Document
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, 2018 |
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | |
Large accelerated filer þ | Accelerated filer ¨ | Non-accelerated filer ¨ |
Smaller reporting company ¨ | Emerging growth company ¨ | (Do not check if a smaller reporting company) |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
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 14, 2018 was 674,019,792 (which number includes 33,271,713 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 14, 2018 was 664,761.
ACCENTURE PLC
INDEX
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACCENTURE PLC
CONSOLIDATED BALANCE SHEETS
May 31, 2018 and August 31, 2017
(In thousands of U.S. dollars, except share and per share amounts) |
| | | | | | | |
| May 31, 2018 | | August 31, 2017 |
| (Unaudited) | | |
ASSETS | | | |
CURRENT ASSETS: | | | |
Cash and cash equivalents | $ | 3,928,845 |
| | $ | 4,126,860 |
|
Short-term investments | 3,261 |
| | 3,011 |
|
Receivables from clients, net | 4,986,652 |
| | 4,569,214 |
|
Unbilled services, net | 2,460,047 |
| | 2,316,043 |
|
Other current assets | 958,067 |
| | 1,082,161 |
|
Total current assets | 12,336,872 |
| | 12,097,289 |
|
NON-CURRENT ASSETS: | | | |
Unbilled services, net | 42,465 |
| | 40,938 |
|
Investments | 208,557 |
| | 211,610 |
|
Property and equipment, net | 1,228,946 |
| | 1,140,598 |
|
Goodwill | 5,275,293 |
| | 5,002,352 |
|
Deferred contract costs | 728,582 |
| | 755,871 |
|
Deferred income taxes, net | 2,269,992 |
| | 2,214,901 |
|
Other non-current assets | 1,160,086 |
| | 1,226,331 |
|
Total non-current assets | 10,913,921 |
| | 10,592,601 |
|
TOTAL ASSETS | $ | 23,250,793 |
| | $ | 22,689,890 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
CURRENT LIABILITIES: | | | |
Current portion of long-term debt and bank borrowings | $ | 2,840 |
| | $ | 2,907 |
|
Accounts payable | 1,388,989 |
| | 1,525,065 |
|
Deferred revenues | 2,744,402 |
| | 2,669,520 |
|
Accrued payroll and related benefits | 4,000,562 |
| | 4,060,364 |
|
Accrued consumption taxes | 424,100 |
| | 383,391 |
|
Income taxes payable | 483,723 |
| | 708,485 |
|
Other accrued liabilities | 508,980 |
| | 474,547 |
|
Total current liabilities | 9,553,596 |
| | 9,824,279 |
|
NON-CURRENT LIABILITIES: | | | |
Long-term debt | 25,958 |
| | 22,163 |
|
Deferred revenues | 635,737 |
| | 663,248 |
|
Retirement obligation | 1,448,608 |
| | 1,408,759 |
|
Deferred income taxes, net | 132,324 |
| | 137,098 |
|
Income taxes payable | 902,337 |
| | 574,780 |
|
Other non-current liabilities | 399,497 |
| | 349,363 |
|
Total non-current liabilities | 3,544,461 |
| | 3,155,411 |
|
COMMITMENTS AND CONTINGENCIES |
| |
|
SHAREHOLDERS’ EQUITY: | | | |
Ordinary shares, par value 1.00 euros per share, 40,000 shares authorized and issued as of May 31, 2018 and August 31, 2017 | 57 |
| | 57 |
|
Class A ordinary shares, par value $0.0000225 per share, 20,000,000,000 shares authorized, 673,861,860 and 638,965,789 shares issued as of May 31, 2018 and August 31, 2017, respectively | 15 |
| | 14 |
|
Class X ordinary shares, par value $0.0000225 per share, 1,000,000,000 shares authorized, 664,761 and 20,531,383 shares issued and outstanding as of May 31, 2018 and August 31, 2017, respectively | — |
| | — |
|
Restricted share units | 1,110,951 |
| | 1,095,026 |
|
Additional paid-in capital | 4,934,185 |
| | 3,516,399 |
|
Treasury shares, at cost: Ordinary, 40,000 shares as of May 31, 2018 and August 31, 2017; Class A ordinary, 32,973,325 and 23,408,811 shares as of May 31, 2018 and August 31, 2017, respectively | (3,201,012 | ) | | (1,649,090 | ) |
Retained earnings | 8,296,830 |
| | 7,081,855 |
|
Accumulated other comprehensive loss | (1,343,701 | ) | | (1,094,784 | ) |
Total Accenture plc shareholders’ equity | 9,797,325 |
| | 8,949,477 |
|
Noncontrolling interests | 355,411 |
| | 760,723 |
|
Total shareholders’ equity | 10,152,736 |
| | 9,710,200 |
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 23,250,793 |
| | $ | 22,689,890 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
ACCENTURE PLC
CONSOLIDATED INCOME STATEMENTS
For the Three and Nine Months Ended May 31, 2018 and 2017
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| May 31, 2018 | | May 31, 2017 | | May 31, 2018 | | May 31, 2017 |
REVENUES: | | | | | | | |
Revenues before reimbursements (“Net revenues”) | $ | 10,314,999 |
| | $ | 8,867,036 |
| | $ | 29,423,663 |
| | $ | 25,700,224 |
|
Reimbursements | 523,855 |
| | 489,751 |
| | 1,537,516 |
| | 1,424,348 |
|
Revenues | 10,838,854 |
| | 9,356,787 |
| | 30,961,179 |
| | 27,124,572 |
|
OPERATING EXPENSES: | | | | | | | |
Cost of services: | | | | | | | |
Cost of services before reimbursable expenses | 6,995,871 |
| | 5,957,405 |
| | 20,203,881 |
| | 17,556,405 |
|
Reimbursable expenses | 523,855 |
| | 489,751 |
| | 1,537,516 |
| | 1,424,348 |
|
Cost of services | 7,519,726 |
| | 6,447,156 |
| | 21,741,397 |
| | 18,980,753 |
|
Sales and marketing | 1,107,138 |
| | 986,228 |
| | 3,108,316 |
| | 2,746,544 |
|
General and administrative costs | 592,264 |
| | 548,175 |
| | 1,723,096 |
| | 1,551,435 |
|
Pension settlement charge | — |
| | 509,793 |
| | — |
| | 509,793 |
|
Total operating expenses | 9,219,128 |
| | 8,491,352 |
| | 26,572,809 |
| | 23,788,525 |
|
OPERATING INCOME | 1,619,726 |
| | 865,435 |
| | 4,388,370 |
| | 3,336,047 |
|
Interest income | 12,687 |
| | 8,549 |
| | 33,582 |
| | 25,574 |
|
Interest expense | (5,839 | ) | | (3,613 | ) | | (14,386 | ) | | (10,637 | ) |
Other income (expense), net | (14,016 | ) | | (4,213 | ) | | (56,087 | ) | | (22,846 | ) |
Gain (loss) on sale of businesses | — |
| | 8,242 |
| | — |
| | (4,107 | ) |
INCOME BEFORE INCOME TAXES | 1,612,558 |
| | 874,400 |
| | 4,351,479 |
| | 3,324,031 |
|
Provision for income taxes | 554,417 |
| | 169,599 |
| | 1,185,256 |
| | 672,273 |
|
NET INCOME | 1,058,141 |
| | 704,801 |
| | 3,166,223 |
| | 2,651,758 |
|
Net income attributable to noncontrolling interests in Accenture Holdings plc and Accenture Canada Holdings Inc. | (6,997 | ) | | (23,024 | ) | | (93,531 | ) | | (107,437 | ) |
Net income attributable to noncontrolling interests – other | (8,124 | ) | | (12,309 | ) | | (42,309 | ) | | (31,625 | ) |
NET INCOME ATTRIBUTABLE TO ACCENTURE PLC | $ | 1,043,020 |
| | $ | 669,468 |
| | $ | 3,030,383 |
| | $ | 2,512,696 |
|
Weighted average Class A ordinary shares: | | | | | | | |
Basic | 639,217,344 |
| | 619,436,804 |
| | 624,365,464 |
| | 621,025,256 |
|
Diluted | 654,600,026 |
| | 658,770,425 |
| | 655,739,568 |
| | 661,130,306 |
|
Earnings per Class A ordinary share: | | | | | | | |
Basic | $ | 1.63 |
| | $ | 1.08 |
| | $ | 4.85 |
| | $ | 4.05 |
|
Diluted | $ | 1.60 |
| | $ | 1.05 |
| | $ | 4.76 |
| | $ | 3.96 |
|
Cash dividends per share | $ | 1.33 |
| | $ | 1.21 |
| | $ | 2.66 |
| | $ | 2.42 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
ACCENTURE PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Nine Months Ended May 31, 2018 and 2017
(In thousands of U.S. dollars)
(Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| May 31, 2018 | | May 31, 2017 | | May 31, 2018 | | May 31, 2017 |
NET INCOME | $ | 1,058,141 |
| | $ | 704,801 |
| | $ | 3,166,223 |
| | $ | 2,651,758 |
|
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: | | | | | | | |
Foreign currency translation | (230,997 | ) | | 93,168 |
| | (136,706 | ) | | (14,751 | ) |
Defined benefit plans | (2,683 | ) | | 277,764 |
| | 11,436 |
| | 282,299 |
|
Cash flow hedges | (43,801 | ) | | 32,896 |
| | (124,795 | ) | | 58,385 |
|
Investments | 46 |
| | — |
| | 1,148 |
| | 264 |
|
OTHER COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ACCENTURE PLC | (277,435 | ) | | 403,828 |
| | (248,917 | ) | | 326,197 |
|
Other comprehensive income (loss) attributable to noncontrolling interests | (5,926 | ) | | 22,955 |
| | 340 |
| | 12,374 |
|
COMPREHENSIVE INCOME | $ | 774,780 |
| | $ | 1,131,584 |
| | $ | 2,917,646 |
| | $ | 2,990,329 |
|
|
|
| |
|
| | | | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO ACCENTURE PLC | $ | 765,585 |
| | $ | 1,073,296 |
| | $ | 2,781,466 |
| | $ | 2,838,893 |
|
Comprehensive income attributable to noncontrolling interests | 9,195 |
| | 58,288 |
| | 136,180 |
| | 151,436 |
|
COMPREHENSIVE INCOME | $ | 774,780 |
| | $ | 1,131,584 |
| | $ | 2,917,646 |
| | $ | 2,990,329 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
ACCENTURE PLC
CONSOLIDATED SHAREHOLDERS’ EQUITY STATEMENT
For the Nine Months Ended May 31, 2018
(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, 2017 | $ | 57 |
| | 40 |
| | $ | 14 |
| | 638,966 |
| | $ | — |
| | 20,531 |
| | $ | 1,095,026 |
| | $ | 3,516,399 |
| | $ | (1,649,090 | ) | | (23,449 | ) | | $ | 7,081,855 |
| | $ | (1,094,784 | ) | | $ | 8,949,477 |
| | $ | 760,723 |
| | $ | 9,710,200 |
|
Net income | | | | | | | | | | | | | | | | | | | | | 3,030,383 |
| | | | 3,030,383 |
| | 135,840 |
| | 3,166,223 |
|
Other comprehensive income (loss) | | | | | | | | | | | | | | | | | | | | | | | (248,917 | ) | | (248,917 | ) | | 340 |
| | (248,577 | ) |
Purchases of Class A ordinary shares | | | | | | | | | | | | | | | 49,029 |
| | (2,004,114 | ) | | (13,337 | ) | | | | | | (1,955,085 | ) | | (49,029 | ) | | (2,004,114 | ) |
Share-based compensation expense | | | | | | | | | | | | | 688,719 |
| | 63,107 |
| | | | | | | | | | 751,826 |
| | | | 751,826 |
|
Purchases/redemptions of Accenture Holdings plc ordinary shares, Accenture Canada Holdings Inc. exchangeable shares and Class X ordinary shares | | | | | | | | | | | (812 | ) | | | | (78,318 | ) | | | | | | | | | | (78,318 | ) | | (4,838 | ) | | (83,156 | ) |
Issuances of Class A ordinary shares: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Employee share programs | | | | | | | 8,990 |
| | | | | | (729,020 | ) | | 997,725 |
| | 452,192 |
| | 3,773 |
| | (68,656 | ) | | | | 652,241 |
| | 14,589 |
| | 666,830 |
|
Upon redemption of Accenture Holdings plc ordinary shares | | | | | 1 |
| | 25,906 |
| | | | (19,054 | ) | | | | 408,652 |
| | | | | | | | | | 408,653 |
| | (408,653 | ) | | — |
|
Dividends | | | | | | | | | | | | | 56,226 |
| | | | | | | | (1,727,298 | ) | | | | (1,671,072 | ) | | (37,652 | ) | | (1,708,724 | ) |
Other, net | | | | | | | | | | | | |
|
| | (22,409 | ) | | | | | | (19,454 | ) | | | | (41,863 | ) | | (55,909 | ) | | (97,772 | ) |
Balance as of May 31, 2018 | $ | 57 |
| | 40 |
| | $ | 15 |
| | 673,862 |
| | $ | — |
| | 665 |
| | $ | 1,110,951 |
| | $ | 4,934,185 |
| | $ | (3,201,012 | ) | | (33,013 | ) | | $ | 8,296,830 |
| | $ | (1,343,701 | ) | | $ | 9,797,325 |
| | $ | 355,411 |
| | $ | 10,152,736 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
ACCENTURE PLC
CONSOLIDATED CASH FLOWS STATEMENTS
For the Nine Months Ended May 31, 2018 and 2017
(In thousands of U.S. dollars)
(Unaudited)
|
| | | | | | | |
| May 31, 2018 | | May 31, 2017 |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | |
Net income | $ | 3,166,223 |
| | $ | 2,651,758 |
|
Adjustments to reconcile Net income to Net cash provided by operating activities — | | | |
Depreciation, amortization and asset impairments | 691,686 |
| | 569,720 |
|
Share-based compensation expense | 751,826 |
| | 611,937 |
|
Pension settlement charge | — |
| | 460,908 |
|
(Gain) loss on sale of business | — |
| | 4,107 |
|
Deferred income taxes, net | (75,985 | ) | | (328,015 | ) |
Other, net | 44,135 |
| | (29,752 | ) |
Change in assets and liabilities, net of acquisitions — | | | |
Receivables from clients, net | (463,972 | ) | | (240,703 | ) |
Unbilled services, current and non-current, net | (188,343 | ) | | 2,489 |
|
Other current and non-current assets | (241,979 | ) | | (374,306 | ) |
Accounts payable | (132,607 | ) | | (29,697 | ) |
Deferred revenues, current and non-current | 85,853 |
| | 39,607 |
|
Accrued payroll and related benefits | 7,469 |
| | (458,456 | ) |
Income taxes payable, current and non-current | 100,939 |
| | 217,034 |
|
Other current and non-current liabilities | 172,188 |
| | (65,474 | ) |
Net cash provided by (used in) operating activities | 3,917,433 |
| | 3,031,157 |
|
CASH FLOWS FROM INVESTING ACTIVITIES: | | | |
Purchases of property and equipment | (439,804 | ) | | (324,773 | ) |
Purchases of businesses and investments, net of cash acquired | (456,402 | ) | | (1,241,500 | ) |
Proceeds from sales of businesses and investments, net of cash transferred | 14,325 |
| | (24,189 | ) |
Proceeds from sales of property and equipment | 7,245 |
| | 8,977 |
|
Net cash provided by (used in) investing activities | (874,636 | ) | | (1,581,485 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | |
Proceeds from issuance of ordinary shares | 666,830 |
| | 600,920 |
|
Purchases of shares | (2,087,270 | ) | | (1,992,205 | ) |
Proceeds from (repayments of) long-term debt, net
| (456 | ) | | 515 |
|
Cash dividends paid | (1,708,724 | ) | | (1,567,578 | ) |
Other, net | (47,792 | ) | | (9,323 | ) |
Net cash provided by (used in) financing activities | (3,177,412 | ) | | (2,967,671 | ) |
Effect of exchange rate changes on cash and cash equivalents | (63,400 | ) | | (5,402 | ) |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (198,015 | ) | | (1,523,401 | ) |
CASH AND CASH EQUIVALENTS, beginning of period | 4,126,860 |
| | 4,905,609 |
|
CASH AND CASH EQUIVALENTS, end of period | $ | 3,928,845 |
| | $ | 3,382,208 |
|
SUPPLEMENTAL CASH FLOW INFORMATION: | | | |
Income taxes paid | $ | 1,133,641 |
| | $ | 820,103 |
|
The accompanying Notes are an integral part of these Consolidated Financial Statements.
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 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. We use the terms “Accenture,” “we” and “our” in the Notes to Consolidated Financial Statements to refer to Accenture plc and its subsidiaries. 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, 2017 included in our Annual Report on Form 10-K filed with the SEC on October 26, 2017.
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 we 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, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2018.
On March 13, 2018, Accenture Holdings plc merged with and into Accenture plc, with Accenture plc as the surviving entity. As a result, all of the assets and liabilities of Accenture Holdings plc were acquired by Accenture plc, and Accenture Holdings plc ceased to exist. In connection with this internal merger, shareholders of Accenture Holdings plc (other than Accenture entities that held shares of Accenture Holdings plc), who primarily consisted of current and former members of Accenture Leadership and their permitted transferees, received one Class A ordinary share of Accenture plc for each share of Accenture Holdings plc that they owned, and Accenture plc redeemed all Class X ordinary shares of Accenture plc owned by such shareholders.
Allowances for Client Receivables and Unbilled Services
As of May 31, 2018 and August 31, 2017, total allowances recorded for client receivables and unbilled services were $56,653 and $74,450, respectively.
Depreciation and Amortization
Depreciation expense was $101,814 and $315,410 for the three and nine months ended May 31, 2018, respectively, and $86,148 and $255,807 for the three and nine months ended May 31, 2017, respectively. As of May 31, 2018 and August 31, 2017, total accumulated depreciation was $2,028,174 and $1,912,146, respectively. Deferred transition amortization expense was $95,696 and $248,838 for the three and nine months ended May 31, 2018, respectively, and $66,634 and $205,763 for the three and nine months ended May 31, 2017, respectively. See Note 5 (Goodwill and Intangible Assets) for intangible asset amortization balances.
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)
New Accounting Pronouncements
The following standards, issued by the Financial Accounting Standards Board (“FASB”), will, or are expected to, result in a change in practice and/or have a financial impact to our Consolidated Financial Statements:
|
| | | | | | |
Standard | | Description | | Accenture Adoption Date | | Impact on the Financial Statements or Other Significant Matters |
2016-16: Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory | | The guidance requires an entity to recognize the income tax consequences of intra-entity transfers, other than inventory, when the transfer occurs. Under current guidance in U.S. GAAP, in the case of depreciable or amortizable assets, the income tax consequences are deferred at the time of the intra-entity transfer and recognized as the assets are depreciated or amortized. The guidance requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. | | September 1, 2018 | | The adoption of this Accounting Standards Update (“ASU”) will require that we record deferred tax assets on our Consolidated Balance Sheet at the beginning of fiscal 2019. The deferred tax assets, which could be up to $2.1 billion, represent income tax consequences of prior intra-entity transfers of assets, which are currently recognized over the expected life of the assets. Beginning in fiscal 2019, we will recognize incremental income tax expense as these deferred tax assets are utilized. Initially, this could represent approximately a 3.5 percentage point increase in the annual effective tax rate. However, the actual impact of adoption will depend on numerous factors, including activity for fiscal 2018 and management’s expectations regarding recoverability of the related deferred taxes. Adoption will not have any impact on cash flows. |
2016-02: Leases | | The guidance amends existing guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose additional quantitative and qualitative information about leasing arrangements. The guidance requires a modified retrospective method upon adoption. | | September 1, 2019 | | While we are continuing to assess the potential impact of this ASU, we currently believe the most significant impact relates to our accounting for office space operating leases. We anticipate this ASU will have a material impact on our Consolidated Balance Sheets but will not have a material impact on our other Consolidated Financial Statements or footnotes. |
2014-09: (Accounting Standard Codification 606), Revenue from Contracts with Customers and related updates | | The guidance replaces 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 also requires amortization of incremental costs to obtain a customer contract over the term of the customer arrangement. The guidance allows for both retrospective and modified retrospective methods of adoption. | | September 1, 2018 | | We performed a preliminary assessment of the impact of the ASU and are executing a transition plan, including necessary changes to policies, processes, and internal controls as well as system enhancements to generate the information necessary for the new disclosures. The project is on schedule for adoption on September 1, 2018 and we will apply the modified retrospective method. We expect revenue recognition across our portfolio of services to remain largely unchanged. However, we expect to recognize revenue earlier than we do under current guidance in a few areas, including accounting for variable fees and for certain consulting services, which will be recognized over time rather than at a point in time. Additionally, we will capitalize and amortize the direct and incremental costs of obtaining customer contracts over the term of the customer arrangement rather than expense these costs when incurred. While we have not finalized our assessment of the impact of the ASU, based on the analysis completed to date, we do not currently anticipate that the ASU will have a material impact on our Consolidated Financial Statements.
|
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 | | Nine Months Ended |
| May 31, 2018 | | May 31, 2017 | | May 31, 2018 | | May 31, 2017 |
Basic Earnings per share | | | | | | | |
Net income attributable to Accenture plc | $ | 1,043,020 |
| | $ | 669,468 |
| | $ | 3,030,383 |
| | $ | 2,512,696 |
|
Basic weighted average Class A ordinary shares | 639,217,344 |
| | 619,436,804 |
| | 624,365,464 |
| | 621,025,256 |
|
Basic earnings per share | $ | 1.63 |
| | $ | 1.08 |
| | $ | 4.85 |
| | $ | 4.05 |
|
Diluted Earnings per share | | | | | | | |
Net income attributable to Accenture plc | $ | 1,043,020 |
| | $ | 669,468 |
| | $ | 3,030,383 |
| | $ | 2,512,696 |
|
Net income attributable to noncontrolling interests in Accenture Holdings plc and Accenture Canada Holdings Inc. (1) | 6,997 |
| | 23,024 |
| | 93,531 |
| | 107,437 |
|
Net income for diluted earnings per share calculation | $ | 1,050,017 |
| | $ | 692,492 |
| | $ | 3,123,914 |
| | $ | 2,620,133 |
|
Basic weighted average Class A ordinary shares | 639,217,344 |
| | 619,436,804 |
| | 624,365,464 |
| | 621,025,256 |
|
Class A ordinary shares issuable upon redemption/exchange of noncontrolling interests (1) | 4,294,411 |
| | 27,926,781 |
| | 19,354,992 |
| | 28,274,559 |
|
Diluted effect of employee compensation related to Class A ordinary shares | 11,017,024 |
| | 11,329,345 |
| | 11,853,822 |
| | 11,721,416 |
|
Diluted effect of share purchase plans related to Class A ordinary shares | 71,247 |
| | 77,495 |
| | 165,290 |
| | 109,075 |
|
Diluted weighted average Class A ordinary shares | 654,600,026 |
| | 658,770,425 |
| | 655,739,568 |
| | 661,130,306 |
|
Diluted earnings per share | $ | 1.60 |
| | $ | 1.05 |
| | $ | 4.76 |
| | $ | 3.96 |
|
_______________
| |
(1) | Diluted earnings per share assumes the exchange of all Accenture Canada Holdings Inc. exchangeable shares for Accenture plc Class A ordinary shares on a one-for-one basis and the redemption of all Accenture Holdings plc ordinary shares owned by holders of noncontrolling interests prior to March 13, 2018, when these were redeemed for Accenture plc Class A ordinary shares. 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. |
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 | | Nine Months Ended |
| May 31, 2018 | | May 31, 2017 | | May 31, 2018 | | May 31, 2017 |
Foreign currency translation | | | | | | | |
Beginning balance | $ | (675,752 | ) | | $ | (1,027,882 | ) | | $ | (770,043 | ) | | $ | (919,963 | ) |
Foreign currency translation | (240,840 | ) | | 102,087 |
| | (137,279 | ) | | (17,389 | ) |
Income tax benefit (expense) | 1,264 |
| | 102 |
| | 1,081 |
| | (293 | ) |
Portion attributable to noncontrolling interests | 8,579 |
| | (9,021 | ) | | (508 | ) | | 2,931 |
|
Foreign currency translation, net of tax | (230,997 | ) | | 93,168 |
| | (136,706 | ) | | (14,751 | ) |
Ending balance | (906,749 | ) | | (934,714 | ) | | (906,749 | ) | | (934,714 | ) |
| | | | | | | |
Defined benefit plans | | | | | | | |
Beginning balance | (426,500 | ) | | (804,969 | ) | | (440,619 | ) | | (809,504 | ) |
Actuarial gains (losses) | 12,044 |
| | (48,885 | ) | | 12,044 |
| | (48,885 | ) |
Pension settlement | — |
| | 509,793 |
| | 2,119 |
| | 509,793 |
|
Prior service costs arising during the period | (29,796 | ) | | — |
| | (29,796 | ) | | — |
|
Reclassifications into net periodic pension and post-retirement expense (1) | 9,675 |
| | 12,407 |
| | 28,472 |
| | 23,437 |
|
Income tax benefit (expense) | 4,806 |
| | (183,086 | ) | | (1,386 | ) | | (189,376 | ) |
Portion attributable to noncontrolling interests | 588 |
| | (12,465 | ) | | (17 | ) | | (12,670 | ) |
Defined benefit plans, net of tax | (2,683 | ) | | 277,764 |
| | 11,436 |
| | 282,299 |
|
Ending balance | (429,183 | ) | | (527,205 | ) | | (429,183 | ) | | (527,205 | ) |
| | | | | | | |
Cash flow hedges | | | | | | | |
Beginning balance | 33,641 |
| | 93,500 |
| | 114,635 |
| | 68,011 |
|
Unrealized gain (loss) | (33,755 | ) | | 96,111 |
| | (79,140 | ) | | 179,891 |
|
Reclassification adjustments into Cost of services | (21,265 | ) | | (38,446 | ) | | (81,986 | ) | | (85,914 | ) |
Income tax benefit (expense) | 14,506 |
| | (23,300 | ) | | 36,145 |
| | (32,972 | ) |
Portion attributable to noncontrolling interests | (3,287 | ) | | (1,469 | ) | | 186 |
| | (2,620 | ) |
Cash flow hedges, net of tax | (43,801 | ) | | 32,896 |
| | (124,795 | ) | | 58,385 |
|
Ending balance (2) | (10,160 | ) | | 126,396 |
| | (10,160 | ) | | 126,396 |
|
| | | | | | | |
Investments | | | | | | | |
Beginning balance | 2,345 |
| | — |
| | 1,243 |
| | (264 | ) |
Unrealized gain (loss) | — |
| | — |
| | 1,454 |
| | 462 |
|
Income tax benefit (expense) | — |
| | — |
| | (305 | ) | | (183 | ) |
Portion attributable to noncontrolling interests | 46 |
| | — |
| | (1 | ) | | (15 | ) |
Investments, net of tax | 46 |
| | — |
| | 1,148 |
| | 264 |
|
Ending balance | 2,391 |
| | — |
| | 2,391 |
| | — |
|
| | | | | | | |
Accumulated other comprehensive loss | $ | (1,343,701 | ) | | $ | (1,335,523 | ) | | $ | (1,343,701 | ) | | $ | (1,335,523 | ) |
_______________ | |
(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, 2018, $39,677 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. |
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 nine months ended May 31, 2018, we completed individually immaterial acquisitions for total consideration of $411,054, net of cash acquired. The pro forma effects of these acquisitions on our 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, 2017 | | Additions/ Adjustments | | Foreign Currency Translation | | May 31, 2018 |
Communications, Media & Technology | $ | 775,802 |
| | $ | 72,291 |
| | $ | (2,877 | ) | | $ | 845,216 |
|
Financial Services | 1,151,024 |
| | 19,636 |
| | (11,238 | ) | | 1,159,422 |
|
Health & Public Service | 934,374 |
| | 17,113 |
| | (1,085 | ) | | 950,402 |
|
Products | 1,698,140 |
| | 192,356 |
| | (12,032 | ) | | 1,878,464 |
|
Resources | 443,012 |
| | 3,573 |
| | (4,796 | ) | | 441,789 |
|
Total | $ | 5,002,352 |
| | $ | 304,969 |
| | $ | (32,028 | ) | | $ | 5,275,293 |
|
Goodwill includes immaterial adjustments related to prior period acquisitions.
Intangible Assets
Our definite-lived intangible assets by major asset class were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | May 31, 2018 | | August 31, 2017 |
Intangible Asset Class | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Customer-related | | $ | 846,151 |
| | $ | (284,523 | ) | | $ | 561,628 |
| | $ | 809,683 |
| | $ | (235,315 | ) | | $ | 574,368 |
|
Technology | | 101,030 |
| | (59,141 | ) | | 41,889 |
| | 108,929 |
| | (65,453 | ) | | 43,476 |
|
Patents | | 126,564 |
| | (64,315 | ) | | 62,249 |
| | 124,669 |
| | (62,543 | ) | | 62,126 |
|
Other | | 48,269 |
| | (25,796 | ) | | 22,473 |
| | 52,342 |
| | (21,930 | ) | | 30,412 |
|
Total | | $ | 1,122,014 |
| | $ | (433,775 | ) | | $ | 688,239 |
| | $ | 1,095,623 |
| | $ | (385,241 | ) | | $ | 710,382 |
|
Total amortization related to our intangible assets was $40,879 and $127,438 for the three and nine months ended May 31, 2018, respectively. Total amortization related to our intangible assets was $41,698 and $108,150 for the three and nine months ended May 31, 2017, respectively. Estimated future amortization related to intangible assets held as of May 31, 2018 is as follows:
|
| | | | |
Fiscal Year | | Estimated Amortization |
Remainder of 2018 | | $ | 38,763 |
|
2019 | | 132,184 |
|
2020 | | 114,413 |
|
2021 | | 101,669 |
|
2022 | | 86,372 |
|
Thereafter | | 214,838 |
|
Total | | $ | 688,239 |
|
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
Our dividend activity during the nine months ended May 31, 2018 was as follows:
|
| | | | | | | | | | | | | | | | | | | | |
| | Dividend Per Share | | Accenture plc Class A Ordinary Shares | | Accenture Holdings plc Ordinary Shares and Accenture Canada Holdings Inc. Exchangeable Shares (1) | | Total Cash Outlay |
Dividend Payment Date | | | Record Date | | Cash Outlay | | Record Date | | Cash Outlay | |
November 15, 2017 | | $ | 1.33 |
| | October 19, 2017 | | $ | 817,241 |
| | October 17, 2017 | | $ | 36,373 |
| | $ | 853,614 |
|
May 15, 2018 | | $ | 1.33 |
| | April 12, 2018 | | $ | 853,831 |
| | April 10, 2018 | | $ | 1,279 |
| | $ | 855,110 |
|
Total Dividends | | | | | | $ | 1,671,072 |
| | | | $ | 37,652 |
| | $ | 1,708,724 |
|
_______________
| |
(1) | The dividend for the three months ended May 31, 2018 included payments made to holders of Accenture Canada Holdings Inc. exchangeable shares while the dividend for the three months ended November 30, 2017 included payments made to holders of both Accenture Holdings plc ordinary shares and Accenture Canada Holdings Inc. exchangeable shares. See Note 1 (Basis of Presentation) for additional information on Accenture Holdings plc. |
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.
7. DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, we use derivative financial instruments to manage foreign currency exchange rate risk. Our 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, 2018 and 2017 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 net losses of $84,480 and $37,698 for the three and nine months ended May 31, 2018, respectively, and a net gain of $89,035 and a net loss of $29,279 for the three and nine months ended May 31, 2017, respectively. Gains and losses on these contracts are recorded in Other income (expense), net in the Consolidated Income Statements and are offset by gains and losses on the related hedged items.
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)
Fair Value of Derivative Instruments
The notional and fair values of all derivative instruments were as follows:
|
| | | | | | | |
| May 31, 2018 | | August 31, 2017 |
Assets | | | |
Cash Flow Hedges | | | |
Other current assets | $ | 67,961 |
| | $ | 133,935 |
|
Other non-current assets | 11,028 |
| | 82,770 |
|
Other Derivatives | | | |
Other current assets | 8,052 |
| | 11,470 |
|
Total assets | $ | 87,041 |
| | $ | 228,175 |
|
Liabilities | | | |
Cash Flow Hedges | | | |
Other accrued liabilities | $ | 28,284 |
| | $ | 21,632 |
|
Other non-current liabilities | 34,321 |
| | 17,244 |
|
Other Derivatives | | | |
Other accrued liabilities | 25,200 |
| | 12,242 |
|
Total liabilities | $ | 87,805 |
| | $ | 51,118 |
|
Total fair value | $ | (764 | ) | | $ | 177,057 |
|
Total notional value | $ | 7,149,152 |
| | $ | 9,290,345 |
|
We utilize 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, we record 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, 2018 | | August 31, 2017 |
Net derivative assets | $ | 29,766 |
| | $ | 189,066 |
|
Net derivative liabilities | 30,530 |
| | 12,009 |
|
Total fair value | $ | (764 | ) | | $ | 177,057 |
|
8. RETIREMENT AND PROFIT SHARING PLANS
In May 2017, we settled our U.S. pension plan obligations. Plan participants elected to receive either a lump-sum distribution or to transfer benefits to a third-party annuity provider. As a result of the settlement, we were relieved of any further obligation under our U.S. pension plan. During the three months ended May 31, 2017, we recorded a pension settlement charge of $509,793, and related income tax benefits of $198,219. The charge primarily consisted of unrecognized actuarial losses of $460,908 previously included in Accumulated other comprehensive loss. In connection with the settlement, we made a $118,500 cash contribution ($48,885 related to additional actuarial losses and $69,615 to fund previously recorded pension liabilities).
9. INCOME TAXES
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Tax Act”), which significantly changed U.S. tax law. The Tax Act lowered the U.S. statutory federal income tax rate from 35% to 21%, effective January 1, 2018, resulting in a blended U.S. statutory federal income tax rate of 25.7% for our fiscal year ended August 31, 2018. The Tax Act could modestly impact our ongoing effective tax rate by imposing taxes on our intercompany transactions and limiting our ability to deduct certain expenses.
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)
Due to the recent enactment and the complexity involved in applying the provisions of the Tax Act, we have recorded provisional amounts in our financial statements. In the three months ended February 28, 2018, we recognized a provisional tax expense of $136,724 primarily to remeasure our net deferred tax assets at the new, lower rates. In the three months ended May 31, 2018, we recorded an adjustment of $40,927 to our provisional tax expense resulting from our continued analysis of the Tax Act. As we collect and analyze data, including our forecast of when we expect to realize certain deferred tax amounts, we may adjust the provisional amounts. In addition, we have not yet made an accounting policy election to consider the taxes on our intercompany transactions in determining the amount of our valuation allowance. Those adjustments and the election may materially impact our provision for income taxes and effective tax rate in the period in which the adjustments are made.
We apply an estimated annual effective tax rate to our year-to-date operating results to determine the interim provision for income tax expense. In addition, we recognize 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.
Our effective tax rates for the three months ended May 31, 2018 and 2017 were 34.4% and 19.4%, respectively. Our effective tax rates for the nine months ended May 31, 2018 and 2017 were 27.2% and 20.2%, respectively. Excluding the provisional tax expense associated with the enactment of the Tax Act and $80,847 of expense from a non-U.S. tax law change, the effective tax rates would have been 26.8% and 21.3% for the three and nine months ended May 31, 2018, respectively. Absent the pension settlement charge (see Note 8 Retirement and Profit Sharing Plans) and related tax impact recorded during the three months ended May 31, 2017, the effective tax rates would have been 26.6% and 22.7% for the three and nine months ended May 31, 2017, respectively. The effective tax rate for the nine months ended May 31, 2018 benefited from lower expenses for adjustments to prior year tax liabilities in fiscal 2018, partially offset by lower benefits from final determinations of prior year U.S. taxes in fiscal 2018.
10. COMMITMENTS AND CONTINGENCIES
Commitments
We have either the right to purchase at fair value or, if certain events occur, may be required to purchase at fair value outstanding shares of our Avanade Inc. and SinnerSchrader AG subsidiaries. As of May 31, 2018 and August 31, 2017, we have reflected the fair value of $103,122 and $52,996, respectively, related to redeemable common stock and the intrinsic value of the options on redeemable common stock of these subsidiaries 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, we have entered into contractual arrangements through which we may be obligated to indemnify clients with respect to certain matters.
As of May 31, 2018 and August 31, 2017, our aggregate potential liability to our clients for expressly limited guarantees involving the performance of third parties was approximately $811,000 and $697,000, respectively, of which all but approximately $145,000 and $149,000, respectively, may be recovered from the other third parties if we are 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, we 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, we have not been required to make any significant payment under any of the arrangements described above. We have assessed the current status of performance/payment risk related to arrangements with limited guarantees, warranty obligations, unspecified limitations and/or indemnification provisions and believe that any potential payments would be immaterial to the Consolidated Financial Statements, as a whole.
Legal Contingencies
As of May 31, 2018, we or our present personnel had been named as a defendant in various litigation matters. We and/or our personnel also from time to time are involved in investigations by various regulatory or legal authorities concerning matters arising in the course of our 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 our results of operations or financial condition.
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)
11. SEGMENT REPORTING
Our reportable operating segments are our five operating groups, which are Communications, Media & Technology; Financial Services; Health & Public Service; Products; and Resources. Information regarding our reportable operating segments is as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| May 31, 2018 | | May 31, 2017 |
| Net Revenues | | Operating Income | | Net Revenues | | Operating Income (1) |
Communications, Media & Technology | $ | 2,133,796 |
| | $ | 383,359 |
| | $ | 1,754,657 |
| | $ | 286,931 |
|
Financial Services | 2,143,196 |
| | 382,530 |
| | 1,865,071 |
| | 321,052 |
|
Health & Public Service | 1,703,676 |
| | 216,218 |
| | 1,554,424 |
| | 206,570 |
|
Products | 2,842,624 |
| | 452,573 |
| | 2,429,140 |
| | 402,558 |
|
Resources | 1,469,293 |
| | 185,046 |
| | 1,245,875 |
| | 158,117 |
|
Other | 22,414 |
| | — |
| | 17,869 |
| | (509,793 | ) |
Total | $ | 10,314,999 |
| | $ | 1,619,726 |
| | $ | 8,867,036 |
| | $ | 865,435 |
|
|
| | | | | | | | | | | | | | | |
| Nine Months Ended |
| May 31, 2018 | | May 31, 2017 |
| Net Revenues | | Operating Income | | Net Revenues | | Operating Income (1) |
Communications, Media & Technology | $ | 5,938,389 |
| | $ | 993,887 |
| | $ | 5,061,581 |
| | $ | 759,513 |
|
Financial Services | 6,227,237 |
| | 1,059,710 |
| | 5,444,451 |
| | 908,705 |
|
Health & Public Service | 4,980,155 |
| | 594,827 |
| | 4,566,762 |
| | 594,912 |
|
Products | 8,057,985 |
| | 1,237,076 |
| | 7,014,137 |
| | 1,175,019 |
|
Resources | 4,139,507 |
| | 502,870 |
| | 3,585,458 |
| | 407,691 |
|
Other | 80,390 |
| | — |
| | 27,835 |
| | (509,793 | ) |
Total | $ | 29,423,663 |
| | $ | 4,388,370 |
| | $ | 25,700,224 |
| | $ | 3,336,047 |
|
_______________
| |
(1) | Other Operating Income represents the pension settlement charge related to the termination of our U.S. pension plan. |
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, 2017, 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, 2017.
We use the terms “Accenture,” “we,” “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 2018” means the 12-month period that will end on August 31, 2018. 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 and political 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, including through the adaptation and expansion of our services and solutions in response to ongoing changes in technology and offerings, and a significant reduction in such demand or an inability to respond to the evolving technological environment 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. |
| |
• | We could have liability or our reputation could be damaged if we fail to protect client and/or Accenture data from security breaches or cyberattacks. |
| |
• | The markets in which we operate are highly competitive, and we might not be able to compete effectively. |
| |
• | Our profitability could materially suffer if we are unable to obtain favorable pricing for our services and solutions, if we are unable to remain competitive, if our cost-management strategies are unsuccessful or if we experience delivery inefficiencies. |
| |
• | Changes in our level of taxes, as well as audits, investigations and tax proceedings, or changes in tax laws or in their interpretation or enforcement, could have a material adverse effect on our effective tax rate, results of operations, cash flows and financial condition. |
| |
• | Our results of operations could be materially adversely affected by fluctuations in foreign currency exchange rates. |
| |
• | 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. |
| |
• | We might not be successful at identifying, acquiring, investing in or integrating businesses, entering into joint ventures or divesting businesses. |
| |
• | Our global delivery capability is increasingly concentrated in India and the Philippines, which may expose us to operational risks. |
| |
• | 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. |
| |
• | If we are unable to protect or enforce our intellectual property rights, or if our services or solutions infringe upon the intellectual property rights of others or we lose our ability to utilize the intellectual property of others, our business could be adversely affected. |
| |
• | Our ability to attract and retain business and employees may depend on our reputation in the marketplace. |
| |
• | If we are unable to manage the organizational challenges associated with our size, we might be unable to achieve our business objectives. |
| |
• | 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. |
| |
• | 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. |
| |
• | Our results of operations and share price could be adversely affected if we are unable to maintain effective internal controls. |
| |
• | 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. |
| |
• | We are incorporated in Ireland and a significant portion of our assets is 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. |
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, 2017. 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.
Overview
Revenues are driven by the ability of our executives to secure new contracts and to deliver services and solutions 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 services and solutions 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 significant volatility and economic and geopolitical uncertainty in many 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 also continues to be 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 could have in the future a material effect on our financial results.
Revenues before reimbursements (“net revenues”) for the third quarter of fiscal 2018 increased 16% in U.S. dollars and 11% in local currency compared to the third quarter of fiscal 2017. Net revenues for the nine months ended May 31, 2018 increased 14% in U.S. dollars and 10% in local currency compared to the nine months ended May 31, 2017. Demand for our services and solutions continued to be strong, resulting in growth across all areas of our business. During the third quarter of fiscal 2018, revenue growth in local currency was very strong in Communication, Media & Technology, Resources and Products and strong in Financial Services and Health & Public Service. We experienced very strong growth in Growth Markets and North America and strong growth in Europe. Revenue growth in local currency was very strong in consulting and outsourcing during the third quarter of fiscal 2018. While the business environment remained competitive, pricing was relatively stable. 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 2018 increased 18% in U.S. dollars and 12% in local currency compared to the third quarter of fiscal 2017. Net consulting revenues for the nine months ended May 31, 2018 increased 16% in U.S. dollars and 12% in local currency compared to the nine months ended May 31, 2017. Consulting revenue growth in local currency in the third quarter of fiscal 2018 was led by very strong growth in Communications, Media & Technology, Resources, Products and Financial Services as well as strong growth in Health & Public Service. Our consulting revenue growth continues to be driven by strong demand for digital-, cloud- and security-related services and assisting clients with the adoption of new technologies. In addition, clients continue 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.
In our outsourcing business, net revenues for the third quarter of fiscal 2018 increased 14% in U.S. dollars and 10% in local currency compared to the third quarter of fiscal 2017. Net outsourcing revenues for the nine months ended May 31, 2018 increased 13% in U.S. dollars and 9% in local currency compared to the nine months ended May 31, 2017. Outsourcing revenue growth in local currency in the third quarter of fiscal 2018 was led by very strong growth in Communications, Media & Technology, Resources and Products, as well as strong growth in Health & Public Service and solid growth in Financial Services. We continue to experience growing demand to assist clients with the operation and maintenance of digital-related services and cloud enablement. In addition, clients continue to be focused on transforming their operations to improve effectiveness and cost efficiency.
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 weakens against other currencies, resulting in favorable currency translation, our revenues, revenue growth and results of operations in U.S. dollars may be higher. 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. The U.S. dollar weakened against various currencies during the three and nine months ended May 31, 2018 compared to the three and nine months ended May 31, 2017, resulting in favorable currency translation and U.S. dollar revenue growth that was approximately 5% and 4% higher, respectively, than our revenue growth in local currency. Assuming that exchange rates stay within recent ranges for the remainder of fiscal 2018, we estimate that our full fiscal 2018 revenue growth in U.S. dollars will be approximately 3.0% higher in U.S. dollars than our revenue growth 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, office space and certain acquisition-related costs.
Utilization for the third quarter of fiscal 2018 was 91%, flat with the third quarter of fiscal 2017. 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 and solutions, given that 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 approximately 449,000 as of May 31, 2018, compared to approximately 411,000 as of May 31, 2017. The year-over-year increase in our headcount reflects an overall increase in demand for our services and solutions, as well as headcount added in connection with acquisitions. Attrition, excluding involuntary terminations, for the third quarter of fiscal 2018 was 17%, up from 15% in the third quarter of fiscal 2017. 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. For the majority of our personnel, compensation increases become effective December 1st of each fiscal year. 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 and solutions clients are demanding; 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 2018 was 32.2%, compared with 32.8% for the third quarter of fiscal 2017. Gross margin for the nine months ended May 31, 2018 was 31.3%, compared with 31.7% for the nine months ended May 31, 2017. The decrease in gross margin for the nine months ended May 31, 2018 was principally due to higher labor costs compared to the same period in fiscal 2017 as well as higher acquisition-related costs, partially offset by other cost efficiencies and improved contract profitability in the third quarter of fiscal 2018.
Sales and marketing and General and administrative costs as a percentage of net revenues were 16.5% for the third quarter of fiscal 2018 and 16.4% for the nine months ended May 31, 2018, compared with 17.3% for the third quarter of fiscal 2017 and 16.7% for the nine months ended May 31, 2017. We continuously monitor these costs and implement cost-management actions, as appropriate. For the third quarter of fiscal 2018 compared to the same period in fiscal 2017, Sales and marketing costs as a percentage of net revenues decreased 40 basis points, principally due to improved operational efficiency in our business development activities, and General and administrative costs as a percentage of net revenues decreased 50 basis points. For the nine months ended May 31, 2018 compared to the same period in fiscal 2017, Sales and marketing and General and administrative costs as a percentage of net revenues each decreased 10 basis points.
During the third quarter of fiscal 2017, we recorded a $510 million pension settlement charge and related $198 million reduction in taxes for the U.S. pension plan termination. 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 2018 was 15.7%, compared with 9.8% for the third quarter of fiscal 2017. Operating margin for the nine months ended May 31, 2018 was 14.9%, compared with 13.0% for the nine months ended May 31, 2017. The pension settlement charge decreased operating margin by 570 and 200 basis points for the three and nine months ended May 31, 2017, respectively. Excluding the effect of the pension settlement charge, operating margin for the three and nine months ended May 31, 2017 would have been 15.5% and 15.0%, respectively.
The effective tax rates for the three and nine months ended May 31, 2018 were 34.4% and 27.2%, respectively. The effective tax rates for the three and nine months ended May 31, 2017 were 19.4% and 20.2%, respectively. For the three and nine months ended May 31, 2018, we recorded a provisional tax charge associated with the enactment of the U.S. Tax Cuts and Jobs Act (the “Tax Act”) of $41 million and $178 million, respectively. Absent these charges and $81 million of expense from a non-U.S. tax law change, our effective tax rate for the three and nine months ended May 31, 2018 would have been 26.8% and 21.3%, respectively. Absent the pension settlement charge and related taxes, our effective tax rates for the three and nine months ended May 31, 2017 would have been 26.6% and 22.7%, respectively. For additional information see Note 9 (Income Taxes) to our Consolidated Financial Statements under Item 1, “Financial Statements”.
Diluted earnings per share were $1.60 for the third quarter of fiscal 2018, compared with $1.05 for the third quarter of fiscal 2017. Diluted earnings per share were $4.76 for the nine months ended May 31, 2018, compared with $3.96 for the nine months ended May 31, 2017. The impact of tax law changes decreased diluted earnings per share by $0.19 and $0.40 during the three and nine months ended May 31, 2018, respectively. The impact of the pension settlement
charge, net of taxes, decreased diluted earnings per share by $0.47 in both the three and nine months ended May 31, 2017. Excluding these impacts, diluted earnings per share would have been $1.79 and $1.52 for the third quarter of fiscal 2018 and 2017, respectively and $5.16 and $4.43 for the nine months ended May 31, 2018 and 2017, respectively.
We have presented effective tax rate and diluted earnings per share excluding the impacts of the tax law changes in fiscal 2018 and the pension settlement charge in fiscal 2017 as well as operating income and operating margin excluding the impact of the pension settlement charge in fiscal 2017, as we believe doing so facilitates understanding as to both the impacts of these items and our financial performance in comparison to the prior period.
As described further in Note 1 (Basis of Presentation), on March 13, 2018 our subsidiary Accenture Holdings plc merged with and into Accenture plc, with Accenture plc as the surviving entity. As a result, all of the assets and liabilities of Accenture Holdings plc were acquired by Accenture plc, and Accenture Holdings plc ceased to exist. The merger was internal and administrative in nature.
New Bookings
New bookings for the third quarter of fiscal 2018 were $11.75 billion, with consulting bookings of $5.91 billion and outsourcing bookings of $5.84 billion. New bookings for the nine months ended May 31, 2018 were $31.98 billion, with consulting bookings of $17.49 billion and outsourcing bookings of $14.49 billion.
Results of Operations for the Three Months Ended May 31, 2018 Compared to the Three Months Ended May 31, 2017
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 | | Percent Increase U.S. Dollars | | Percent Increase Local Currency | | Percent of Total Net Revenues for the Three Months Ended |
| May 31, 2018 | | May 31, 2017 | | | | May 31, 2018 | | May 31, 2017 |
| (in millions of U.S. dollars) | | | | | | | | |
OPERATING GROUPS | | | | | | | | | | | |
Communications, Media & Technology | $ | 2,134 |
| | $ | 1,755 |
| | 22 | % | | 18 | % | | 21 | % | | 20 | % |
Financial Services | 2,143 |
| | 1,865 |
| | 15 |
| | 8 |
| | 21 |
| | 21 |
|
Health & Public Service | 1,704 |
| | 1,554 |
| | 10 |
| | 7 |
| | 16 |
| | 18 |
|
Products | 2,843 |
| | 2,429 |
| | 17 |
| | 11 |
| | 28 |
| | 27 |
|
Resources | 1,469 |
| | 1,246 |
| | 18 |
| | 12 |
| | 14 |
| | 14 |
|
Other | 22 |
| | 18 |
| | n/m |
| | n/m |
| | — |
| | — |
|
TOTAL NET REVENUES | 10,315 |
| | 8,867 |
| | 16 | % | | 11 | % | | 100 | % | | 100 | % |
Reimbursements | 524 |
| | 490 |
| | 7 |
| | | | | | |
TOTAL REVENUES | $ | 10,839 |
| | $ | 9,357 |
| | 16 | % | | | | | | |
GEOGRAPHIC REGIONS (1) | | | | | | | | | | | |
North America | $ | 4,579 |
| | $ | 4,123 |
| | 11 | % | | 11 | % | | 44 | % | | 47 | % |
Europe | 3,733 |
| | 3,061 |
| | 22 |
| | 9 |
| | 36 |
| | 34 |
|
Growth Markets | 2,003 |
| | 1,683 |
| | 19 |
| | 17 |
| | 20 |
| | 19 |
|
TOTAL NET REVENUES | $ | 10,315 |
| | $ | 8,867 |
| | 16 | % | | 11 | % | | 100 | % | | 100 | % |
TYPE OF WORK | | | | | | | | | | | |
Consulting | $ | 5,687 |
| | $ | 4,820 |
| | 18 | % | | 12 | % | | 55 | % | | 54 | % |
Outsourcing | 4,628 |
| | 4,047 |
| | 14 |
| | 10 |
| | 45 |
| | 46 |
|
TOTAL NET REVENUES | $ | 10,315 |
| | $ | 8,867 |
| | 16 | % | | 11 | % | | 100 | % | | 100 | % |
_______________
n/m = not meaningful
| |
(1) | Effective September 1, 2017, 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 and Turkey). Four countries, including Russia, were previously in Growth Markets, but are now included in Europe. 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 2018 compared to the third quarter of fiscal 2017:
Operating Groups
| |
• | Communications, Media & Technology net revenues increased 18% in local currency, driven by growth across all geographic regions in Software & Platforms and Communications & Media, led by Software & Platforms in North America. |
| |
• | Financial Services net revenues increased 8% in local currency, driven by growth across all industry groups and geographic regions, led by Banking & Capital Markets in Europe and Growth Markets. |
| |
• | Health & Public Service net revenues increased 7% in local currency, driven by growth in Public Service across all geographic regions. |
| |
• | Products net revenues increased 11% in local currency, driven by growth across all geographic regions in Industrial and Consumer Goods, Retail & Travel Services. |
| |
• | Resources net revenues increased 12% in local currency, driven by growth across all geographic regions in Chemicals & Natural Resources and Energy, as well as Utilities in Europe. |
Geographic Regions
| |
• | North America net revenues increased 11% in local currency, driven by the United States. |
| |
• | Europe net revenues increased 9% in local currency, driven by Germany, Italy, Ireland, France and Spain. |
| |
• | Growth Markets net revenues increased 17% in local currency, led by Japan, as well as Australia, Brazil and Singapore. |
Operating Expenses
Operating expenses for the third quarter of fiscal 2018 increased $728 million, or 9%, over the third quarter of fiscal 2017, and decreased as a percentage of revenues to 85.1% from 90.8% during this period. Operating expenses before reimbursable expenses for the third quarter of fiscal 2018 increased $694 million, or 9%, over the third quarter of fiscal 2017, and decreased as a percentage of net revenues to 84.3% from 90.2% during this period.
Cost of Services
Cost of services for the third quarter of fiscal 2018 increased $1,073 million, or 17%, over the third quarter of fiscal 2017, and increased as a percentage of revenues to 69.4% from 68.9% during this period. Cost of services before reimbursable expenses for the third quarter of fiscal 2018 increased $1,038 million, or 17%, over the third quarter of fiscal 2017, and increased as a percentage of net revenues to 67.8% from 67.2% during this period. Gross margin for the third quarter of fiscal 2018 decreased to 32.2% from 32.8% during this period . The decrease in gross margin was principally due to higher labor costs as a percentage of net revenues compared to the same period in fiscal 2017, partially offset by other cost efficiencies and improved contract profitability.
Sales and Marketing
Sales and marketing expense for the third quarter of fiscal 2018 increased $121 million, or 12%, over the third quarter of fiscal 2017, and decreased as a percentage of net revenues to 10.7% from 11.1% during this period 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 2018 increased $44 million, or 8%, over the third quarter of fiscal 2017, and decreased as a percentage of net revenues to 5.7% from 6.2% during this period.
Pension Settlement Charge
We recorded a pension settlement charge of $510 million during the third quarter of fiscal 2017 as a result of the termination of our U.S. pension plan. For additional information, refer to Note 8 (Retirement and Profit Sharing Plans) to our Consolidated Financial Statements above under Item 1, “Financial Statements.”
Operating Income and Operating Margin
Operating income for the third quarter of fiscal 2018 increased $754 million, or 87%, over the third quarter of fiscal 2017. The pension settlement charge decreased operating margin for the third quarter of fiscal 2017 by 570 basis points. Excluding the effect of this charge, operating margin for the third quarter of fiscal 2018 increased 20 basis points compared to the third quarter of fiscal 2017.
Operating income and operating margin for each of the operating groups were as follows:
|
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
| May 31, 2018 | | May 31, 2017 | | |
| Operating Income | | Operating Margin | | Operating Income | | Operating Margin | | Increase (Decrease) |
| (in millions of U.S. dollars)
| |
|
Communications, Media & Technology | $ | 383 |
| | 18 | % | | $ | 287 |
| | 16 | % | | $ | 96 |
|
Financial Services | 383 |
| | 18 |
| | 321 |
| | 17 |
| | 61 |
|
Health & Public Service | 216 |
| | 13 |
| | 207 |
| | 13 |
| | 10 |
|
Products | 453 |
| | 16 |
| | 403 |
| | 17 |
| | 50 |
|
Resources | 185 |
| | 13 |
| | 158 |
| | 13 |
| | 27 |
|
Pension Settlement Charge (1) | — |
| | — |
| | (510 | ) | | — |
| | 510 |
|
Operating Income (GAAP) | $ | 1,620 |
| | 15.7 | % | | $ | 865 |
| | 9.8 | % | | $ | 754 |
|
Pension Settlement Charge (1) | — |
| |
|
| | 510 |
| |
|
| | (510 | ) |
Adjusted Operating Income (non-GAAP) | $ | 1,620 |
| | 15.7 | % | | $ | 1,375 |
| | 15.5 | % | | $ | 244 |
|
_______________
Amounts in table may not total due to rounding.
(1) Represents the pension settlement charge related to the termination of our U.S. pension plan.
We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during the third quarter of fiscal 2018 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 third quarter of fiscal 2018 compared with the third quarter of fiscal 2017:
| |
• | Communications, Media & Technology operating income increased primarily due to revenue growth and higher contract profitability. |
| |
• | Financial Services operating income increased primarily due to consulting revenue growth and higher outsourcing contract profitability. |
| |
• | Health & Public Service operating income increased due to revenue growth and higher outsourcing contract profitability, partially offset by lower consulting contract profitability. |
| |
• | Products operating income increased primarily due to revenue growth. |
| |
• | Resources operating income increased primarily due to revenue growth and lower sales and marketing costs as a percentage of net revenues, partially offset by lower contract profitability. |
Provision for Income Taxes
The effective tax rate for the third quarter of fiscal 2018 was 34.4%, compared with 19.4% for the third quarter of fiscal 2017. In the three months ended May 31, 2018, we recorded a $122 million charge associated with tax law changes. Absent this charge, the effective tax rate would have been 26.8% for the third quarter of fiscal 2018. Absent the pension settlement charge and related tax impact, the tax rate for the third quarter of fiscal 2017 would have been 26.6%. For additional information see Note 9 (Income Taxes) to our Consolidated Financial Statements under Item 1, “Financial Statements”.
In addition, as described in Note 1 (Basis of Presentation), beginning in fiscal 2019 we will recognize incremental income tax expense as a result of adoption of ASU 2016-16.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests for the third quarter of fiscal 2018 decreased $20 million, or 57%, from the third quarter of fiscal 2017 due to the decrease in the non-controlling ownership percentage from 4% held by Accenture Holdings plc and Accenture Canada Holdings Inc. to less than 1% held by only Accenture Canada Holdings Inc. driven by the Accenture Holdings plc merger with and into Accenture plc.
Earnings Per Share
Diluted earnings per share were $1.60 for the third quarter of fiscal 2018, compared with $1.05 for the third quarter of fiscal 2017. The $0.55 increase in our diluted earnings per share included the impact of tax law changes, which decreased diluted earnings per share for the third quarter of fiscal 2018 by $0.19. The impact of the pension settlement charge, net of taxes, decreased diluted earnings per share by $0.47 for the third quarter of fiscal 2017. Excluding these impacts, diluted earnings per share for the third quarter of fiscal 2018 increased $0.27 compared with the third quarter of fiscal 2017 due to an increase of $0.28 from higher revenues and operating results, $0.01 from lower weighted average shares outstanding and $0.01 from lower net income attributable to other non-controlling interests. These increases were partially offset by decreases of $0.02 from higher non-operating expense and $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.”
Results of Operations for the Nine Months Ended May 31, 2018 Compared to the Nine Months Ended May 31, 2017
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 | | Percent Increase U.S. Dollars | | Percent Increase Local Currency | | Percent of Total Net Revenues for the Nine Months Ended |
| May 31, 2018 | | May 31, 2017 | | | | May 31, 2018 | | May 31, 2017 |
| (in millions of U.S. dollars) | | | | | | | | |
OPERATING GROUPS | | | | | | | | | | | |
Communications, Media & Technology | $ | 5,938 |
| | $ | 5,062 |
| | 17 | % | | 14 | % | | 20 | % | | 20 | % |
Financial Services | 6,227 |
| | 5,444 |
| | 14 |
| | 9 |
| | 21 |
| | 21 |
|
Health & Public Service | 4,980 |
| | 4,567 |
| | 9 |
| | 7 |
| | 17 |
| | 18 |
|
Products | 8,058 |
| | 7,014 |
| | 15 |
| | 10 |
| | 28 |
| | 27 |
|
Resources | 4,140 |
| | 3,585 |
| | 15 |
| | 11 |
| | 14 |
| | 14 |
|
Other | 80 |
| | 28 |
| | n/m |
| | n/m |
| | — |
| | — |
|
TOTAL NET REVENUES | 29,424 |
| | 25,700 |
| | 14 | % | | 10 | % | | 100 | % | | 100 | % |
Reimbursements | 1,538 |
| | 1,424 |
| | 8 |
| | | | | | |
TOTAL REVENUES | $ | 30,961 |
| | $ | 27,125 |
| | 14 | % | | | | | | |
GEOGRAPHIC REGIONS (1) | | | | | | | | | | | |
North America | $ | 13,141 |
| | $ | 12,060 |
| | 9 | % | | 8 | % | | 45 | % | | 47 | % |
Europe | 10,667 |
| | 8,861 |
| | 20 |
| | 10 |
| | 36 |
| | 34 |
|
Growth Markets | 5,616 |
| | 4,779 |
| | 18 |
| | 16 |
| | 19 |
| | 19 |
|
TOTAL NET REVENUES | $ | 29,424 |
| | $ | 25,700 |
| | 14 | % | | 10 | % | | 100 | % | | 100 | % |
TYPE OF WORK | | | | | | | | | | | |
Consulting | $ | 16,030 |
| | $ | 13,819 |
| | 16 | % | | 12 | % | | 54 | % | | 54 | % |
Outsourcing | 13,394 |
| | 11,881 |
| | 13 |
| | 9 |
| | 46 |
| | 46 |
|
TOTAL NET REVENUES | $ | 29,424 |
| | $ | 25,700 |
| | 14 | % | | 10 | % | | 100 | % | | 100 | % |
_______________
n/m = not meaningful
Amounts in table may not total due to rounding.
| |
(1) | Effective September 1, 2017, 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 and Turkey). Four countries, including Russia, were previously in Growth Markets, but are now included in Europe. 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 nine months ended May 31, 2018 compared to the nine months ended May 31, 2017:
Operating Groups
| |
• | Communications, Media & Technology net revenues increased 14% in local currency, driven by growth across all geographic regions in Software & Platforms and Communications & Media, led by Software & Platforms in North America. |
| |
• | Financial Services net revenues increased 9% in local currency, driven by growth across all industry groups and geographic regions, led by Banking & Capital Markets in Europe and Growth Markets. |
| |
• | Health & Public Service net revenues increased 7% in local currency, driven by growth in Public Service across all geographic regions and Health in North America and Europe. |
| |
• | Products net revenues increased 10% in local currency, driven by growth across all geographic regions in Consumer Goods, Retail & Travel Services and Industrial. |
| |
• | Resources net revenues increased 11% in local currency, driven by growth across all geographic regions in Chemicals & Natural Resources and Energy, as well as Utilities in Europe. |
Geographic Regions
| |
• | North America net revenues increased 8% in local currency, driven by the United States. |
| |
• | Europe net revenues increased 10% in local currency, driven by Germany, Italy, France, Spain and Ireland. |
| |
• | Growth Markets net revenues increased 16% in local currency, led by Japan, as well as Australia, Brazil and Singapore. |
Operating Expenses
Operating expenses for the nine months ended May 31, 2018 increased $2,784 million, or 12%, over the nine months ended May 31, 2017, and decreased as a percentage of revenues to 85.8% from 87.7% during this period. Operating expenses before reimbursable expenses for the nine months ended May 31, 2018 increased $2,671 million, or 12%, over the nine months ended May 31, 2017, and decreased as a percentage of net revenues to 85.1% from 87.0% during this period.
Cost of Services
Cost of services for the nine months ended May 31, 2018 increased $2,761 million, or 15% over the nine months ended May 31, 2017, and increased as a percentage of revenues to 70.2% from 70.0% during this period. Cost of services before reimbursable expenses for the nine months ended May 31, 2018 increased $2,647 million or 15% over the nine months ended May 31, 2017, and increased as a percentage of net revenues to 68.7% from 68.3% during this period. Gross margin for the nine months ended May 31, 2018 decreased to 31.3% from 31.7% during this period. The decrease in gross margin was principally due to higher labor costs compared to the same period in fiscal 2017 as well as higher acquisition-related costs, partially offset by other cost efficiencies and improved contract profitability in the third quarter of fiscal 2018.
Sales and Marketing
Sales and marketing expense for the nine months ended May 31, 2018 increased $362 million, or 13%, over the nine months ended May 31, 2017, and decreased as a percentage of net revenues to 10.6% from 10.7% during this period.
General and Administrative Costs
General and administrative costs for the nine months ended May 31, 2018 increased $172 million, or 11%, over the nine months ended May 31, 2017, and decreased as a percentage of net revenues to 5.9% from 6.0% during this period.
Pension Settlement Charge
We recorded a pension settlement charge of $510 million during the nine months ended May 31, 2017 as a result of the termination of our U.S. pension plan. For additional information, refer to Note 8 (Retirement and Profit Sharing Plans) to our Consolidated Financial Statements above under Item 1, “Financial Statements.”
Operating Income and Operating Margin
Operating income for the nine months ended May 31, 2018 increased $1,052 million, or 32%, over the nine months ended May 31, 2017. The pension settlement charge decreased operating margin for the nine months ended May 31, 2017 by 200 basis points. Excluding the effect of this charge, operating margin for the nine months ended May 31, 2018 decreased 10 basis points compared to the nine months ended May 31, 2017.
Operating income and operating margin for each of the operating groups were as follows:
|
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | |
| May 31, 2018 | | May 31, 2017 | | |
| Operating Income | | Operating Margin | | Operating Income | | Operating Margin | | Increase (Decrease) |
| (in millions of U.S. dollars)
| |
|
Communications, Media & Technology | $ | 994 |
| | 17 | % | | $ | 760 |
| | 15 | % | | $ | 234 |
|
Financial Services | 1,060 |
| | 17 |
| | 909 |
| | 17 |
| | 151 |
|
Health & Public Service | 595 |
| | 12 |
| | 595 |
| | 13 |
| | — |
|
Products | 1,237 |
| | 15 |
| | 1,175 |
| | 17 |
| | 62 |
|
Resources | 503 |
| | 12 |
| | 408 |
| | 11 |
| | 95 |
|
Pension Settlement Charge (1) | — |
| | — |
| | (510 | ) | | — |
| | 510 |
|
Operating Income (GAAP) | $ | 4,388 |
| | 14.9 | % | | $ | 3,336 |
| | 13.0 | % | | $ | 1,052 |
|
Pension Settlement Charge (1) | — |
| | | | 510 |
| | | | (510 | ) |
Adjusted Operating Income (non-GAAP) | $ | 4,388 |
| | 14.9 | % | | $ | 3,846 |
| | 15.0 | % | | $ | 543 |
|
_______________
Amounts in table may not total due to rounding.
(1) Represents the pension settlement charge related to the termination of our U.S. pension plan.
We estimate that the aggregate percentage impact of foreign currency exchange rates on our operating income during the nine months ended May 31, 2018 was similar to that disclosed for net revenue. In addition, during the nine months ended May 31, 2018, we experienced higher acquisition-related costs compared to the nine months ended May 31, 2017. The commentary below provides insight into other factors affecting operating group performance and operating margin for the nine months ended May 31, 2018 compared with the nine months ended May 31, 2017:
| |
• | Communications, Media & Technology operating income increased primarily due to revenue growth. |
| |
• | Financial Services operating income increased primarily due to consulting revenue growth and higher outsourcing contract profitability, partially offset by lower consulting contract profitability. |
| |
• | Health & Public Service operating income was flat, which reflected revenue growth as well as lower consulting contract profitability. |
| |
• | Products operating income increased primarily due to revenue growth, partially offset by lower consulting contract profitability and higher sales and marketing costs as a percentage of net revenues. |
| |
• | Resources operating income increased primarily due to revenue growth, partially offset by lower contract profitability. |
Other Income (Expense), net
Other income (expense), net primarily consists of foreign currency gains and losses as well as gains and losses associated with our investments in privately held companies. For the nine months ended May 31, 2018, other expense increased $33 million over the nine months ended May 31, 2017, primarily due to higher net foreign exchange losses.
Provision for Income Taxes
The effective tax rate for the nine months ended May 31, 2018 was 27.2% compared with 20.2% for the nine months ended May 31, 2017. In the nine months ended May 31, 2018, we recorded a $258 million charge associated with tax law changes. Absent this charge, our effective tax rate for the nine months ended May 31, 2018 would have been 21.3%. Absent the pension settlement charge and related tax impact, the tax rate for the nine months ended May 31, 2017 would have been 22.7%. The effective tax rate for the nine months ended May 31, 2018 benefited from lower expenses for adjustments to prior year tax liabilities in fiscal 2018, partially offset by lower benefits from final
determinations of prior year U.S. taxes in fiscal 2018. For additional information see Note 9 (Income Taxes) to our Consolidated Financial Statements under Item 1, “Financial Statements”.
Our provision for income taxes is based on many factors and subject to volatility year to year. We expect the fiscal 2018 annual effective tax rate to be in the range of 27% to 28%. Excluding the tax law changes, we expect the fiscal 2018 annual effective tax rate to be in the range of 22.5% to 23.5%. The effective tax rate for interim periods can vary because of the timing of when certain events occur during the year.
In addition, as described in Note 1 (Basis of Presentation), beginning in fiscal 2019 we will recognize incremental income tax expense as a result of adoption of ASU 2016-16.
Earnings Per Share
Diluted earnings per share were $4.76 for the nine months ended May 31, 2018, compared with $3.96 for the nine months ended May 31, 2017. The $0.80 increase in our diluted earnings per share included the impact of tax law changes, which decreased diluted earnings per share for the nine months ended May 31, 2018 by $0.40. The impact of the pension settlement charge, net of taxes, decreased diluted earnings per share by $0.47 for the nine months ended May 31, 2017. Excluding these impacts, diluted earnings per share for the nine months ended May 31, 2018 increased $0.73 compared with the nine months ended May 31, 2017, due to increases of $0.64 from higher revenues and operating results, $0.09 from a lower effective tax rate and $0.04 from lower weighted average shares outstanding. These increases were partially offset by decreases of $0.03 from higher non-operating expenses and $0.01 from higher net income attributable to other non-controlling interests. For information regarding our earnings per share calculations, see Note 2 (Earnings Per Share) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
Liquidity and Capital Resources
As of May 31, 2018, Cash and cash equivalents was $3.9 billion, compared with $4.1 billion as of August 31, 2017.
Cash flows from operating, investing and financing activities, as reflected in our Consolidated Cash Flows Statements, are summarized in the following table:
|
| | | | | | | | | | | |
| Nine Months Ended | | |
| May 31, 2018 | | May 31, 2017 | | Change |
| (in millions of U.S. dollars) |
Net cash provided by (used in): | | | | | |
Operating activities | $ | 3,917 |
| | $ | 3,031 |
| | $ | 886 |
|
Investing activities | (875 | ) | | (1,581 | ) | | 707 |
|
Financing activities | (3,177 | ) | | (2,968 | ) | | (210 | ) |
Effect of exchange rate changes on cash and cash equivalents | (63 | ) | | (5 | ) | | (58 | ) |
Net increase (decrease) in cash and cash equivalents | $ | (198 | ) | | $ | (1,523 | ) | | $ | 1,325 |
|
_______________
Amounts in table may not total due to rounding.
Operating activities: The year-over-year increase in operating cash flow was due to higher net income, excluding the impact of the pension settlement charge in fiscal 2017, as well as changes in operating assets and liabilities, including lower spending on certain compensation payments and improved collections on client receivables.
Investing activities: Cash used in investing activities decreased $707 million due to lower spending on business acquisitions and investments, partially offset by higher spending on property and equipment. For additional information, see Note 4 (Business Combinations) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
Financing activities: The $210 million increase in cash used was due to an increase in cash dividends paid as well as the purchase of additional interests in consolidated subsidiaries and an increase in net share purchases. For additional information, see Note 6 (Material Transactions Affecting Shareholders’ Equity) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
We believe that our current and longer-term working capital, investments and other general corporate funding requirements will be satisfied for the next twelve months and thereafter through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities.
Substantially all of our cash is held in jurisdictions where there are no regulatory restrictions or material tax effects on the free flow of funds. Domestic cash inflows for our Irish parent, principally dividend distributions from lower-tier subsidiaries, have been sufficient to meet our historic cash requirements, and we expect this to continue into the future.
Borrowing Facilities
As of May 31, 2018, we had the following borrowing facilities, including the issuance of letters of credit, to support general working capital purposes:
|
| | | | | | | |
| Facility Amount | | Borrowings Under Facilities |
| (in millions of U.S. dollars) |
Syndicated loan facility | $ | 1,000 |
| | $ | — |
|
Separate, uncommitted, unsecured multicurrency revolving credit facilities | 666 |
| | — |
|
Local guaranteed and non-guaranteed lines of credit | 231 |
| | — |
|
Total | $ | 1,897 |
| | $ | — |
|
Under the borrowing facilities described above, we had an aggregate of $267 million of letters of credit outstanding as of May 31, 2018. In the fourth quarter of fiscal 2017, we entered into agreements that will allow us to establish a commercial paper program for short-term borrowings of up to $1 billion, backed by our syndicated loan facility.
Share Purchases and Redemptions
The Board of Directors of Accenture plc has authorized funding for our publicly announced open-market share purchase program for acquiring Accenture plc Class A ordinary shares and for purchases and redemptions of Accenture plc Class A ordinary shares and Accenture Canada Holdings Inc. exchangeable shares held by current and former members of Accenture Leadership and their permitted transferees.
Our share purchase activity during the nine months ended May 31, 2018 was as follows:
|
| | | | | | | | | | | | | |
| Accenture plc Class A Ordinary Shares | | Accenture Holdings plc Ordinary Shares and Accenture Canada Holdings Inc. Exchangeable Shares (3) |
| Shares | | Amount | | Shares | | Amount |
| (in millions of U.S. dollars, except share amounts) |
Open-market share purchases (1) | 10,570,746 |
| | $ | 1,587 |
| | — |
| | $ | — |
|
Other share purchase programs | — |
| | — |
| | 559,894 |
| | 83 |
|
Other purchases (2) | 2,766,346 |
| | 417 |
| | — |
| | — |
|
Total | 13,337,092 |
| | $ | 2,004 |
| | 559,894 |
| | $ | 83 |
|
_______________
| |
(1) | We conduct a publicly announced open-market share purchase program for Accenture plc Class A ordinary shares. These shares are held as treasury shares by Accenture plc and may be utilized to provide for select employee benefits, such as equity awards to our employees. |
| |
(2) | During the nine months ended May 31, 2018, as authorized under our various employee equity share plans, we acquired Accenture plc Class A ordinary shares primarily via share withholding for payroll tax obligations due from employees and former employees in connection with the delivery of Accenture plc Class A ordinary shares under those plans. These purchases of shares in connection with employee share plans do not affect our aggregate available authorization for our publicly announced open-market share purchase and the other share purchase programs. |
| |
(3) | In connection with the internal merger described in Note 1 (Basis of Presentation) in which Accenture Holdings plc merged with and into Accenture plc, shareholders of Accenture Holdings plc received one Class A ordinary share of Accenture plc for each share of Accenture Holdings plc that they owned, after which Accenture Holdings plc ceased to exist. Accordingly, as of March 13, 2018, there were no longer any ordinary shares of Accenture Holdings plc outstanding. |
We intend to continue to use a significant portion of cash generated from operations for share repurchases during the remainder of fiscal 2018. The number of shares ultimately repurchased under our open-market share purchase program may vary depending on numerous factors, including, without limitation, share price and other market conditions, our ongoing capital allocation planning, the levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic and/or business conditions, and board and management discretion. Additionally, as these factors may change over the course of the year, the amount of share repurchase activity during any particular period cannot be predicted and may fluctuate from time to time. Share repurchases may be made from time to time through open-market purchases, in respect of purchases and redemptions of Accenture Canada Holdings Inc. exchangeable shares, through the use of Rule 10b5-1 plans and/or by other means. The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice.
Other Share Redemptions
During the nine months ended May 31, 2018, we issued 25,906,176 Accenture plc Class A ordinary shares. The merger, described in Note 1 (Basis of Presentation), resulted in 25,554,372 Accenture plc Class A ordinary shares being issued in exchange for Accenture Holdings plc shares on March 13, 2018. Additionally, prior to the merger, we issued 351,804 Accenture plc Class A ordinary shares upon redemptions of an equivalent number of Accenture Holdings plc ordinary shares pursuant to a registration statement on Form S-3 (the “registration statement”). Under the registration statement we, at our option, could issue freely tradable Accenture plc Class A ordinary shares in lieu of cash upon redemptions of Accenture Holdings plc ordinary shares held by current and former members of Accenture Leadership and their permitted transferees. In connection with the merger of Accenture Holdings plc with and into Accenture plc, we have terminated the registration statement.
For a complete description of all share purchase and redemption activity for the third quarter of fiscal 2018, see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds.”
Off-Balance Sheet Arrangements
In the normal course of business and in conjunction with some client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients with respect to certain matters.
To date, we have not been required to make any significant payment under any of the arrangements described above. For further discussion of these transactions, see Note 10 (Commitments and Contingencies) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
New Accounting Pronouncements
See Note 1 (Basis of Presentation) to our Consolidated Financial Statements under Item 1, “Financial Statements.”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the nine months ended May 31, 2018, there were no material changes to the information on market risk exposure disclosed in our Annual Report on Form 10-K for the year ended August 31, 2017. For a discussion of our market risk associated with foreign currency risk, interest rate risk and equity price risk as of August 31, 2017, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended August 31, 2017.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, the principal executive officer and the principal financial officer of Accenture plc have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the third quarter of fiscal 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth under “Legal Contingencies” in Note 10 (Commitments and Contingencies) to our Consolidated Financial Statements under Part I, Item 1, “Financial Statements,” is incorporated herein by reference.
ITEM 1A. RISK FACTORS
For a discussion of our potential risks and uncertainties, see the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended August 31, 2017. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended August 31, 2017.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases and Redemptions of Accenture plc Class A Ordinary Shares and Class X Ordinary Shares
The following table provides information relating to our purchases of Accenture plc Class A ordinary shares and redemptions of Accenture plc Class X ordinary shares during the third quarter of fiscal 2018. In connection with the merger of Accenture Holdings plc with and into Accenture plc on March 13, 2018, the Accenture plc Class X ordinary shares held by Accenture Holdings plc shareholders were redeemed.
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased/Redeemed | | Average Price Paid per Share (1) | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
| |
|
| | | | | | (in millions of U.S. dollars) |
March 1, 2018 — March 31, 2018 | | | | | | | | |
Class A ordinary shares | | 1,250,227 |
| | $ | 156.38 |
| | 1,237,587 |
| | $ | 1,954 |
|
Class X ordinary shares (4) | | 19,054,001 |
| | $ | 0.0000225 |
| |
|
| |
|
|
April 1, 2018 — April 30, 2018 | | | | | | | | |
Class A ordinary shares | | 1,690,818 |
| | $ | 151.09 |
| | 1,667,031 |
| | $ | 1,702 |
|
Class X ordinary shares | | — |
| | $ | 0.0000225 |
| |
|
| |
|
|
May 1, 2018 — May 31, 2018 | | | | | | | | |
Class A ordinary shares | | 1,745,694 |
| | $ | 154.03 |
| | 1,635,706 |
| | $ | 1,449 |
|
Class X ordinary shares | | — |
| | $ | 0.0000225 |
| |
|
| |
|
|
Total | | | | | | | | |
Class A ordinary shares (5) | | 4,686,739 |
| | $ | 153.60 |
| | 4,540,324 |
| | |
Class X ordinary shares (6) | | 19,054,001 |
| | $ | 0.0000225 |
| |
|
| | |
_______________
| |
(1) | Average price paid per share reflects the total cash outlay for the period, divided by the number of shares acquired, including those acquired by purchase or redemption for cash and any acquired by means of employee forfeiture. |
| |
(2) | Since August 2001, the Board of Directors of Accenture plc has authorized and periodically confirmed a publicly announced open-market share purchase program for acquiring Accenture plc Class A ordinary shares. During the third quarter of fiscal 2018, we purchased 4,540,324 Accenture plc Class A ordinary shares under this program for an aggregate price of $698 million. The open-market purchase program does not have an expiration date. |
| |
(3) | As of May 31, 2018, our aggregate available authorization for share purchases and redemptions was $1,449 million, which management has the discretion to use for either our publicly announced open-market share purchase program or the other share purchase programs. Since August 2001 and as of May 31, 2018, the Board of Directors of Accenture plc has authorized an aggregate of $30,100 million for purchases and redemptions of Accenture plc Class A ordinary shares, Accenture Holdings plc ordinary shares (prior to March 13, 2018) or Accenture Canada Holdings Inc. exchangeable shares. |
| |
(4) | In connection with the internal merger described in Note 1 (Basis of Presentation) in which our subsidiary Accenture Holdings plc merged with and into Accenture plc, shareholders of Accenture Holdings plc received one Class A ordinary share of Accenture plc for each share of Accenture Holdings plc that they owned, after which Accenture Holdings plc ceased to exist, and Accenture plc redeemed all Class X ordinary shares of Accenture plc owned by such shareholders. |
| |
(5) | During the third quarter of fiscal 2018, Accenture purchased 146,415 Accenture plc Class A ordinary shares in transactions unrelated to publicly announced share plans or programs. These transactions consisted of acquisitions of Accenture plc Class A ordinary shares primarily via share withholding for payroll tax obligations due from employees and former employees in connection with the delivery of Accenture plc Class A ordinary shares under our various employee equity share plans. These purchases of shares in connection with employee share plans do not affect our aggregate available authorization for our publicly announced open-market share purchase and the other share purchase programs. |
| |
(6) | Accenture plc Class X ordinary shares are redeemable at their par value of $0.0000225 per share. |
Purchases and Redemptions of Accenture Holdings plc Ordinary Shares and Accenture Canada Holdings Inc. Exchangeable Shares
The following table provides additional information relating to our purchases and redemptions of Accenture Holdings plc ordinary shares and Accenture Canada Holdings Inc. exchangeable shares for cash during the third quarter of fiscal 2018. We believe that the following table and footnotes provide useful information regarding the share purchase and redemption activity of Accenture. Generally, purchases and redemptions of Accenture Canada Holdings Inc. exchangeable shares for cash and employee forfeitures reduce shares outstanding for purposes of computing diluted earnings per share. In connection with the merger of Accenture Holdings plc with and into Accenture plc on March 13, 2018, shareholders of Accenture Holdings plc (other than Accenture plc and Accenture Holdings plc) received one Class A ordinary share of Accenture plc for each share of Accenture Holdings plc that they owned. Accordingly, as of March 13, 2018, there were no longer any ordinary shares of Accenture Holdings plc outstanding.
|
| | | | | | | | | | | | | |
Period |
| Total Number of Shares Purchased/Redeemed (1) |
| Average Price Paid per Share (2) |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) |
Accenture Holdings plc (4) |
|
|
|
|
|
|
|
|
March 1, 2018 — March 31, 2018 |
| 25,554,372 |
|
| $ | — |
|
| — |
|
| — |
|
April 1, 2018 — April 30, 2018 |
| — |
|
| $ | — |
|
| — |
|
| — |
|
May 1, 2018 — May 31, 2018 |
| — |
|
| $ | — |
|
| — |
|
| — |
|
Total |
| 25,554,372 |
|
| $ | — |
|
| — |
|
| — |
|
Accenture Canada Holdings Inc. |
|
|
|
|
|
|
|
|
March 1, 2018 — March 31, 2018 |
| — |
|
| $ | — |
|
| — |
|
| — |
|
April 1, 2018 — April 30, 2018 |
| — |
|
| $ | — |
|
| — |
|
| — |
|
May 1, 2018 — May 31, 2018 |
| 2,000 |
|
| $ | 156.48 |
|
| — |
|
| — |
|
Total |
| 2,000 |
|
| $ | 156.48 |
|
| — |
|
| — |
|
_______________
| |
(1) | During the third quarter of fiscal 2018, we issued 25,554,372 Accenture plc Class A ordinary shares upon redemptions of an equivalent number of Accenture Holdings plc ordinary shares as a result of the merger. In addition, during the third quarter of fiscal 2018, we acquired 2,000 Accenture Canada Holdings Inc. exchangeable shares from current and former members of Accenture Leadership and their permitted transferees by means of purchase or redemption for cash, or employee forfeiture, as applicable. |
| |
(2) | Average price paid per share reflects the total cash outlay for the period, divided by the number of shares acquired, including those acquired by purchase or redemption for cash and any acquired by means of employee forfeiture. |
| |
(3) | For a discussion of our aggregate available authorization for share purchases and redemptions through either our publicly announced open-market share purchase program or the other share purchase programs, see the “Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs” column of the “Purchases and Redemptions of Accenture plc Class A Ordinary Shares and Class X Ordinary Shares” table above and the applicable footnote. |
| |
(4) | In connection with the internal merger described in Note 1 (Basis of Presentation) in which Accenture Holdings plc merged with and into Accenture plc, shareholders of Accenture Holdings plc received one Class A ordinary share of Accenture plc for each share of Accenture Holdings plc that they owned, after which Accenture Holdings plc ceased to exist, and Accenture plc redeemed all Class X ordinary shares of Accenture plc owned by such shareholders. Accordingly, as of March 13, 2018, there were no longer any ordinary shares of Accenture Holdings plc outstanding. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
(a) None.
(b) None.
ITEM 6. EXHIBITS
Exhibit Index: |
| | |
Exhibit Number | | Exhibit |
3.1 | | |
| | |
31.1 | | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| | |
31.2 | | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith) |
| | |
32.1 | | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) |
| | |
32.2 | | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) |
| | |
101 | | The following financial information from Accenture plc’s Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of May 31, 2018 (Unaudited) and August 31, 2017, (ii) Consolidated Income Statements (Unaudited) for the three and nine months ended May 31, 2018 and 2017, (iii) Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended May 31, 2018 and 2017, (iv) Consolidated Shareholders’ Equity Statement (Unaudited) for the nine months ended May 31, 2018, (v) Consolidated Cash Flows Statements (Unaudited) for the nine months ended May 31, 2018 and 2017 and (vi) the Notes to Consolidated Financial Statements (Unaudited) |
| | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: June 28, 2018
|
| | |
| ACCENTURE PLC |
| | |
| By: | /s/ David P. Rowland |
| Name: | David P. Rowland |
| Title: | Chief Financial Officer |
| | (Principal Financial Officer and Authorized Signatory) |