10-Q 1 acn-20150531x10q.htm 10-Q ACN-2015.05.31-10Q
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 May 31, 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 June 11, 2015 was 797,580,908 (which number includes 173,446,272 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 June 11, 2015 was 26,252,846.



ACCENTURE PLC
INDEX
 
 
 
Page

2


PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCENTURE PLC
CONSOLIDATED BALANCE SHEETS
May 31, 2015 and August 31, 2014
(In thousands of U.S. dollars, except share and per share amounts)
 
May 31,
2015
 
August 31,
2014
 
(Unaudited)
 
 
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
4,026,189

 
$
4,921,305

Short-term investments
2,383

 
2,602

Receivables from clients, net
3,717,048

 
3,859,567

Unbilled services, net
1,831,087

 
1,803,767

Deferred income taxes, net
865,472

 
731,820

Other current assets
627,342

 
585,381

Total current assets
11,069,521

 
11,904,442

NON-CURRENT ASSETS:
 
 
 
Unbilled services, net
23,523

 
28,039

Investments
43,763

 
66,783

Property and equipment, net
752,362

 
793,444

Goodwill
2,669,172

 
2,395,894

Deferred contract costs
622,026

 
629,905

Deferred income taxes, net
1,231,676

 
1,152,105

Other non-current assets
896,684

 
959,840

Total non-current assets
6,239,206

 
6,026,010

TOTAL ASSETS
$
17,308,727

 
$
17,930,452

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Current portion of long-term debt and bank borrowings
$
1

 
$
330

Accounts payable
1,040,645

 
1,064,228

Deferred revenues
2,142,085

 
2,348,034

Accrued payroll and related benefits
3,305,945

 
3,380,748

Accrued consumption taxes
328,180

 
360,430

Income taxes payable
348,526

 
355,274

Deferred income taxes, net
257,896

 
23,937

Other accrued liabilities
465,164

 
625,098

Total current liabilities
7,888,442

 
8,158,079

NON-CURRENT LIABILITIES:
 
 
 
Long-term debt
27,217

 
26,403

Deferred revenues relating to contract costs
506,409

 
544,831

Retirement obligation
1,053,204

 
1,107,931

Deferred income taxes, net
190,733

 
198,734

Income taxes payable
896,075

 
1,303,367

Other non-current liabilities
280,416

 
305,770

Total non-current liabilities
2,954,054

 
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 May 31, 2015 and August 31, 2014
57

 
57

Class A ordinary shares, par value $0.0000225 per share, 20,000,000,000 shares authorized, 797,407,240 and 786,868,852 shares issued as of May 31, 2015 and August 31, 2014, respectively
18

 
18

Class X ordinary shares, par value $0.0000225 per share, 1,000,000,000 shares authorized, 26,252,846 and 28,057,398 shares issued and outstanding as of May 31, 2015 and August 31, 2014, respectively
1

 
1

Restricted share units
1,113,827

 
921,586

Additional paid-in capital
4,206,267

 
3,347,392

Treasury shares, at cost: Ordinary, 40,000 shares as of May 31, 2015 and August 31, 2014; Class A ordinary, 173,057,063 and 158,370,179 shares as of May 31, 2015 and August 31, 2014, respectively
(10,897,911
)
 
(9,423,202
)
Retained earnings
12,741,223

 
11,758,131

Accumulated other comprehensive loss
(1,252,268
)
 
(871,948
)
Total Accenture plc shareholders’ equity
5,911,214

 
5,732,035

Noncontrolling interests
555,017

 
553,302

Total shareholders’ equity
6,466,231

 
6,285,337

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
17,308,727

 
$
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 Nine Months Ended May 31, 2015 and 2014
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
 
 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2015
 
2014
 
2015
 
2014
REVENUES:
 
 
 
 
 
 
 
Revenues before reimbursements (“Net revenues”)
$
7,770,382

 
$
7,735,638

 
$
23,159,426

 
$
22,225,054

Reimbursements
504,684

 
504,542

 
1,390,487

 
1,382,305

Revenues
8,275,066

 
8,240,180

 
24,549,913

 
23,607,359

OPERATING EXPENSES:
 
 
 
 
 
 
 
Cost of services:
 
 
 
 
 
 
 
Cost of services before reimbursable expenses
5,245,477

 
5,199,281

 
15,854,592

 
15,009,208

Reimbursable expenses
504,684

 
504,542

 
1,390,487

 
1,382,305

Cost of services
5,750,161

 
5,703,823

 
17,245,079

 
16,391,513

Sales and marketing
874,713

 
899,250

 
2,580,931

 
2,664,715

General and administrative costs
452,291

 
458,341

 
1,317,260

 
1,347,999

Pension settlement charge
64,382

 

 
64,382

 

Reorganization benefits, net

 

 

 
(18,015
)
Total operating expenses
7,141,547

 
7,061,414

 
21,207,652

 
20,386,212

OPERATING INCOME
1,133,519

 
1,178,766

 
3,342,261

 
3,221,147

Interest income
6,441

 
7,513

 
25,880

 
22,229

Interest expense
(4,030
)
 
(4,290
)
 
(10,746
)
 
(12,296
)
Other expense, net
(3,839
)
 
(6,051
)
 
(28,326
)
 
(21,437
)
INCOME BEFORE INCOME TAXES
1,132,091

 
1,175,938

 
3,329,069

 
3,209,643

Provision for income taxes
281,861

 
294,125

 
843,405

 
793,853

NET INCOME
850,230

 
881,813

 
2,485,664

 
2,415,790

Net income attributable to noncontrolling interests in Accenture SCA and Accenture Canada Holdings Inc.
(46,283
)
 
(51,523
)
 
(137,972
)
 
(143,470
)
Net income attributable to noncontrolling interests – other
(10,250
)
 
(12,954
)
 
(31,739
)
 
(31,838
)
NET INCOME ATTRIBUTABLE TO ACCENTURE PLC
$
793,697

 
$
817,336

 
$
2,315,953

 
$
2,240,482

Weighted average Class A ordinary shares:
 
 
 
 
 
 
 
Basic
625,969,418

 
633,128,417

 
627,523,298

 
635,231,759

Diluted
677,825,768

 
691,038,145

 
679,719,183

 
693,943,009

Earnings per Class A ordinary share:
 
 
 
 
 
 
 
Basic
$
1.27

 
$
1.29

 
$
3.69

 
$
3.53

Diluted
$
1.24

 
$
1.26

 
$
3.61

 
$
3.44

Cash dividends per share
$
1.02

 
$
0.93

 
$
2.04

 
$
1.86

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

4


ACCENTURE PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended May 31, 2015 and 2014
(In thousands of U.S. dollars)
(Unaudited)

 
Three Months Ended May 31,
 
Nine Months Ended May 31,
 
2015
 
2014
 
2015
 
2014
NET INCOME
$
850,230

 
$
881,813

 
$
2,485,664

 
$
2,415,790

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
 
 
 
 
 
 
 
Foreign currency translation
(90,613
)
 
63,690

 
(433,613
)
 
144,650

Defined benefit plans
3,156

 
3,056

 
11,285

 
11,024

Cash flow hedges
(31,921
)
 
93,343

 
42,008

 
190,660

OTHER COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ACCENTURE PLC
(119,378
)
 
160,089

 
(380,320
)
 
346,334

Other comprehensive income attributable to noncontrolling interests
998

 
10,700

 
10,377

 
21,693

COMPREHENSIVE INCOME
$
731,850

 
$
1,052,602

 
$
2,115,721

 
$
2,783,817




 


 
 
 
 
COMPREHENSIVE INCOME ATTRIBUTABLE TO ACCENTURE PLC
$
674,319

 
$
977,425

 
$
1,935,633

 
$
2,586,816

Comprehensive income attributable to noncontrolling interests
57,531

 
75,177

 
180,088

 
197,001

COMPREHENSIVE INCOME
$
731,850

 
$
1,052,602

 
$
2,115,721

 
$
2,783,817

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


5


ACCENTURE PLC
CONSOLIDATED SHAREHOLDERS’ EQUITY STATEMENT
For the Nine Months Ended May 31, 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2,315,953

 
 
 
2,315,953

 
169,711

 
2,485,664

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(380,320
)
 
(380,320
)
 
10,377

 
(369,943
)
Income tax benefit on share-based compensation plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
181,329

 
 
 
 
 
 
 
 
 
181,329

 
 
 
181,329

Purchases of Class A ordinary shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
82,930

 
(1,652,124
)
 
(19,231
)
 
 
 
 
 
(1,569,194
)
 
(82,930
)
 
(1,652,124
)
Share-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
497,007

 
34,684

 
 
 
 
 
 
 
 
 
531,691

 
 
 
531,691

Purchases/redemptions of Accenture SCA Class I common shares, Accenture Canada Holdings Inc. exchangeable shares and Class X ordinary shares
 
 
 
 
 
 
 
 
 
 
(1,804
)
 
 
 
(130,075
)
 
 
 
 
 
 
 
 
 
(130,075
)
 
(6,775
)
 
(136,850
)
Issuances of Class A ordinary shares:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee share programs
 
 
 
 

 
9,427

 
 
 
 
 
(356,997
)
 
652,135

 
177,415

 
4,544

 
 
 
 
 
472,553

 
23,786

 
496,339

Upon redemption of Accenture SCA Class I common shares
 
 
 
 
 
 
1,111

 
 
 
 
 
 
 
5,413

 
 
 
 
 
 
 
 
 
5,413

 
(5,413
)
 

Dividends
 
 
 
 
 
 
 
 
 
 
 
 
52,231

 
 
 
 
 
 
 
(1,329,018
)
 
 
 
(1,276,787
)
 
(76,684
)
 
(1,353,471
)
Other, net
 
 
 
 
 
 
 
 
 
 
 
 
 
 
32,459

 
 
 
 
 
(3,843
)
 
 
 
28,616

 
(30,357
)
 
(1,741
)
Balance as of May 31, 2015
$
57

 
40

 
$
18

 
797,407

 
$
1

 
26,253

 
$
1,113,827

 
$
4,206,267

 
$
(10,897,911
)
 
(173,097
)
 
$
12,741,223

 
$
(1,252,268
)
 
$
5,911,214

 
$
555,017

 
$
6,466,231

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


6


ACCENTURE PLC
CONSOLIDATED CASH FLOWS STATEMENTS
For the Nine Months Ended May 31, 2015 and 2014
(In thousands of U.S. dollars)
(Unaudited)
 
2015
 
2014
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
2,485,664

 
$
2,415,790

Adjustments to reconcile Net income to Net cash provided by operating activities —
 
 
 
Depreciation, amortization and asset impairments
472,160

 
456,664

Reorganization benefits, net

 
(18,015
)
Share-based compensation expense
531,691

 
519,989

Deferred income taxes, net
(124,961
)
 
(203,605
)
Other, net
(244,399
)
 
133,014

Change in assets and liabilities, net of acquisitions —
 
 
 
Receivables from clients, net
(68,144
)
 
(331,649
)
Unbilled services, current and non-current, net
(245,320
)
 
(166,744
)
Other current and non-current assets
(281,731
)
 
(294,028
)
Accounts payable
14,927

 
(50,055
)
Deferred revenues, current and non-current
93,404

 
(64,010
)
Accrued payroll and related benefits
181,678

 
(544,946
)
Income taxes payable, current and non-current
(184,803
)
 
158,555

Other current and non-current liabilities
(42,615
)
 
(174,087
)
Net cash provided by operating activities
2,587,551

 
1,836,873

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Proceeds from sales of property and equipment
2,734

 
4,095

Purchases of property and equipment
(246,980
)
 
(220,413
)
Purchases of businesses and investments, net of cash acquired
(442,202
)
 
(675,220
)
Proceeds from the sale of investments
10,553

 

Net cash used in investing activities
(675,895
)
 
(891,538
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from issuance of ordinary shares
496,339

 
487,768

Purchases of shares
(1,788,974
)
 
(1,901,867
)
Proceeds from long-term debt, net
484

 
734

Cash dividends paid
(1,353,471
)
 
(1,254,916
)
Excess tax benefits from share-based payment arrangements
69,185

 
103,066

Other, net
(17,500
)
 
(15,360
)
Net cash used in financing activities
(2,593,937
)
 
(2,580,575
)
Effect of exchange rate changes on cash and cash equivalents
(212,835
)
 
52,214

NET DECREASE IN CASH AND CASH EQUIVALENTS
(895,116
)
 
(1,583,026
)
CASH AND CASH EQUIVALENTS, beginning of period
4,921,305

 
5,631,885

CASH AND CASH EQUIVALENTS, end of period
$
4,026,189

 
$
4,048,859

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 nine months ended May 31, 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 May 31, 2015 and August 31, 2014, total allowances recorded for client receivables and unbilled services were $82,442 and $82,643, respectively.
Accumulated Depreciation
As of May 31, 2015 and August 31, 2014, total accumulated depreciation was $1,769,090 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 May 31, 2015 and 2014 were 24.9% and 25.0%, respectively. The Company’s effective tax rates for the nine months ended May 31, 2015 and 2014 were 25.3% and 24.7%, respectively. Absent the tax impact of the pension settlement charge recorded during the three months ended May 31, 2015 (see Note 8 (Retirement and Profit Sharing Plans) to these Consolidated Financial Statements), the effective tax rates would have been 25.7% and 25.6% for the three and nine months ended May 31, 2015, respectively. During the nine months ended May 31, 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 $239,528 for withholding taxes that would be payable on the distribution of these earnings. The higher effective tax rate for the nine months ended May 31, 2015 was primarily due to expenses associated with this increase in deferred tax liabilities, partially offset by higher benefits related to final determinations of tax liabilities for prior years, including a $169,829 benefit related to final settlement of U.S. tax audits for fiscal years 2010 and 2011, and benefits related to changes in the geographic distribution of earnings.
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 is expected to be effective for the Company beginning September 1, 2018, including interim periods in its fiscal year 2019, 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 May 31,
 
Nine Months Ended May 31,
 
2015
 
2014
 
2015
 
2014
Basic Earnings per share
 
 
 
 
 
 
 
Net income attributable to Accenture plc
$
793,697

 
$
817,336

 
$
2,315,953

 
$
2,240,482

Basic weighted average Class A ordinary shares
625,969,418

 
633,128,417

 
627,523,298

 
635,231,759

Basic earnings per share
$
1.27

 
$
1.29

 
$
3.69

 
$
3.53

Diluted Earnings per share
 
 
 
 
 
 
 
Net income attributable to Accenture plc
$
793,697

 
$
817,336

 
$
2,315,953

 
$
2,240,482

Net income attributable to noncontrolling interests in Accenture SCA and Accenture Canada Holdings Inc. (1)
46,283

 
51,523

 
137,972

 
143,470

Net income for diluted earnings per share calculation
$
839,980

 
$
868,859

 
$
2,453,925

 
$
2,383,952

Basic weighted average Class A ordinary shares
625,969,418

 
633,128,417

 
627,523,298

 
635,231,759

Class A ordinary shares issuable upon redemption/exchange of noncontrolling interests (1)
36,484,854

 
39,902,188

 
37,362,504

 
40,694,983

Diluted effect of employee compensation related to Class A ordinary shares
15,309,466

 
17,936,287

 
14,746,871

 
17,971,546

Diluted effect of share purchase plans related to Class A ordinary shares
62,030

 
71,253

 
86,510

 
44,721

Diluted weighted average Class A ordinary shares
677,825,768

 
691,038,145

 
679,719,183

 
693,943,009

Diluted earnings per share
$
1.24

 
$
1.26

 
$
3.61

 
$
3.44

_______________
(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.

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 May 31,
 
Nine Months Ended May 31,
 
2015
 
2014
 
2015
 
2014
Foreign currency translation
 
 
 
 
 
 
 
    Beginning balance
$
(667,596
)
 
$
(333,441
)
 
$
(324,596
)
 
$
(414,401
)
             Foreign currency translation
(87,630
)
 
66,568

 
(429,264
)
 
149,898

             Income tax (expense) benefit
(229
)
 
1,860

 
2,962

 
3,822

             Portion attributable to noncontrolling interests
(2,754
)
 
(4,738
)
 
(7,311
)
 
(9,070
)
             Foreign currency translation, net of tax
(90,613
)
 
63,690

 
(433,613
)
 
144,650

    Ending balance
(758,209
)
 
(269,751
)
 
(758,209
)
 
(269,751
)
 
 
 
 
 
 
 
 
Defined benefit plans
 
 
 
 
 
 
 
    Beginning balance
(523,014
)
 
(417,436
)
 
(531,143
)
 
(425,404
)
             Actuarial losses
(67,090
)
 

 
(67,090
)
 

             Pension settlement
64,382

 

 
64,382

 

             Reclassifications into net periodic pension and
post-retirement expense (1)
7,863

 
5,288

 
21,172

 
15,185

             Income tax expense
(1,828
)
 
(2,046
)
 
(6,530
)
 
(3,471
)
             Portion attributable to noncontrolling interests
(171
)
 
(186
)
 
(649
)
 
(690
)
             Defined benefit plans, net of tax
3,156

 
3,056

 
11,285

 
11,024

    Ending balance
(519,858
)
 
(414,380
)
 
(519,858
)
 
(414,380
)
 
 
 
 
 
 
 
 
Cash flow hedges
 
 
 
 
 
 
 
    Beginning balance
57,720

 
(115,624
)
 
(16,209
)
 
(212,941
)
             Unrealized (losses) gains
(42,442
)
 
130,182

 
75,374

 
223,807

             Reclassification adjustments into Cost of services
(8,736
)
 
20,676

 
(13,458
)
 
91,725

             Income tax benefit (expense)
17,330

 
(51,739
)
 
(17,491
)
 
(112,939
)
             Portion attributable to noncontrolling interests
1,927

 
(5,776
)
 
(2,417
)
 
(11,933
)
             Cash flow hedges, net of tax
(31,921
)
 
93,343

 
42,008

 
190,660

    Ending balance (2)
25,799

 
(22,281
)
 
25,799

 
(22,281
)
 
 
 
 
 
 
 
 
Accumulated other comprehensive loss
$
(1,252,268
)
 
$
(706,412
)
 
$
(1,252,268
)
 
$
(706,412
)
 _______________
(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 May 31, 2015, $19,931 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
On March 25, 2015, the Company acquired Agilex Technologies, Inc., a provider of digital solutions for the U.S. federal government, for $263,787, net of cash acquired. This acquisition enhanced Accenture’s digital capabilities in analytics, cloud and mobility for federal agencies and resulted in approximately 730 employees joining the Company. In connection with this acquisition, the Company recorded goodwill of $208,267, which was allocated to the Health & Public Service operating segment, and intangible assets of $49,700, primarily related to customer-related intangibles. The goodwill is non-deductible for U.S. federal income tax purposes. The intangible assets are being amortized over one to eight years. The pro forma effects of this acquisition on the Company’s operations were not material.
During the nine months ended May 31, 2015, the Company completed other individually immaterial acquisitions for total consideration of $173,396, net of cash acquired. The pro forma effects of these acquisitions on the Company’s operations were not material.
 
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
 
May 31,
2015
Communications, Media & Technology
$
338,855

 
$
11,919

 
$
(18,882
)
 
$
331,892

Financial Services
707,093

 
9,714

 
(24,634
)
 
692,173

Health & Public Service
375,052

 
216,643

 
(4,501
)
 
587,194

Products
836,858

 
22,931

 
(30,746
)
 
829,043

Resources
138,036

 
109,507

 
(18,673
)
 
228,870

Total
$
2,395,894

 
$
370,714

 
$
(97,436
)
 
$
2,669,172

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:
 
 
May 31, 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
 
$
401,581

 
$
(115,900
)
 
$
285,681

 
$
334,768

 
$
(88,447
)
 
$
246,321

Technology
 
110,190

 
(48,786
)
 
61,404

 
113,938

 
(41,536
)
 
72,402

Patents
 
116,856

 
(56,761
)
 
60,095

 
135,022

 
(70,299
)
 
64,723

Other
 
30,018

 
(17,448
)
 
12,570

 
37,524

 
(23,090
)
 
14,434

Total
 
$
658,645

 
$
(238,895
)
 
$
419,750

 
$
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 nine months ended May 31, 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

May 15, 2015
 
1.02

 
April 10, 2015
 
637,336

 
April 7, 2015
 
37,399

 
674,735

Total Dividends
 
 
 
 
 
$
1,276,787

 
 
 
$
76,684

 
$
1,353,471

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.



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 nine months ended May 31, 2015 and 2014, 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 $67,040 and $239,630 for the three and nine months ended May 31, 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 $21,039 and $119,515 for the three and nine months ended May 31, 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:
 
May 31, 2015
 
August 31, 2014
Assets
 
 
 
Cash Flow Hedges
 
 
 
Other current assets
$
45,699

 
$
21,148

Other non-current assets
33,900

 
20,875

Other Derivatives
 
 
 
Other current assets
16,146

 
17,076

Total assets
$
95,745

 
$
59,099

Liabilities
 
 
 
Cash Flow Hedges
 
 
 
Other accrued liabilities
$
25,767

 
$
41,103

Other non-current liabilities
15,215

 
24,474

Other Derivatives
 
 
 
Other accrued liabilities
29,853

 
15,392

Total liabilities
$
70,835

 
$
80,969

Total fair value
$
24,910

 
$
(21,870
)
Total notional value
$
6,449,078

 
$
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:
 
May 31,
2015
 
August 31,
2014
Net derivative assets
$
68,318

 
$
22,458

Net derivative liabilities
43,408

 
44,328

Total fair value
$
24,910

 
$
(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. RETIREMENT AND PROFIT SHARING PLANS
U.S. Defined Benefit Pension Plan Settlement Charge
On January 12, 2015, the Company announced a plan to offer a voluntary one-time lump sum payment option to certain eligible former employees who had vested benefits under the Company’s U.S. pension plan, that if accepted, would settle the Company’s pension obligations to them.
The lump sum cash payment offer closed during the third quarter of fiscal 2015. In total, more than 4,800 former participants accepted the offer, resulting in lump sum payments from plan assets of $279,571 in May 2015. As a result of this settlement and the adoption of the new U.S. mortality tables released by the Society of Actuaries, the Company remeasured the assets and liabilities of the U.S. pension plan, which in aggregate resulted in a net reduction to the projected benefit obligation of $179,938 as well as a non-cash settlement charge of $64,382, pre-tax, in the third quarter of fiscal 2015. The funded status of the Company's U.S. pension plan after remeasurement was 104%.
9. 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 May 31, 2015 and August 31, 2014, the Company has reflected the fair value of $85,265 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.
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 May 31, 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 $633,000 and $768,000, respectively, of which all but approximately $14,000 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 May 31, 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)


10. 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 May 31,
 
2015
 
2014
 
Net
Revenues
 
Operating
Income
 
Net
Revenues
 
Operating
Income
Communications, Media & Technology
$
1,613,478

 
$
237,902

 
$
1,524,898

 
$
222,957

Financial Services
1,638,313

 
265,863

 
1,677,066

 
252,928

Health & Public Service
1,383,639

 
202,644

 
1,313,840

 
213,099

Products
1,883,200

 
255,162

 
1,914,539

 
253,357

Resources
1,247,851

 
171,948

 
1,301,774

 
236,425

Other
3,901

 

 
3,521

 

Total
$
7,770,382

 
$
1,133,519

 
$
7,735,638

 
$
1,178,766


 
Nine Months Ended May 31,
 
2015
 
2014
 
Net
Revenues
 
Operating
Income
 
Net
Revenues
 
Operating
Income
Communications, Media & Technology
$
4,711,300

 
$
628,320

 
$
4,344,497

 
$
558,140

Financial Services
4,944,075

 
791,606

 
4,838,687

 
725,634

Health & Public Service
4,071,998

 
568,277

 
3,727,642

 
538,018

Products
5,664,484

 
816,720

 
5,461,116

 
706,270

Resources
3,755,158

 
537,338

 
3,841,678

 
693,085

Other
12,411

 

 
11,434

 

Total
$
23,159,426

 
$
3,342,261

 
$
22,225,054

 
$
3,221,147



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. There continues to be 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 third quarter of fiscal 2015 increased slightly in U.S. dollars and increased 10% in local currency compared to the third quarter of fiscal 2014. Net revenues for the nine months ended May 31, 2015 increased 4% in U.S. dollars and 11% in local currency compared to the nine months ended May 31, 2014. Demand for our services continued to be strong, resulting in growth across all 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 strong in both consulting and outsourcing during the third quarter of fiscal 2015. While the business environment remained competitive, pricing was relatively stable and we saw improvement 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 third quarter of fiscal 2015 increased 1% in U.S. dollars and 11% in local currency compared to the third quarter of fiscal 2014. Net consulting revenues for the nine months ended May 31, 2015 increased 3% in U.S. dollars and 9% in local currency compared to the nine months ended May 31, 2014. We continue to experience growing demand for digital-related services and assisting clients with the adoption of new technologies. In addition, 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. 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 third quarter of fiscal 2015 were flat in U.S. dollars and increased 10% in local currency compared to the third quarter of fiscal 2014. Net outsourcing revenues for the nine months ended May 31, 2015 increased 6% in U.S. dollars and 12% in local currency compared to the nine months ended May 31, 2014. We are experiencing growing demand to assist clients with cloud enablement and operation and maintenance of digital-related services. In addition, 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 nine months ended May 31, 2015, resulting in unfavorable currency translation and U.S. dollar revenue growth that was approximately 10% and 7% 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 7.5% 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 third quarter of fiscal 2015 was 90%, down from 91% for the second 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

18


compensation costs are the most significant portion of our operating expenses. Based on current and projected future demand, we have increased our headcount, the majority of which serve our clients, to more than 336,000 as of May 31, 2015, compared to more than 323,000 as of February 28, 2015 and more than 293,000 as of May 31, 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 third quarter of fiscal 2015 was 15%, up from 14% in both the second quarter of fiscal 2015 and the third 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. 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 third quarter of fiscal 2015 was 32.5%, compared with 32.8% for the third quarter of fiscal 2014. Gross margin for the nine months ended May 31, 2015 was 31.5%, compared with 32.5% for the nine months ended May 31, 2014. The reduction in gross margin for the third quarter and nine months ended May 31, 2015 was principally due to higher labor costs and 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 17.1% for the third quarter of fiscal 2015 and 16.8% for the nine months ended May 31, 2015, compared with 17.5% for the third quarter of fiscal 2014 and 18.1% for the nine months ended May 31, 2014. We continuously monitor these costs and implement cost-management actions, as appropriate. For the nine months ended May 31, 2015 compared to the nine months ended May 31, 2014, sales and marketing costs as a percentage of net revenues decreased 90 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 40 basis points.
Operating expenses in the third quarter of fiscal 2015 included a non-cash pension settlement charge of $64 million related to lump sum cash payments made from our U.S. defined benefit pension plan to former employees who elected to receive such payments. For additional information, see Note 8 (Retirement and Profit Sharing Plans) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
Operating margin (Operating income as a percentage of Net revenues) for the third quarter of fiscal 2015 was 14.6%, compared with 15.2% for the third quarter of fiscal 2014. Operating margin for the nine months ended May 31, 2015 was 14.4%, compared with 14.5% for the nine months ended May 31, 2014. The pension settlement charge of $64 million recorded in the third quarter of fiscal 2015 decreased operating margin by 80 and 30 basis points for the third quarter of fiscal 2015 and nine months ended May 31, 2015, respectively. Excluding the effect of the pension settlement charge, operating margin would have been 15.4% for the third quarter of fiscal 2015 and 14.7% for the nine months ended May 31, 2015, an increase of 20 basis points compared with the same periods in fiscal 2014.
The effective tax rates for the third quarter of fiscal 2015 and nine months ended May 31, 2015 were 24.9% and 25.3%, respectively. Absent the tax impact of the $64 million pension settlement charge recorded during the third quarter of fiscal 2015, our effective tax rates for the third quarter of fiscal 2015 and nine months ended May 31, 2015 would have been 25.7% and 25.6%, respectively.
Diluted earnings per share were $1.24 for the third quarter of fiscal 2015, compared with $1.26 for the third quarter of fiscal 2014. Diluted earnings per share for the nine months ended May 31, 2015 were $3.61, compared with $3.44 for the nine months ended May 31, 2014. The pension settlement charge recorded during the third quarter of fiscal 2015 decreased diluted earnings per share by $0.06 in both the third quarter of fiscal 2015 and nine months ended May 31, 2015. Excluding the impact of this charge, diluted earnings per share would have been $1.30 for the third quarter of fiscal 2015 and $3.67 for the nine months ended May 31, 2015.
We have also presented Operating income, operating margin, effective tax rate and diluted earnings per share excluding the non-cash pension settlement charge, as we believe doing so facilitates understanding as to both the impact of this charge and our operating performance in comparison to the prior period.
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.

19


New Bookings
New bookings for the third quarter of fiscal 2015 were $8.53 billion, with consulting bookings of $4.51 billion and outsourcing bookings of $4.02 billion. New bookings for the nine months ended May 31, 2015 were $25.55 billion, with consulting bookings of $12.62 billion and outsourcing bookings of $12.93 billion.

Results of Operations for the Three Months Ended May 31, 2015 Compared to the Three Months Ended May 31, 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 May 31,
 
Percent
Increase
(Decrease)
U.S. Dollars
 
Percent
Increase
Local
Currency
 
Percent of Total Net Revenues
for the Three Months Ended May 31,
  
2015
 
2014
 
 
 
2015
 
2014
 
(in millions of U.S. dollars)
 
 
 
 
 
 
 
 
OPERATING GROUPS
 
 
 
 
 
 
 
 
 
 
 
Communications, Media & Technology
$
1,613

 
$
1,525

 
6
 %
 
17
%
 
21
%
 
20
%
Financial Services
1,638

 
1,677

 
(2
)
 
10

 
21

 
21

Health & Public Service
1,384

 
1,314

 
5

 
10

 
18

 
17

Products
1,883

 
1,915

 
(2
)
 
8

 
24

 
25

Resources
1,248

 
1,302

 
(4
)
 
6

 
16

 
17

Other
4

 
4

 
n/m

 
n/m

 

 

TOTAL NET REVENUES
7,770

 
7,736

 
 %
 
10
%
 
100
%
 
100
%
Reimbursements
505

 
505

 

 
 
 
 
 
 
TOTAL REVENUES
$
8,275

 
$
8,240

 
 %
 
 
 
 
 
 
GEOGRAPHIC REGIONS (1)
 
 
 
 
 
 
 
 
 
 
 
North America
$
3,644

 
$
3,286

 
11
 %
 
12
%
 
47
%
 
43
%
Europe
2,653

 
2,953

 
(10
)
 
7

 
34

 
38

Growth Markets
1,473

 
1,496

 
(2
)
 
13

 
19

 
19

TOTAL NET REVENUES
$
7,770

 
$
7,736

 
 %
 
10
%
 
100
%
 
100
%
TYPE OF WORK
 
 
 
 
 
 
 
 
 
 
 
Consulting
$
4,112

 
$
4,086

 
1
 %
 
11
%
 
53
%
 
53
%
Outsourcing
3,658

 
3,649

 

 
10

 
47

 
47

TOTAL NET REVENUES
$
7,770

 
$
7,736

 
 %
 
10
%
 
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 third quarter of fiscal 2015 compared to the third quarter of fiscal 2014:
Operating Groups
Communications, Media & Technology net revenues increased 17% in local currency. Consulting revenues reflected significant growth, driven by Communications across all geographic regions. Outsourcing revenues reflected significant growth, driven by growth across all industry groups and geographic regions.
Financial Services net revenues increased 10% in local currency. Consulting revenues reflected significant growth, driven by all industry groups in Europe and North America as well as Capital Markets and Insurance in Growth Markets. Outsourcing revenues reflected slight growth, driven by all industry groups in Europe and Growth Markets, partially offset by declines in Banking and Capital Markets in North America.

20


Health & Public Service net revenues increased 10% in local currency. Outsourcing revenues reflected very significant growth, led by Health and Public Service in North America. Consulting revenues reflected slight growth driven by Public Service and Health in North America, partially offset by a decline in Public Service in Growth Markets.
Products net revenues increased 8% in local currency. Consulting revenues reflected very strong growth, driven by all industry groups in Europe and most industry groups in North America and Growth Markets, led by Consumer Goods & Services. These increases were partially offset by declines in Retail and Air, Freight & Travel Services in North America. Outsourcing revenue growth was driven by most industry groups in North America and Growth Markets and Retail in Europe. 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 strong growth, driven by Energy in Europe and Utilities in North America. Consulting revenue growth was driven by Utilities across all geographic regions and Natural Resources and Chemicals in Europe. These consulting increases were partially offset by declines in Energy in Europe and 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 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 12% in local currency, driven by the United States.
Europe net revenues increased 7% in local currency, driven by Spain, the United Kingdom, Germany and the Netherlands.
Growth Markets net revenues increased 13% in local currency, driven by Japan, Australia and Brazil.
Operating Expenses
Operating expenses for the third quarter of fiscal 2015 increased $80 million, or 1%, over the third quarter of fiscal 2014, and increased as a percentage of revenues to 86.3% from 85.7% during this period. Operating expenses before reimbursable expenses for the third quarter of fiscal 2015 increased $80 million, or 1%, over the third quarter of fiscal 2014, and increased as a percentage of net revenues to 85.4% from 84.8% during this period.
Cost of Services
Cost of services for the third quarter of fiscal 2015 increased $46 million, or 1%, over the third quarter of fiscal 2014, and increased as a percentage of revenues to 69.5% from 69.2% during this period. Cost of services before reimbursable expenses for the third quarter of fiscal 2015 increased $46 million, or 1%, over the third quarter of fiscal 2014, and increased as a percentage of net revenues to 67.5% from 67.2% during this period. Gross margin for the third quarter of fiscal 2015 decreased to 32.5% from 32.8% for the third quarter of fiscal 2014, principally due to higher labor costs and increased usage of subcontractors, compared to the third quarter of fiscal 2014.
Sales and Marketing
Sales and marketing expense for the third quarter of fiscal 2015 decreased $25 million, or 3%, from the third quarter of fiscal 2014, and decreased as a percentage of net revenues to 11.3% from 11.6%. The decrease as a percentage of net revenues was principally due to improved operational efficiency in our business development activities.
General and Administrative Costs
General and administrative costs for the third quarter of fiscal 2015 decreased $6 million, or 1%, from the third quarter of fiscal 2014, and decreased as a percentage of net revenues to 5.8% from 5.9% during this period.
Pension Settlement Charge
We recorded a non-cash pension settlement charge of $64 million during the third quarter of fiscal 2015 as a result of lump sum cash payments made from our U.S. defined benefit pension plan to former employees who elected to receive such payments. For additional information, refer to Note 8 (Retirement and Profit Sharing Plans) to our Consolidated Financial Statements above under Item 1,“Financial Statements.”


21


Operating Income and Operating Margin
Operating income for the third quarter of fiscal 2015 decreased $45 million, or 4%, from the third quarter of fiscal 2014. The pension settlement charge of $64 million recorded in the third quarter of fiscal 2015 decreased operating margin by 80 basis points. Excluding the effects of the pension settlement charge, operating margin for the third quarter of fiscal 2015 increased 20 basis points compared with the third quarter of fiscal 2014.
Operating income and operating margin for each of the operating groups were as follows:
 
Three Months Ended May 31,
  
2015
 
2014
  
Operating
Income
 
Operating
Margin
 
Operating
Income
 
Operating
Margin
 
 (in millions of U.S. dollars)
Communications, Media & Technology
$
238

 
15
%
 
$
223

 
15
%
Financial Services
266

 
16

 
253

 
15

Health & Public Service
203

 
15

 
213

 
16

Products
255

 
14

 
253

 
13

Resources
172

 
14

 
236

 
18

Total
$
1,134

 
14.6
%
 
$
1,179

 
15.2
%
_______________ 
Amounts in table may not total due to rounding.
Operating Income and Operating Margin Excluding Pension Settlement Charge (Non-GAAP)
 
Three Months Ended May 31,
 
 
 
2015
 
2014
 
 
 
 
 
Operating Income and Operating Margin
Excluding Pension Settlement Charge
(Non-GAAP)
 
Operating Income and
Operating Margin as
Reported (GAAP)
 
 
  
 
 
 
 
 
 
Operating
Income
(GAAP)
 
Pension Settlement Charge (1)
 
Operating Income
 
Operating
Margin
 
Operating
Income
 
Operating
Margin
 
Increase
(Decrease)
 
 (in millions of U.S. dollars)
Communications, Media & Technology
$
238

 
$
13

 
$
250

 
16
%
 
$
223

 
15
%
 
$
27

Financial Services
266

 
13

 
279

 
17

 
253

 
15

 
26

Health & Public Service
203

 
12

 
214

 
15

 
213

 
16

 
1

Products
255

 
16

 
271

 
14

 
253

 
13

 
18

Resources
172

 
11

 
183

 
15

 
236

 
18

 
(54
)
Total
$
1,134

 
$
64

 
$
1,198

 
15.4
%
 
$
1,179

 
15.2
%
 
$
19

_______________ 
Amounts in table may not total due to rounding.

(1)
Represents non-cash pension settlement charge related to lump sum cash payments from our U.S. defined benefit pension plan to former employees who elected to receive such payments. The payments settled our pension obligations to those who participated.

22


We estimate that the aggregate percentage impact of foreign currency exchange rates on our Operating income during the third quarter of fiscal 2015 was similar to that disclosed for Net revenue. In addition, during the third quarter of fiscal 2015, each operating group recorded a portion of the $64 million pension settlement charge. The commentary below provides insight into other factors affecting operating group performance and operating margin for the third quarter of fiscal 2015, exclusive of the pension settlement charge, compared with the third 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 consulting revenue growth, lower sales and marketing costs as a percentage of net revenues and improved outsourcing contract profitability.
Health & Public Service operating income was flat.
Products operating income increased due to higher contract profitability.
Resources operating income decreased due to lower contract profitability.
Provision for Income Taxes
The effective tax rate for the third quarter of fiscal 2015 was 24.9%, compared with 25.0% for the third quarter of fiscal 2014. Absent the tax impact of the $64 million pension settlement charge recorded during the third quarter of fiscal 2015, the effective tax rate for the third quarter of fiscal 2015 would have been 25.7%. The higher effective tax rate in the third quarter of fiscal 2015 was primarily due to expenses associated with an increase in deferred tax liabilities on undistributed U.S. earnings, partially offset by benefits from changes in the geographic distribution of earnings. 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 third quarter of fiscal 2015 decreased $8 million, or 12%, from the third quarter of fiscal 2014. The decrease was due to a reduction in the Accenture SCA Class I common shares and Accenture Canada Holdings Inc. exchangeable shares average noncontrolling interest as well as lower Net income of $32 million during the third quarter of fiscal 2015.
Earnings Per Share
Diluted earnings per share were $1.24 for the third quarter of fiscal 2015, compared with $1.26 for the third quarter of fiscal 2014. The $0.02 decrease in our diluted earnings per share included the impact of the $64 million pension settlement charge, which decreased diluted earnings per share for the third quarter of fiscal 2015 by $0.06. Excluding the impact of the pension settlement charge, diluted earnings per share for the third quarter of fiscal 2015 increased $0.04 compared with the third quarter of fiscal 2014, due to increases of $0.03 from lower weighted average shares outstanding and $0.02 from higher revenues and operating results. These increases were partially offset by a decrease of $0.01 from a higher effective tax rate. For information regarding our earnings per share calculations, see Note 2 (Earnings Per Share) to our Consolidated Financial Statements under Item 1, “Financial Statements.”

23


Results of Operations for the Nine Months Ended May 31, 2015 Compared to the Nine Months Ended May 31, 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:
  
Nine Months Ended May 31,
 
Percent
Increase
(Decrease)
U.S. Dollars
 
Percent
Increase
Local
Currency
 
Percent of Total Net Revenues
for the Nine Months Ended May 31,
  
2015
 
2014
 
 
 
2015
 
2014
 
(in millions of U.S. dollars)
 
 
 
 
 
 
 
 
OPERATING GROUPS
 
 
 
 
 
 
 
 
 
 
 
Communications, Media & Technology
$
4,711

 
$
4,344

 
8
 %
 
16
%
 
20
%
 
19
%
Financial Services
4,944

 
4,839

 
2

 
10

 
21

 
22

Health & Public Service
4,072

 
3,728

 
9

 
12

 
18

 
17

Products
5,664

 
5,461

 
4

 
10

 
25

 
25

Resources
3,755

 
3,842

 
(2
)
 
4

 
16

 
17

Other
12

 
11

 
n/m

 
n/m

 

 

TOTAL NET REVENUES
23,159

 
22,225

 
4
 %
 
11
%
 
100
%
 
100
%
Reimbursements
1,390

 
1,382

 
1

 
 
 
 
 
 
TOTAL REVENUES
$
24,550

 
$
23,607

 
4
 %
 
 
 
 
 
 
GEOGRAPHIC REGIONS (1)