
59,099

Liabilities
 
 
 
Cash Flow Hedges
 
 
 
Other accrued liabilities
$
19,469

 
$
41,103

Other non-current liabilities
5,129

 
24,474

Other Derivatives
 
 
 
Other accrued liabilities
13,122

 
15,392

Total liabilities
$
37,720

 
$
80,969

Total fair value
$
92,395

 
$
(21,870
)
Total notional value
$
6,119,355

 
$
5,989,011

The Company utilizes standard counterparty master agreements containing provisions for the netting of certain foreign currency transaction obligations and for the set-off of certain obligations in the event of an insolvency of one of the parties to the transaction. In the Consolidated Balance Sheets, the Company records derivative assets and liabilities at gross fair value. The potential effect of netting derivative assets against liabilities under the counterparty master agreements was as follows:
 
February 28,
2015
 
August 31,
2014
Net derivative assets
$
103,695

 
$
22,458

Net derivative liabilities
11,300

 
44,328

Total fair value
$
92,395

 
$
(21,870
)

13

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


8. COMMITMENTS AND CONTINGENCIES
Commitments
The Company has the right to purchase or may also be required to purchase substantially all of the remaining outstanding shares of its Avanade Inc. subsidiary (“Avanade”) not owned by the Company at fair value if certain events occur. As of February 28, 2015 and August 31, 2014, the Company has reflected the fair value of $84,043 and $95,581, respectively, related to Avanade’s redeemable common stock and the intrinsic value of the options on redeemable common stock in Other accrued liabilities in the Consolidated Balance Sheets.
U.S. Defined Benefit Pension Obligation
On January 12, 2015, the Company began notifying eligible former employees (approximately 12,000 of the Company’s 22,000 total U.S. pension plan participants) who have vested benefits under the Company’s U.S. pension plan of an offer to receive a voluntary one-time lump sum cash payment that, if accepted, would settle the Company’s pension obligations to them. The Company expects that the lump sum payments, which will be paid from plan assets, will reduce the Company’s liabilities and administrative costs.
The lump sum cash payment offering period opened February 2, 2015 and will close on March 27, 2015. The lump sum cash payments will be made in May 2015. As a result, the Company will incur a non-cash settlement charge of approximately $60,000, pre-tax, in the third quarter of fiscal 2015. The amount of the settlement charge will depend upon the actual number of participants that accept the Company’s offer.
Indemnifications and Guarantees
In the normal course of business and in conjunction with certain client engagements, the Company has entered into contractual arrangements through which it may be obligated to indemnify clients with respect to certain matters.
As of February 28, 2015 and August 31, 2014, the Company’s aggregate potential liability to its clients for expressly limited guarantees involving the performance of third parties was approximately $638,000 and $768,000, respectively, of which all but approximately $13,000 and $8,000, respectively, may be recovered from the other third parties if the Company is obligated to make payments to the indemnified parties as a consequence of a performance default by the other third parties. For arrangements with unspecified limitations, the Company cannot reasonably estimate the aggregate maximum potential liability, as it is inherently difficult to predict the maximum potential amount of such payments, due to the conditional nature and unique facts of each particular arrangement.
To date, the Company has not been required to make any significant payment under any of the arrangements described above. The Company has assessed the current status of performance/payment risk related to arrangements with limited guarantees, warranty obligations, unspecified limitations and/or indemnification provisions and believes that any potential payments would be immaterial to the Consolidated Financial Statements, as a whole.
Legal Contingencies
As of February 28, 2015, the Company or its present personnel had been named as a defendant in various litigation matters. The Company and/or its personnel also from time to time are involved in investigations by various regulatory or legal authorities concerning matters arising in the course of its business around the world. Based on the present status of these matters, management believes the range of reasonably possible losses in addition to amounts accrued, net of insurance recoveries, will not have a material effect on the Company’s results of operations or financial condition.

14

ACCENTURE PLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)
(In thousands of U.S. dollars, except share and per share amounts or as otherwise disclosed)
(Unaudited)


9. SEGMENT REPORTING
The Company’s reportable operating segments are the five operating groups, which are Communications, Media & Technology; Financial Services; Health & Public Service; Products; and Resources. Information regarding the Company’s reportable operating segments is as follows:
 
Three Months Ended February 28,
 
2015
 
2014
 
Net
Revenues
 
Operating
Income
 
Net
Revenues
 
Operating
Income
Communications, Media & Technology
$
1,516,785

 
$
201,661

 
$
1,408,616

 
$
181,815

Financial Services
1,589,535

 
228,161

 
1,563,655

 
209,138

Health & Public Service
1,319,917

 
163,830

 
1,183,728

 
145,614

Products
1,850,953

 
271,826

 
1,745,515

 
205,526

Resources
1,211,826

 
155,555

 
1,224,897

 
209,189

Other
4,313

 

 
4,256

 

Total
$
7,493,329

 
$
1,021,033

 
$
7,130,667

 
$
951,282


 
Six Months Ended February 28,
 
2015
 
2014
 
Net
Revenues
 
Operating
Income
 
Net
Revenues
 
Operating
Income
Communications, Media & Technology
$
3,097,822

 
$
390,418

 
$
2,819,599

 
$
335,183

Financial Services
3,305,762

 
525,743

 
3,161,621

 
472,706

Health & Public Service
2,688,359

 
365,633

 
2,413,802

 
324,919

Products
3,781,284

 
561,558

 
3,546,577

 
452,913

Resources
2,507,307

 
365,390

 
2,539,904

 
456,660

Other
8,510

 

 
7,913

 

Total
$
15,389,044

 
$
2,208,742

 
$
14,489,416

 
$
2,042,381



15


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended August 31, 2014, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended August 31, 2014.
We use the terms “Accenture,” “we,” the “Company,” “our” and “us” in this report to refer to Accenture plc and its subsidiaries. All references to years, unless otherwise noted, refer to our fiscal year, which ends on August 31. For example, a reference to “fiscal 2015” means the 12-month period that will end on August 31, 2015. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year.
We use the term “in local currency” so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of business performance. Financial results “in local currency” are calculated by restating current period activity into U.S. dollars using the comparable prior year period’s foreign currency exchange rates. This approach is used for all results where the functional currency is not the U.S. dollar.
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”) relating to our operations, results of operations and other matters that are based on our current expectations, estimates, assumptions and projections. Words such as “may,” “will,” “should,” “likely,” “anticipates,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “positioned,” “outlook” 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. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:
Our results of operations could be adversely affected by volatile, negative or uncertain economic conditions and the effects of these conditions on our clients’ businesses and levels of business activity.
Our business depends on generating and maintaining ongoing, profitable client demand for our services and solutions, and a significant reduction in such demand could materially affect our results of operations.
If we are unable to keep our supply of skills and resources in balance with client demand around the world and attract and retain professionals with strong leadership skills, our business, the utilization rate of our professionals and our results of operations may be materially adversely affected.
The markets in which we compete are highly competitive, and we might not be able to compete effectively.
We could have liability or our reputation could be damaged if we fail to protect client and/or Accenture data or information systems as obligated by law or contract or if our information systems are breached.
Our results of operations and ability to grow could be materially negatively affected if we cannot adapt and expand our services and solutions in response to ongoing changes in technology and offerings by new entrants.
Our results of operations could materially suffer if we are not able to obtain sufficient pricing to enable us to meet our profitability expectations.
If we do not accurately anticipate the cost, risk and complexity of performing our work or third parties upon whom we rely do not meet their commitments, then our contracts could have delivery inefficiencies and be less profitable than expected or unprofitable.
Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates.
Our profitability could suffer if our cost-management strategies are unsuccessful, and we may not be able to improve our profitability through improvements to cost-management to the degree we have done in the past.
Our business could be materially adversely affected if we incur legal liability.
Our work with government clients exposes us to additional risks inherent in the government contracting environment.

16


We might not be successful at identifying, acquiring or integrating businesses or entering into joint ventures.
Our Global Delivery Network is increasingly concentrated in India and the Philippines, which may expose us to operational risks.
Changes in our level of taxes, as well as audits, investigations and tax proceedings, or changes in our treatment as an Irish company, could have a material adverse effect on our results of operations and financial condition.
As a result of our geographically diverse operations and our growth strategy to continue geographic expansion, we are more susceptible to certain risks.
Adverse changes to our relationships with key alliance partners or in the business of our key alliance partners could adversely affect our results of operations.
Our services or solutions could infringe upon the intellectual property rights of others or we might lose our ability to utilize the intellectual property of others.
If we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties, our business could be adversely affected.
Our ability to attract and retain business and employees may depend on our reputation in the marketplace.
Many of our contracts include payments that link some of our fees to the attainment of performance or business targets and/or require us to meet specific service levels. This could increase the variability of our revenues and impact our margins.
If we are unable to collect our receivables or unbilled services, our results of operations, financial condition and cash flows could be adversely affected.
If we are unable to manage the organizational challenges associated with our size, we might be unable to achieve our business objectives.
Our share price and results of operations could fluctuate and be difficult to predict.
Our results of operations and share price could be adversely affected if we are unable to maintain effective internal controls.
We make estimates and assumptions in connection with the preparation of our consolidated financial statements, and any changes to those estimates and assumptions could adversely affect our financial results.
We are incorporated in Ireland and a significant portion of our assets are located outside the United States. As a result, it might not be possible for shareholders to enforce civil liability provisions of the federal or state securities laws of the United States. We may also be subject to criticism and negative publicity related to our incorporation in Ireland.
Irish law differs from the laws in effect in the United States and might afford less protection to shareholders.
We might be unable to access additional capital on favorable terms or at all. If we raise equity capital, it may dilute our shareholders’ ownership interest in us.
For a more detailed discussion of these factors, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2014. Our forward-looking statements speak only as of the date of this report or as of the date they are made, and we undertake no obligation to update any forward-looking statements.

17


Overview
Revenues are driven by the ability of our executives to secure new contracts and to deliver solutions and services that add value relevant to our clients’ current needs and challenges. The level of revenues we achieve is based on our ability to deliver market-leading service offerings and to deploy skilled teams of professionals quickly and on a global basis.
Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. There continues to be volatility and economic and geopolitical uncertainty in certain markets around the world, which may impact our business. We continue to monitor the impact of this volatility and uncertainty and seek to manage our costs in order to respond to changing conditions. In recent months there has also been significant volatility in foreign currency exchange rates. The majority of our net revenues are denominated in currencies other than the U.S. dollar, including the Euro and the U.K. pound. Unfavorable fluctuations in foreign currency exchange rates have had and we expect will continue to have a material effect on our revenues.
Revenues before reimbursements (“net revenues”) for the second quarter of fiscal 2015 increased 5% in U.S. dollars and 12% in local currency compared to the second quarter of fiscal 2014. Net revenues for the six months ended February 28, 2015 increased 6% in U.S. dollars and 11% in local currency compared to the six months ended February 28, 2014. Demand for our services continued to improve, resulting in strong growth across most areas of our business. All of our operating groups experienced quarterly year-over-year revenue growth in local currency. Revenue growth in local currency was very strong in both outsourcing and consulting during the second quarter of fiscal 2015. While the business environment remained competitive, pricing continued to improve in certain areas of our business. We use the term “pricing” to mean the contract profitability or margin on the work that we sell.
In our consulting business, net revenues for the second quarter of fiscal 2015 increased 4% in U.S. dollars and 11% in local currency compared to the second quarter of fiscal 2014. Net consulting revenues for the six months ended February 28, 2015 increased 4% in U.S. dollars and 9% in local currency compared to the six months ended February 28, 2014. Clients continued to be focused on initiatives designed to deliver cost savings and operational efficiency, as well as projects to integrate their global operations and grow and transform their businesses. We continue to experience growing demand for our services in emerging technologies, including digital services (digital marketing, analytics and mobility) and cloud computing. Compared to fiscal 2014, we continued to provide a greater proportion of systems integration consulting through use of lower-cost resources in our Global Delivery Network. This trend has resulted in work volume growing faster than revenue in our systems integration business, and we expect this trend to continue.
In our outsourcing business, net revenues for the second quarter of fiscal 2015 increased 6% in U.S. dollars and 13% in local currency compared to the second quarter of fiscal 2014. Net outsourcing revenues for the six months ended February 28, 2015 increased 9% in U.S. dollars and 13% in local currency compared to the six months ended February 28, 2014. Clients continue to be focused on transforming their operations to improve effectiveness and save costs. Compared to fiscal 2014, we continued to provide a greater proportion of application outsourcing through use of lower-cost resources in our Global Delivery Network.
As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations. If the U.S. dollar strengthens against other currencies, resulting in unfavorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be lower. If the U.S. dollar weakens against other currencies, resulting in favorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be higher. When compared to the same periods in fiscal 2014, the U.S. dollar strengthened significantly against many currencies during the three and six months ended February 28, 2015, resulting in unfavorable currency translation and U.S. dollar revenue growth that was approximately 7% and 5% lower, respectively, than our revenue growth in local currency. Assuming that exchange rates stay within recent ranges for the remainder of fiscal 2015, we estimate that our full fiscal 2015 revenue growth will be approximately 8% lower in U.S. dollars than in local currency.
The primary categories of operating expenses include cost of services, sales and marketing and general and administrative costs. Cost of services is primarily driven by the cost of client-service personnel, which consists mainly of compensation, subcontractor and other personnel costs, and non-payroll costs on outsourcing contracts. Cost of services includes a variety of activities such as: contract delivery; recruiting and training; software development; and integration of acquisitions. Sales and marketing costs are driven primarily by: compensation costs for business development activities; marketing- and advertising-related activities; and certain acquisition-related costs. General and administrative costs primarily include costs for non-client-facing personnel, information systems and office space.
Effective September 1, 2014, we updated the methodology we use to calculate utilization to include all billable employees’ time spent on chargeable work. Utilization for the second quarter of fiscal 2015 was 91%, flat with the first quarter of fiscal 2015. This level of utilization reflects continued strong demand for resources in our Global Delivery Network and in most countries. We continue to hire to meet current and projected future demand. We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services, given that compensation costs are the most significant portion of our operating expenses. Based on current and projected future demand, we have increased

18


our headcount, the majority of which serve our clients, to more than 323,000 as of February 28, 2015, compared to approximately 319,000 as of November 30, 2014 and approximately 289,000 as of February 28, 2014. The year-over-year increase in our headcount reflects an overall increase in demand for our services, primarily those delivered through our Global Delivery Network in lower-cost locations, as well as headcount added in connection with acquisitions. Annualized attrition, excluding involuntary terminations, for the second quarter of fiscal 2015 was 14%, up from 13% in the first quarter of fiscal 2015 and 12% in the second quarter of fiscal 2014. We evaluate voluntary attrition, adjust levels of new hiring and use involuntary terminations as means to keep our supply of skills and resources in balance with changes in client demand. In addition, we adjust compensation in certain skill sets and geographies in order to attract and retain appropriate numbers of qualified employees, and we may need to continue to adjust compensation in the future. We strive to adjust pricing and/or the mix of resources to reduce the impact of compensation increases on our gross margin. Our ability to grow our revenues and maintain or increase our margin could be adversely affected if we are unable to: keep our supply of skills and resources in balance with changes in the types or amounts of services clients are demanding, such as the increase in demand for various outsourcing and emerging technology services; recover increases in compensation; deploy our employees globally on a timely basis; manage attrition; and/or effectively assimilate and utilize new employees.
Gross margin (Net revenues less Cost of services before reimbursable expenses as a percentage of Net revenues) for the second quarter of fiscal 2015 was 29.9%, compared with 31.3% for the second quarter of fiscal 2014. Gross margin for the six months ended February 28, 2015 was 31.1%, compared with 32.3% for the six months ended February 28, 2014. The reduction in gross margin for the second quarter and first half of fiscal 2015 was principally due to higher labor costs, including increased usage of subcontractors, compared to the same periods in fiscal 2014.
Sales and marketing and general and administrative costs as a percentage of net revenues were 16.3% for the second quarter of fiscal 2015 and 16.7% for the six months ended February 28, 2015, compared with 17.9% for the second quarter of fiscal 2014 and 18.3% for the six months ended February 28, 2014. We continuously monitor these costs and implement cost-management actions, as appropriate. For the six months ended February 28, 2015 compared to the six months ended February 28, 2014, sales and marketing costs as a percentage of net revenues decreased 110 basis points principally due to improved operational efficiency in our business development activities. We also experienced lower non-payroll sales and marketing costs. General and administrative costs as a percentage of net revenues decreased 50 basis points.
Operating margin (Operating income as a percentage of Net revenues) for the second quarter of fiscal 2015 was 13.6%, compared with 13.3% for the second quarter of fiscal 2014. Operating margin for the six months ended February 28, 2015 was 14.4%, compared with 14.1% for the six months ended February 28, 2014. Our Operating income and Earnings per share are affected by currency exchange rate fluctuations on revenues and costs. Most of our costs are incurred in the same currency as the related net revenues. Where practical, we also seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues, such as the cost of our Global Delivery Network, by using currency protection provisions in our customer contracts and through our hedging programs. We seek to manage our costs, taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs.
New Bookings
New bookings for the second quarter of fiscal 2015 were $9.36 billion, with consulting bookings of $4.25 billion and outsourcing bookings of $5.11 billion. New bookings for the six months ended February 28, 2015 were $17.02 billion, with consulting bookings of $8.11 billion and outsourcing bookings of $8.91 billion.

19


Results of Operations for the Three Months Ended February 28, 2015 Compared to the Three Months Ended February 28, 2014
Our five reportable operating segments are our operating groups, which are Communications, Media & Technology; Financial Services; Health & Public Service; Products; and Resources. Net revenues (by operating group, geographic region and type of work) and reimbursements were as follows:
  
Three Months Ended February 28,
 
Percent
Increase
(Decrease)
U.S. Dollars
 
Percent
Increase
Local
Currency
 
Percent of Total Net Revenues
for the Three Months Ended February 28,
  
2015
 
2014
 
 
 
2015
 
2014
 
(in millions of U.S. dollars)
 
 
 
 
 
 
 
 
OPERATING GROUPS
 
 
 
 
 
 
 
 
 
 
 
Communications, Media & Technology
$
1,517

 
$
1,409

 
8
 %
 
15
%
 
20
%
 
20
%
Financial Services
1,590

 
1,564

 
2

 
9

 
21

 
22

Health & Public Service
1,320

 
1,184

 
12

 
15

 
18

 
17

Products
1,851

 
1,746

 
6

 
13

 
25

 
24

Resources
1,212

 
1,225

 
(1
)
 
6

 
16

 
17

Other
4

 
4

 
n/m

 
n/m

 

 

TOTAL NET REVENUES
7,493

 
7,131

 
5
 %
 
12
%
 
100
%
 
100
%
Reimbursements
438

 
437

 

 
 
 
 
 
 
TOTAL REVENUES
$
7,932

 
$
7,567

 
5
 %
 
 
 
 
 
 
GEOGRAPHIC REGIONS (1)
 
 
 
 
 
 
 
 
 
 
 
North America
$
3,412

 
$
3,031

 
13
 %
 
13
%
 
46
%
 
43
%
Europe
2,660

 
2,717

 
(2
)
 
9

 
35

 
38

Growth Markets
1,422

 
1,383

 
3

 
12

 
19

 
19

TOTAL NET REVENUES
$
7,493

 
$
7,131

 
5
 %
 
12
%
 
100
%
 
100
%
TYPE OF WORK
 
 
 
 
 
 
 
 
 
 
 
Consulting
$
3,839

 
$
3,697

 
4
 %
 
11
%
 
51
%
 
52
%
Outsourcing
3,654

 
3,434

 
6

 
13

 
49

 
48

TOTAL NET REVENUES
$
7,493

 
$
7,131

 
5
 %
 
12
%
 
100
%
 
100
%
_______________ 
n/m = not meaningful
Amounts in table may not total due to rounding.
(1)
Effective September 1, 2014, we revised the reporting of our geographic regions as follows: North America (the United States and Canada); Europe; and Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey). Prior period amounts have been reclassified to conform to the current period presentation.
Net Revenues
The following net revenues commentary discusses local currency net revenue changes for the second quarter of fiscal 2015 compared to the second quarter of fiscal 2014:
Operating Groups
Communications, Media & Technology net revenues increased 15% in local currency. Outsourcing revenues reflected significant growth, driven by growth across all industry groups and geographic regions, led by Communications. Consulting revenues reflected very strong growth, driven by Communications in North America and Europe and Electronics & High Tech in Europe and Growth Markets.
Financial Services net revenues increased 9% in local currency. Consulting revenues reflected very strong growth, driven by all industry groups in Europe and Banking and Insurance in North America. Outsourcing revenue growth was driven by all industry groups in Europe and Insurance and Capital Markets in North America. These increases were partially offset by a decline in Banking in North America.
Health & Public Service net revenues increased 15% in local currency. Outsourcing revenues reflected very significant growth, led by Health and Public Service in North America. Consulting revenues reflected strong growth driven by Health and Public Service in North America.

20


Products net revenues increased 13% in local currency. Consulting revenues reflected very strong growth, driven by most industry groups in Europe and North America, led by Consumer Goods & Services. These increases were partially offset by a decline in Air, Freight & Travel Services and Retail in North America. Outsourcing revenues reflected strong growth, driven by all geographic regions and in most industry groups, led by Air, Freight & Travel Services and Retail in Europe and Consumer Goods & Services in North America. These increases were partially offset by a decline in Infrastructure & Transportation Services in Europe.
Resources net revenues increased 6% in local currency. Outsourcing revenues reflected very strong growth, driven by Utilities across all geographic regions, Energy in Europe and Natural Resources in Growth Markets. Consulting revenues reflected slight growth, driven by Utilities in North America and Chemicals in Growth Markets and Europe. These increases were partially offset by declines in Energy in North America and Europe and Natural Resources in Growth Markets. Some of our Energy clients are requesting a higher volume of outsourcing services, placing a greater emphasis on cost savings initiatives and moderating demand for consulting services. We expect this trend will continue to impact Resources year-over-year consulting net revenue growth in the near term.
Geographic Regions
North America net revenues increased 13% in local currency, driven by the United States.
Europe net revenues increased 9% in local currency, driven by France, Germany, Spain and the Netherlands.
Growth Markets net revenues increased 12% in local currency, driven by Japan, Australia and Brazil, partially offset by declines in Singapore and South Korea.
Operating Expenses
Operating expenses for the second quarter of fiscal 2015 increased $294 million, or 4%, over the second quarter of fiscal 2014, and decreased as a percentage of revenues to 87.1% from 87.4% during this period. Operating expenses before reimbursable expenses for the second quarter of fiscal 2015 increased $293 million, or 5%, over the second quarter of fiscal 2014, and decreased as a percentage of net revenues to 86.4% from 86.7% during this period.
Cost of Services
Cost of services for the second quarter of fiscal 2015 increased $354 million, or 7%, over the second quarter of fiscal 2014, and increased as a percentage of revenues to 71.8% from 70.5% during this period. Cost of services before reimbursable expenses for the second quarter of fiscal 2015 increased $352 million, or 7%, over the second quarter of fiscal 2014, and increased as a percentage of net revenues to 70.1% from 68.7% during this period. Gross margin for the second quarter of fiscal 2015 decreased to 29.9% from 31.3% for the second quarter of fiscal 2014, principally due to higher labor costs, including increased usage of subcontractors, compared to the second quarter of fiscal 2014.
Sales and Marketing
Sales and marketing expense for the second quarter of fiscal 2015 decreased $39 million, or 5%, from the second quarter of fiscal 2014, and decreased as a percentage of net revenues to 10.7% from 11.7%. The decrease as a percentage of net revenues was principally due to improved operational efficiency in our business development activities. We also experienced lower non-payroll sales and marketing costs.
General and Administrative Costs
General and administrative costs for the second quarter of fiscal 2015 decreased $21 million, or 5%, from the second quarter of fiscal 2014, and decreased as a percentage of net revenues to 5.6% from 6.2% during this period. The decrease as a percentage of net revenues was due to management of these costs at a rate lower than that of net revenues.

21


Operating Income and Operating Margin
Operating income for the second quarter of fiscal 2015 increased $70 million, or 7%, over the second quarter of fiscal 2014. Operating income and operating margin for each of the operating groups were as follows:
  
Three Months Ended February 28,
 
 
  
2015
 
2014
 
 
  
Operating
Income
 
Operating
Margin
 
Operating
Income
 
Operating
Margin
 
Increase
(Decrease)
 
 (in millions of U.S. dollars)
Communications, Media & Technology
$
202

 
13
%
 
$
182

 
13
%
 
$
20

Financial Services
228

 
14

 
209

 
13

 
19

Health & Public Service
164

 
12

 
146

 
12

 
18

Products
272

 
15

 
206

 
12

 
66

Resources
156

 
13

 
209

 
17

 
(54
)
Total
$
1,021

 
13.6
%
 
$
951

 
13.3
%
 
$
70

_______________ 
Amounts in table may not total due to rounding.
We estimate that the aggregate percentage impact of foreign currency exchange rates on our Operating income during the second quarter of fiscal 2015 was similar to that disclosed for Net revenue. The commentary below provides insight into other factors affecting operating group performance and operating margin for the second quarter of fiscal 2015 compared with the second quarter of fiscal 2014:
Communications, Media & Technology operating income increased primarily due to revenue growth and lower sales and marketing costs as a percentage of net revenues.
Financial Services operating income increased primarily due to higher contract profitability, lower sales and marketing costs as a percentage of net revenues and consulting revenue growth.
Health & Public Service operating income increased due to revenue growth and lower sales and marketing costs as a percentage of net revenues.
Products operating income increased due to higher contract profitability, revenue growth and lower sales and marketing costs as a percentage of net revenues.
Resources operating income decreased due to lower consulting contract profitability.
Other Expense, net
Other expense, net for the three months ended February 28, 2015 increased $17 million over the three months ended February 28, 2014, primarily due to losses incurred on the devaluation of the Venezuelan Bolivar Fuerte as well as investment losses.
Provision for Income Taxes
The effective tax rate for the second quarter of fiscal 2015 was 26.0%, compared with 24.0% for the second quarter of fiscal 2014. The higher effective tax rate in the second quarter of fiscal 2015 was primarily due to expenses associated with an increase in deferred tax liabilities on undistributed U.S. earnings and changes in the geographic distribution of earnings, partially offset by higher benefits related to final determinations of tax liabilities for prior years. For additional information, see Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests for the second quarter of fiscal 2015 increased $1 million, or 3%, over the second quarter of fiscal 2014. The increase was due to higher Net income of $21 million during the second quarter of fiscal 2015.
Earnings Per Share
Diluted earnings per share increased $0.05 compared with the second quarter of fiscal 2014, due to increases of $0.08 from higher revenues and operating results and $0.02 from lower weighted average shares outstanding. These increases were partially offset by decreases of $0.03 from a higher effective tax rate and $0.02 from lower non-operating income. For information regarding our earnings per share calculations, see Note 2 (Earnings Per Share) to our Consolidated Financial Statements under Item 1, “Financial Statements.”

22


Results of Operations for the Six Months Ended February 28, 2015 Compared to the Six Months Ended February 28, 2014
Our five reportable operating segments are our operating groups, which are Communications, Media & Technology; Financial Services; Health & Public Service; Products; and Resources. Net revenues (by operating group, geographic region and type of work) and reimbursements were as follows:
  
Six Months Ended February 28,
 
Percent
Increase
(Decrease)
U.S. Dollars
 
Percent
Increase
Local
Currency
 
Percent of Total Net Revenues
for the Six Months Ended February 28,
  
2015
 
2014
 
 
 
2015
 
2014
 
(in millions of U.S. dollars)
 
 
 
 
 
 
 
 
OPERATING GROUPS
 
 
 
 
 
 
 
 
 
 
 
Communications, Media & Technology
$
3,098

 
$
2,820

 
10
 %
 
15
%
 
20
%
 
19
%
Financial Services
3,306

 
3,162

 
5

 
10

 
22

 
22

Health & Public Service
2,688

 
2,414

 
11

 
14

 
17

 
17

Products
3,781

 
3,547

 
7

 
11

 
25

 
24

Resources
2,507

 
2,540

 
(1
)
 
4

 
16

 
18

Other
9

 
8

 
n/m

 
n/m

 

 

TOTAL NET REVENUES
15,389

 
14,489

 
6
 %
 
11
%
 
100
%
 
100
%
Reimbursements
886

 
878

 
1

 
 
 
 
 
 
TOTAL REVENUES
$
16,275

 
$
15,367

 
6
 %
 
 
 
 
 
 
GEOGRAPHIC REGIONS (1)
 
 
 
 
 
 
 
 
 
 
 
North America
$
6,850

 
$
6,123

 
12
 %
 
13
%
 
45
%
 
42
%
Europe
5,565

 
5,479

 
2

 
9

 
36

 
38

Growth Markets
2,974

 
2,887

 
3

 
10

 
19

 
20

TOTAL NET REVENUES
$
15,389

 
$
14,489

 
6
 %
 
11
%
 
100
%
 
100
%
TYPE OF WORK
 
 
 
 
 
 
 
 
 
 
 
Consulting
$
7,932

 
$
7,635

 
4
 %
 
9
%
 
52
%
 
53
%
Outsourcing
7,457

 
6,855

 
9

 
13

 
48

 
47

TOTAL NET REVENUES
$
15,389

 
$
14,489

 
6
 %
 
11
%
 
100
%
 
100
%
_______________ 
n/m = not meaningful
Amounts in table may not total due to rounding.
(1)
Effective September 1, 2014, we revised the reporting of our geographic regions as follows: North America (the United States and Canada); Europe; and Growth Markets (Asia Pacific, Latin America, Africa, the Middle East, Russia and Turkey). Prior period amounts have been reclassified to conform to the current period presentation.
Net Revenues
The following net revenues commentary discusses local currency net revenue changes for the six months ended February 28, 2015 compared to the six months ended February 28, 2014:
Operating Groups
Communications, Media & Technology net revenues increased 15% in local currency. Outsourcing revenues reflected significant growth, driven by growth across all industry groups and geographic regions, led by Communications. Consulting revenues reflected very strong growth, driven by Communications in North America, Electronics & High Tech in Europe and Growth Markets and Media & Entertainment in Growth Markets.
Financial Services net revenues increased 10% in local currency. Consulting revenues reflected very strong growth, driven by Banking in Europe and North America, Capital Markets in Europe and Insurance in North America. Outsourcing revenues reflected strong growth, driven by all industry groups in Europe and Capital Markets in North America. These increases were partially offset by a decline in Banking in North America.
Health & Public Service net revenues increased 14% in local currency. Outsourcing revenues reflected very significant growth, led by Health and Public Service in North America. Consulting revenues reflected strong growth, driven by Health in North America and Public Service in Europe.

23


Products net revenues increased 11% in local currency. Consulting revenues reflected very strong growth, driven by all industry groups in Europe and most industry groups in North America, led by Consumer Goods & Services. These increases were partially offset by declines in Retail and Air, Freight & Travel Services in North America. Outsourcing revenues reflected strong growth, driven by all geographic regions and in most industry groups, led by Retail and Air, Freight & Travel Services in Europe and Consumer Goods & Services and Life Sciences in North America. These increases were partially offset by a decline in Infrastructure & Transportation Services in Europe.
Resources net revenues increased 4% in local currency. Outsourcing revenues reflected very strong growth, driven by Utilities in Europe and North America, Energy in Europe and Natural Resources in Growth Markets. Consulting revenues reflected a slight decline, due to declines in Natural Resources in Growth Markets and Energy in North America and Europe, partially offset by growth in Chemicals in Growth Markets and Europe and Utilities in North America. Some of our Energy clients are requesting a higher volume of outsourcing services, placing a greater emphasis on cost savings initiatives and moderating demand for consulting services. We expect these trends will continue to impact Resources year-over-year consulting net revenue growth in the near term.
Geographic Regions
North America net revenues increased 13% in local currency, driven by the United States.
Europe net revenues increased 9% in local currency, driven by Germany, France, Italy, the Netherlands, Spain and Norway.
Growth Markets net revenues increased 10% in local currency, driven by Japan, Brazil and Australia, partially offset by declines in Singapore and South Korea.
Operating Expenses
Operating expenses for the six months ended February 28, 2015 increased $741 million, or 6%, over the six months ended February 28, 2014, and decreased as a percentage of revenues to 86.4% from 86.7% during this period. Operating expenses before reimbursable expenses for the six months ended February 28, 2015 increased $733 million, or 6%, over the six months ended February 28, 2014, and decreased as a percentage of net revenues to 85.6% from 85.9% during this period.
Cost of Services
Cost of services for the six months ended February 28, 2015 increased $807 million, or 8%, over the six months ended February 28, 2014, and increased as a percentage of revenues to 70.6% from 69.5% during this period. Cost of services before reimbursable expenses for the six months ended February 28, 2015 increased $799 million, or 8%, over the six months ended February 28, 2014, and increased as a percentage of net revenues to 68.9% from 67.7% during this period. Gross margin for the six months ended February 28, 2015 decreased to 31.1% from 32.3% for the six months ended February 28, 2014, principally due to higher labor costs, including increased usage of subcontractors, compared to the same period in fiscal 2014.
Sales and Marketing
Sales and marketing expense for the six months ended February 28, 2015 decreased $59 million, or 3%, from the six months ended February 28, 2014, and decreased as a percentage of net revenues to 11.1% from 12.2% during this period. The decrease as a percentage of net revenues was due to improved operational efficiency in our business development activities. We also experienced lower non-payroll sales and marketing costs.
General and Administrative Costs
General and administrative costs for the six months ended February 28, 2015 decreased $25 million, or 3%, from the six months ended February 28, 2014, and decreased as a percentage of net revenues to 5.6% from 6.1% during this period. The decrease as a percentage of net revenues was due to management of these costs at a rate lower than that of net revenues.

24


Operating Income and Operating Margin
Operating income for the six months ended February 28, 2015 increased $166 million, or 8%, over the six months ended February 28, 2014. Operating income and operating margin for each of the operating groups were as follows:
  
Six Months Ended February 28,
 
 
  
2015
 
2014
 
 
  
Operating
Income
 
Operating
Margin
 
Operating
Income
 
Operating
Margin
 
Increase
(Decrease)
 
 (in millions of U.S. dollars)
Communications, Media & Technology
$
390

 
13
%
 
$
335