UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission File Number: 001-16565

ACCENTURE LTD

Canon’s Court
22 Victoria Street
Hamilton HM 12, Bermuda
(Address of principal executive offices)

(441) 296-8262
(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 x No o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes x No o

     The number of shares of the Registrant’s Class A common shares, par value $0.0000225 per share, outstanding as of April 2, 2004 was 510,598,520 (which number does not include 24,845,235 issued shares held by subsidiaries of the Registrant). The number of shares of the Registrant’s Class X common shares, par value $0.0000225 per share, outstanding as of April 2, 2004 was 415,464,720.

ACCENTURE LTD

INDEX

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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

ACCENTURE LTD

CONSOLIDATED BALANCE SHEETS

February 29, 2004 and August 31, 2003
(In thousands of U.S. dollars, except share and per share amounts)

The accompanying notes are an integral part of these financial statements.

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ACCENTURE LTD

CONSOLIDATED INCOME STATEMENTS

For the Three and Six Months Ended February 29, 2004 and February 28, 2003
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

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ACCENTURE LTD

CONSOLIDATED SHAREHOLDERS’ EQUITY STATEMENT

For the Six Months Ended February 29, 2004
(U.S. dollars and share amounts in thousands)
(Unaudited)

The accompanying notes are an integral part of these financial statements.

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ACCENTURE LTD

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 Ltd, a Bermuda company, and its controlled subsidiary companies (together “Accenture” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended August 31, 2003 included in the Company’s Annual Report on Form 10-K filed with the SEC on November 18, 2003. The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair presentation of results for these interim periods. The results of operations for the three and six months ended February 29, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2004. Certain prior-period amounts have been reclassified to conform to the current-period presentation.

2. RECENTLY ADOPTED ACCOUNTING STANDARDS

     In November 2002, the Emerging Issues Task Force (“EITF”) issued a final consensus on Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” In May 2003, the EITF issued additional interpretive guidance regarding the application of Issue 00-21. Issue 00-21, which provides guidance on how and when to recognize revenues on arrangements requiring delivery of more than one product or service, is effective prospectively for arrangements entered into in fiscal periods beginning after June 15, 2003.

     Effective September 1, 2003, Accenture adopted Issue 00-21 on a prospective basis. The Company will continue to account for contracts signed on or before August 31, 2003 under the previous policy for contracts containing multiple elements, as described in the notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003. Revenues for contracts with multiple elements signed or amended after August 31, 2003 are allocated to each element based on the lesser of the element’s relative fair value or the amount that is not contingent on future delivery of another element.

     Revenues allocated to separate elements are recognized for each separate element in accordance with Accenture’s accounting policy for that element as described in the notes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003. If the amount of non-contingent revenue allocated to a delivered element is less than the costs to deliver such services, then such costs are deferred and recognized in future periods when the revenue becomes non-contingent.

     The adoption of Issue 00-21 has not had a material effect on the Company’s consolidated financial position as of February 29, 2004 or results of operations for the three- and six-month periods then ended.

3. PRO FORMA IMPACT OF EMPLOYEE STOCK OPTIONS AND SHARE PURCHASE PLANS

     Accenture follows Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” in accounting for its employee stock options and share purchase rights. Accordingly, no compensation expense is recognized for stock options and share purchase rights granted under the Company’s employee share incentive and employee share purchase plans. Had compensation cost for the Company’s employee share incentive and employee share purchase plans been determined based on fair value at the grant date consistent with Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

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4. EARNINGS PER SHARE (EPS)

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

5. INVESTMENTS

Available-for-Sale Investments

     In February 2004, the Company transferred approximately $1,400,000 of money-market mutual fund balances to managed investment accounts. All highly liquid investments purchased with an original maturity of 90 days or less are considered to be cash equivalents and are recorded at fair market value. Investments with a maturity greater than 90 days, but less than one year, at the time of purchase are considered to be short-term investments. Investments with a maturity greater than one year at the time of purchase are considered to be long-term investments. Marketable short- and long-term investments are classified and accounted for as available-for-sale. Available-for-sale investments are reported at fair value with unrealized gains and losses recorded as a separate component of Accumulated other comprehensive income (loss) in shareholders’ equity until realized. Interest and amortization of premiums and discounts for debt securities are included in interest income. Realized gains and losses on securities are determined based on the FIFO method and are included in Gain (loss) on investments, net. The Company does not hold these investments for speculative or trading purposes.

     Available-for-sale investments at February 29, 2004 were as follows:

     The amortized cost and estimated fair value of available-for-sale investments in debt securities at February 29, 2004, by contractual maturity, were as follows:

     The following table summarizes sales of available-for-sale investments for the three and six months ended February 29, 2004:

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

6. GOODWILL

     A summary of the changes in the carrying amount of goodwill by segment for the six months ended February 29, 2004 is as follows:

7. REORGANIZATION BENEFITS/COSTS

     During the three and six months ended February 29, 2004, Accenture recorded expense of $182 and a benefit of $86,216, respectively, primarily resulting from final determinations of certain reorganization liabilities established in connection with Accenture’s transition to a corporate structure in 2001. For the six months ended February 28, 2003, the reorganization benefit was $13,995. The carrying amount of the reorganization liabilities was $461,963 at February 29, 2004 and $510,149 at August 31, 2003. The remaining change in the reorganization liabilities during the six months ended February 29, 2004 was due to foreign currency translation. The reorganization liabilities are recorded as a component of Other accrued liabilities and Other non-current liabilities on the Consolidated Balance Sheet.

8. RESTRUCTURING COSTS

     In the fourth quarter of 2002, Accenture recognized restructuring costs of $110,524 related to a global consolidation of office space. At August 31, 2003, the related liability for restructuring costs was $40,327. This liability was reduced by payments made in the three and six months ended February 29, 2004 of $4,885 and $10,054, respectively. The liability was also affected by immaterial changes in lease estimates, imputed interest and foreign currency translation. The liability at February 29, 2004 was $30,901, representing the net present value of the estimated remaining obligations related to exiting operating leases.

     In the second quarter of 2004, Accenture management approved a real estate consolidation plan, which was substantially completed during the second quarter of fiscal 2004, primarily in the United States and the United Kingdom. Accenture recognized restructuring costs of $107,256, consisting of $89,331 to consolidate various locations and $17,925 to abandon the related fixed assets. Payments totaling $774 were made in the three months ended February 29, 2004. The liability was also affected by immaterial changes in lease estimates, imputed interest and foreign currency translation. At February 29, 2004, the related liability for restructuring costs was $89,042 and was recorded as a component of Other accrued liabilities and Other non-current liabilities.

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

9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

     The components of Comprehensive income are as follows:

     The components of Accumulated other comprehensive income (loss) are as follows:

10. ACCENTURE SHARE EMPLOYEE COMPENSATION TRUST

     On December 19, 2003, the Accenture Stock Employee Compensation Trust was terminated. A subsidiary of Accenture Ltd that is not a subsidiary of Accenture SCA created a new Share Employee Compensation Trust (“SECT”). Substantially all treasury shares purchased by the predecessor trust that had not been used to fund employee share awards were transferred to the new SECT. Accenture SCA and its subsidiaries will continue to provide funding to the SECT in exchange for the redemption by Accenture SCA of Accenture SCA Class I shares held by Accenture Ltd. Accenture Ltd will transfer proceeds from those redemptions to the SECT.

     In a series of open-market purchases during the three and six months ended February 29, 2004, the SECT and its predecessor trust acquired 1,813,050 and 5,313,050 Accenture Ltd Class A common shares, respectively, at aggregate purchase prices of $42,501 and $121,466, respectively, for use in conjunction with employee equity awards. At February 29, 2004, the SECT had $110,662 of previously authorized contributions available for share purchases.

11. ANDERSEN CONTRACTS

     In October 2002, Accenture and Arthur Andersen LLP terminated the prior training facility services agreement, as well as the services agreements by which Arthur Andersen LLP and other Arthur Andersen firms were to provide services to Accenture and by which Accenture was to provide Arthur Andersen LLP and other Arthur Andersen firms with services. In conjunction with the termination of all contracts and in settlement of all related matters with Arthur Andersen LLP and other Arthur Andersen firms, Accenture paid Arthur Andersen LLP $190,290. This payment offset previously accrued amounts and resulted in an immaterial gain.

12. GUARANTEES

     As a result of Accenture increasing its ownership percentage of Accenture HR Services from 50 percent to 100 percent in February 2002, Accenture may be required to make payments totaling up to $187,500 in additional purchase price over a five-year period starting February 28, 2002, conditional on Accenture HR Services achieving growth in revenues. During the

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

three and six months ended February 29, 2004, Accenture made payments totaling $0 and $1,720, respectively. The remaining potential liability at February 29, 2004 was $185,780.

     In connection with Accenture increasing its ownership interest in Avanade, Inc. from 50 percent to 78 percent in December 2001, Accenture has the right to purchase substantially all of the remaining outstanding shares of Avanade, Inc. not owned by Accenture at fair market value but not less than $28,650 and not to exceed $58,650 anytime after December 31, 2004 or earlier if certain events occur. Accenture may also be required to purchase substantially all of the remaining outstanding shares of Avanade, Inc. not owned by Accenture anytime after December 31, 2006, or earlier if certain events occur, for fair market value but not less than $28,650 and not to exceed $58,650.

     Accenture has various agreements in which it may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification provisions are included in contracts arising in the normal course of business under which the Company customarily agrees to hold the other party harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights. Payments by Accenture under such indemnification clauses are generally conditioned on the other party making a claim. Such claims are typically subject to challenge by Accenture and to dispute resolution procedures specified in the particular contract. Further, the Company’s obligations under these agreements may be limited in terms of time and/or amount and, in some instances, Accenture may have recourse against third parties for certain payments made by the Company. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of Accenture’s obligations and the unique facts of each particular agreement. Historically, the Company has not made any payments under these agreements that have been material individually or in the aggregate. As of February 29, 2004, management was not aware of any obligations arising under indemnification agreements that would require material payments.

     From time to time, Accenture enters into contracts with clients whereby it has joint and several liability with other participants and third parties providing related services and products to clients. Under these arrangements, Accenture and other parties may assume some responsibility to the client for the performance of others under the terms and conditions of the contract with or for the benefit of the client. In some arrangements, the extent of Accenture's obligations for the performance of others is not expressly specified. As of February 29, 2004, Accenture estimates it had assumed an aggregate potential liability of approximately $262,000 to its clients for the performance of others under arrangements described in this paragraph. These contracts typically provide recourse provisions that would allow Accenture to recover from the other parties all but approximately $42,000 if Accenture is obligated to make payments to the clients that are the consequence of a performance default by the other parties. In some of these contracts, the guarantee is contractually given to the client by one of the other parties providing services to the client. In the event of Accenture’s performance default, Accenture could be responsible for repayment to the other party. To date, Accenture has not been required to make any payments under any of the contracts described in this paragraph; and we believe that, if we were to incur a loss in the future in connection with any one of these arrangements, such a loss should not have a material effect on Accenture’s financial condition or results of operations.

13. SEGMENT REPORTING

     Operating segments are defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

     Accenture’s chief operating decision maker is the chief executive officer. The operating segments are managed separately because each operating segment represents a strategic business unit that serves clients in different industries. The reportable operating segments are the Company’s five operating groups, which are Communications & High Tech, Financial Services, Government, Products and Resources.

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

     Financial information for the Company’s reportable segments is as follows:

     Restructuring and reorganization costs for the three months ended February 29, 2004 were $107,438 while restructuring costs and reorganization benefit for the six months ended February 29, 2004 were $21,040. For the six months ended February 28, 2003, the reorganization benefit was $13,995. These amounts were allocated to the operating groups, affecting their operating income by the following amounts:

14. SUBSEQUENT EVENT

     On March 17, 2004, a tender offer made to Accenture SCA Class I shareholders on February 13, 2004 by Accenture SCA and one of its controlled subsidiaries resulted in the redemption or purchase of an aggregate of 11,803,861 Accenture SCA Class I common shares at a price of $22.98 per share. At the same time, a subsidiary of Accenture SCA purchased 749,073 Accenture Canada Holdings Inc. exchangeable shares at a price of $22.98 per share. The total cash outlay for these transactions was $288,466.

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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 fiscal year ended August 31, 2003, 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 fiscal year ended August 31, 2003.

     We use the terms “Accenture,” “the Company,” “we,” “our,” and “us” in this report to refer to Accenture Ltd 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 “2003” or “fiscal year 2003” means the 12-month period that ended on August 31, 2003. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year. We use the term “partner” to refer to the executive employees of Accenture with the “partner” title.

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 and Section 21E of the Exchange Act relating to our operations, results of operations and other matters that are based on our current expectations, estimates and projections. Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates” and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. The reasons for this include changes in general economic and political conditions, including fluctuations in exchange rates, and the following factors:

•		Our results of operations are materially affected by economic conditions, levels of business activity and rates of change in the industries we serve.
•		Our business will be negatively affected if we are not able to anticipate and keep pace with rapid changes in technology or if growth in the use of technology in business is not as rapid as in the past.
•		We may face damage to our professional reputation or legal liability if our clients are not satisfied with our services.
•		Our services or solutions may infringe upon the intellectual property rights of others.
•		Our engagements with clients may not be profitable.
•		If our alliances do not succeed, we may not be successful in implementing our growth strategy.
•		Our global operations pose complex management, foreign currency, legal, tax and economic risks, which we may not adequately address.
•		The consulting, technology and outsourcing markets are highly competitive and the pace of consolidation, as well as vertical integration, among our competitors continues to increase. As a result, we may not be able to compete effectively if we cannot efficiently respond to these developments in a timely manner.
•		If we are unable to attract, retain and motivate employees, we will not be able to compete effectively and will not be able to grow our business.
•		We have only a limited ability to protect our intellectual property rights, which are important to our success.
•		Our profitability will suffer if we are not able to maintain our pricing and utilization rates and control our costs. A continuation of current pricing pressures could result in permanent changes in pricing policies and delivery capabilities.
•		Our quarterly revenues, operating results and profitability will vary from quarter to quarter, which may result in increased volatility of our share price.
•		We continue to position ourselves to achieve increasing percentages of revenues and growth through outsourcing. This strategy could result in higher concentrations of revenues and contributions to income from a smaller number of larger clients on customized outsourcing solutions or, in the case of our BPO businesses, from larger portfolios of clients for whom we provide similar services and solutions utilizing standard operating models. As we continue to accelerate the growth of new outsourcing contracts, we may experience increased pressure on our overall margins during the early stages of these contracts.

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•		On certain complex engagements where we partner with others, clients are increasingly demanding that we guarantee the performance of our business partners whom we do not control. New accounting pronouncements may also affect when and how we report revenues associated with certain engagements.
•		We may be named in lawsuits as a result of Arthur Andersen’s current legal and financial situation based on misconceptions about the nature of our past relationship with Arthur Andersen firms.
•		Negative publicity about Bermuda companies may lead to new tax or other legislation that could increase our tax burden and may affect our relationships with our clients.
•		We will continue to be controlled by our partners, whose interests may differ from those of our other shareholders.
•		The share price of Accenture Ltd Class A common shares may decline due to the large number of Class A common shares eligible for future sale.
•		We may need additional capital in the future, and this capital may not be available to us. The raising of additional capital may dilute shareholders’ ownership in us.
•		We are registered in Bermuda, and a significant portion of our assets are located outside the United States. As a result, it may not be possible for shareholders to enforce civil liability provisions of the federal or state securities laws of the United States.
•		Bermuda law differs from the laws in effect in the United States and may afford less protection to shareholders.

     For a more detailed discussion of these factors, see the information under the heading “Business—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2003. We undertake no obligation to update or revise any forward-looking statements.

Overview

     Our results of operations are affected by the economic conditions, levels of business activity and rates of change in the industries we serve. Our business is also driven, in part, by the pace of technological change and the type and amount of technology spending by our clients. The ability to identify and capitalize on these market and technological changes early in their cycles is a key driver of our performance.

     Revenues are driven by the ability of our partners and other senior executives to secure contracts for new engagements and to deliver solutions and services that add value to our clients. Our ability to add value to clients and therefore drive revenues depends in part on our ability to deliver market-leading service offerings and to deploy skilled teams of professionals quickly and on a global basis. As a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations. The strengthening of various currencies versus the U.S. dollar has resulted in favorable currency translation and increased our reported revenues. Revenues before reimbursements increased 17% and 14% in U.S. dollars for the three and six months ended February 29, 2004, respectively, from the comparable periods last year. In local currency terms, revenues before reimbursements for the three and six months ended February 29, 2004 increased 8% and 6%, respectively, from the comparable periods last year.

     We continue to achieve an increasing percentage of our revenues and growth through business transformation outsourcing, our approach that combines outsourcing, including business process outsourcing, with our other capabilities to help clients transform and outsource key processes, applications and infrastructure to improve business performance. For both the three and six months ended February 29, 2004, outsourcing revenues before reimbursements increased 46% in U.S. dollars and 37% in local currency terms compared with the same periods last year. Outsourcing contracts typically have longer contract terms than consulting contracts; may not generate revenues as quickly in the early stages of the contract; and generally have lower gross margins than consulting contracts, particularly in the first year. As our outsourcing business continues to grow, we are seeing an increase in the size, geographic scope and/or delivery complexity of many of our outsourcing contracts. These contracts increasingly have complex pricing models that often tie portions of our fees to achieving improvements in various business metrics. In some cases, portions of our fees are affected by the level of a client’s business activity, which is outside of our control. Often such contracts also have major transformational components or transitional activities, such as hiring large numbers of new employees, the timely implementation of which can have a significant impact on the timing and/or amount of costs incurred and revenues recognized.

     Global economic and political conditions are continuing to cause companies to be cautious about increasing their use of consulting services, but as their profit margins begin to recover and companies return to focusing on improving business performance, we are beginning to see an upturn in demand for our consulting services. For the three months ended February 29, 2004, consulting revenues before reimbursements increased by 4% in U.S. dollars and decreased by 5% in local currency terms compared to the second quarter of fiscal 2003. Growth of our consulting business continues to be a critical part of our strategy.

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     We continue to experience ongoing pricing pressures from competitors as well as from clients facing pressure to control costs. The pace of consolidation and of vertical integration among our competitors continues to increase and to affect our revenues and operating margins. In addition, the growing use of off-shore resources to provide lower-cost service delivery capabilities within our industry continues to be a source of pressure on our revenues and operating margins. While we have recently experienced increases in demand for our services and while margins in our consulting business have recently stabilized, it is too early to tell if these developments will translate into sustainable improvements in our pricing or margins over the long term.

     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, sub-contractor and other personnel costs, and nonpayroll outsourcing costs. Cost of services as a percentage of revenues is driven by the prices we obtain for our solutions and services; the chargeability, or utilization, of our client-service workforces; and the level of non-payroll costs associated with the continuing accelerated growth of new outsourcing contracts. Chargeability, or utilization, represents the percentage of our professionals’ time spent on billable work. Sales and marketing expense is driven primarily by business-development activities; the development of new service offerings; the level of concentration of clients in a particular industry or market; and client-targeting, image-development and brand-recognition activities. General and administrative costs primarily include costs for non-client-facing personnel, information systems and office space, which we seek to manage at levels consistent with changes in activity levels in our business.

     Gross margins (revenues less cost of services) for the three and six months ended February 29, 2004 decreased to 33% and 34%, respectively, of revenues before reimbursements from 36% and 38%, respectively, for the same periods last year. The declines reflect the continuing shift in our mix of business toward outsourcing; ongoing pricing pressures; and increased variable compensation expense. The three Communications & High Tech contracts with lower-than-expected margins identified in the first quarter of this fiscal year did not have a material effect on gross margins in the second quarter and should not affect the Company’s ability to meet earnings and cash flow targets for the fiscal year.

     Our cost management strategy continues to be to anticipate changes in demand for our services and to identify cost management initiatives. We aggressively plan and manage our payroll costs to meet the anticipated demand for our services, as operating expenses can be significantly affected by variable compensation and severance costs. We continue to take actions to create a more variable cost structure. During the three months ended February 29, 2004, Accenture recorded restructuring costs of $107 million relating to the global consolidation of office space, primarily in the United States and the United Kingdom. This real estate consolidation will reduce fixed costs and produce ongoing savings. While our chargeability levels are at or near all-time highs, we continue to have supply-and-demand and skill-level imbalances in certain industry segments and/or countries. We continue to take actions to balance our mix of skills and resources to meet current and projected future demand in each of our markets and will use our global sourcing approach, which includes our network of delivery centers and other capabilities around the world, as part of our cost effective delivery model. However, we continue to hire substantial numbers of new employees and currently expect to hire approximately 30,000 this fiscal year. Our ability to grow our business could be adversely affected if we do not effectively assimilate these new employees into our workforces.

     As a result of our ongoing cost-management initiatives and the continued shift in our mix of business toward outsourcing, sales and marketing and general and administrative costs decreased as a percentage of revenues before reimbursements to 20% and 21% for the three and six months ended February 29, 2004, respectively, from 23% and 24%, respectively, for the same periods last year. Operating income as a percentage of revenues before reimbursements decreased to 9.3% for the three months ended February 29, 2004 from 13.0% for the three months ended February 28, 2003. This decrease was due to the decline in gross margins as described above, increased variable compensation expense, and $107 million of restructuring costs relating to real estate consolidation. Restructuring costs had the effect of reducing operating income as a percentage of revenues before reimbursements by 3.3 percentage points for the three months ended February 29, 2004. Operating income as a percentage of revenues before reimbursements decreased to 12.4% for the six months ended February 29, 2004 from 13.8% for the six months ended February 28, 2003. This decrease was due to the factors described above for the three-month period, partly offset by income of $86 million primarily resulting from final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure in 2001.

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Bookings and Backlog

     New contract bookings for the three months ended February 29, 2004 were $7,649 million, an increase of $2,899 million, or 61%, over new bookings of $4,750 million for the three months ended February 28, 2003, with consulting bookings increasing 20% to $2,889 million and outsourcing bookings increasing 103% to $4,761 million. The new contract bookings for the three months ended February 29, 2004 include $3.12 billion for two new engagements with a client in the United Kingdom. For the six months ended February 29, 2004, bookings increased by 76% over bookings for the six months ended February 28, 2003, with consulting bookings increasing by 18% and outsourcing bookings increasing by 156%. For the twelve months ended February 29, 2004, bookings increased by 60% over bookings for the twelve months ended February 28, 2003, with consulting bookings increasing by 17% and outsourcing bookings increasing by 120%.

     We provide information regarding our bookings because we believe doing so provides useful information regarding changes in the volume of our new business over time. However, information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues. The majority of our contracts are terminable by the client on short notice or without notice. Accordingly, we do not believe it is appropriate to characterize these contracts as backlog. Normally, if a client terminates a project, the client remains obligated to pay for commitments we have made to third parties in connection with the project, services performed and reimbursable expenses incurred by us through the date of termination.

Critical Accounting Policies and Estimates

     For a complete description of our income statement line items and accounting policies, see our Annual Report on Form 10-K for the fiscal year ended August 31, 2003.

     The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates. Certain of our accounting policies require higher degrees of judgment than others in their application. These include certain aspects of accounting for revenue recognition, income taxes, variable compensation and defined benefit pension plans.

Revenue Recognition

     Our contracts have different terms based on the scope, deliverables and complexity of the engagement, the terms of which frequently require Accenture to make judgments and estimates in recognizing revenues. We have many types of contracts, including time-and-materials contracts, fixed-price contracts and contracts with features of both of these contract types. In addition, there is a trend to include greater incentives in our contracts related to costs incurred, benefits produced or adherence to schedule that may increase the variability in revenues and margins earned on such contracts. We conduct rigorous reviews prior to signing such contracts to evaluate whether these incentives are reasonably achievable. For technology integration contracts, estimated revenues for applying the percentage-of-completion method include estimated incentives for which achievement of defined goals is deemed probable. For non-technology integration consulting and outsourcing contracts, revenues relating to such incentive payments are recorded when the contingency is satisfied and when acceptance, where applicable, and delivery of agreed benefits have occurred in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.”

     We recognize revenues from technology integration consulting contracts using the percentage-of-completion method pursuant to the American Institute of Certified Public Accountants Statement of Position 81-1, “Accounting for Performance of Construction Type and Certain Production Type Contracts.” Percentage-of completion accounting involves calculating the percentage of services provided during the reporting period compared with the total estimated services to be provided over the duration of the contract. This method is followed where reasonably dependable estimates of revenues and costs can be made. Estimates of total contract revenues and costs are continuously monitored during the term of the contract, and recorded revenues and costs are subject to revision as the contract progresses. Such revisions may result in increases or decreases to revenues and income and are reflected in the financial statements in the periods in which they are first identified.

     Outsourcing contracts typically span several years and involve complex delivery, often through multiple workforces in different geographies. We continuously review and reassess our estimates of contract profitability. If our estimates indicate that a contract loss will occur, a loss accrual is recorded in the consolidated financial statements in the period it is first identified. Circumstances that could potentially result in contract losses over the life of the contract include decreases in volumes of transactions or other inputs/outputs on which we are paid, failure to deliver agreed benefits, variances from planned internal/external costs to deliver our services, and other factors affecting revenues and costs.

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     Revenues for contracts with multiple elements are allocated based on the fair value of the elements. Fair value is determined based on the prices charged when each element is sold separately. Revenues are recognized in accordance with our accounting policies for the separate elements when the services have value on a stand-alone basis, fair value of the separate elements exists and, in arrangements that include a general right of refund relative to the delivered element, performance of the undelivered element is considered probable and substantially in our control. While determining fair value and identifying separate elements requires judgment, generally fair value and the separate elements are readily identifiable as we also provide those elements unaccompanied by the other elements in many contracts. Effective September 1, 2003, we adopted EITF Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” As such, for contracts signed or amended after August 31, 2003, revenues are allocated to each element based on the lesser of fair value or the amount that is not contingent on future delivery of another element. If the amount of non-contingent revenue allocated to a delivered element is less than the costs to deliver such services, then such costs are deferred and recognized in future periods when the revenue becomes non-contingent.

Income Taxes

     Determining the consolidated provision for income tax expense, deferred tax assets and liabilities and related valuation allowance involves judgment. As a global company, we are required to calculate and provide for income taxes in each of the tax jurisdictions where we operate. This involves estimating current tax exposures in each jurisdiction as well as making judgments regarding the recoverability of deferred tax assets. Tax exposures can involve complex issues and may require an extended period to resolve. Changes in the geographic mix or estimated level of annual pre-tax income can affect the overall effective tax rate. Our effective tax rates for both the three and six months ended February 29, 2004 were 34.8% as compared to 38.0% for both the three and six months ended February 28, 2003.

Variable Compensation

     We record compensation expense for payments to be made in later fiscal periods to our partners and other senior employees under the variable compensation portions of our overall compensation programs. Determining the amount of expense to recognize as operating expenses for variable compensation at interim and annual reporting dates involves judgment. Expenses accrued for variable compensation are based on actual quarterly and annual operational performance versus plan targets and other factors. Amounts accrued are subject to change in future periods if future performance is below plan targets or is below the performance levels anticipated in prior periods. Management believes it makes reasonable judgments using all significant information available. The liability recorded as of February 29, 2004 for variable compensation was $82 million, of which we expect to pay approximately $12 million in the third quarter of fiscal 2004 with the remainder payable in subsequent quarters provided performance targets are met. The following table shows quarterly variable compensation expense (benefit).

     We reversed $4 million of previously accrued variable compensation during the first quarter of fiscal 2004 and accrued $64 million of variable compensation expense during the second quarter of fiscal 2004, bringing the year-to-date-accrual to $60 million, compared with $11 million in the first six months of fiscal 2003. In fiscal 2004, we increased the variable component of target compensation for larger proportions of our global workforce. Effective December 1, 2003, as part of the changes to our partner compensation model, we increased the variable component of our partners’ target compensation as a percentage of our partners’ total compensation.

Defined Benefit Pension Plans

     In the United States and certain other countries, Accenture maintains and administers defined benefit pension plans. The annual cost of these plans can be significantly affected by changes in assumptions and differences between expected and actual experience. Pension expense was $57 million and $34 million for the first six months of fiscal 2004 and 2003, respectively. The pension assumptions used to determine annual pension expense for fiscal 2004 and fiscal 2003 are as follows:

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     A one-percentage-point increase in the discount rate would decrease our annual pension expense by $31 million. A one-percentage-point decrease in the discount rate would increase our annual pension expense by $40 million.

     A one-percentage-point increase in our return on plan assets would decrease our annual pension expense by $5 million. A one-percentage point decrease in our return on plan assets would increase our annual pension expense by $5 million.

     SFAS 87 requires recognition of a minimum pension liability if the fair value of pension assets is less than the accumulated benefit obligation. During fiscal 2003, we recorded a charge to equity of $108 million representing an adjustment to increase our pension liability by $180 million, net of a tax benefit of $72 million. This charge was included in accumulated other comprehensive loss in the shareholders’ equity section of our balance sheet. Additional charges to equity may be required in the future depending on future contributions to our pension plans, returns on pension plan assets and interest rates.

Revenues by Segment / Operating Group

     Our five reportable operating segments are our operating groups, which are Communications & High Tech, Financial Services, Government, Products and Resources. Operating groups are managed on the basis of revenues before reimbursements because our management believes it is a better indicator of operating group performance than is revenues. From time to time, our operating groups work together to sell and implement certain engagements. The resulting revenues and costs from these engagements may be apportioned among the participating operating groups. Generally, operating expenses for each operating group have similar characteristics and are subject to the same factors, pressures and challenges. However, the current economic environment and its continuing effects on the industries served by our operating segments affect revenues and operating expenses within our operating segments to different degrees. Personnel reductions have not been taken uniformly across our operating segments, due in part to an increased need on behalf of some of our operating groups to tailor their workforces to the needs of their businesses. The shift to outsourcing engagements is not uniform among our operating groups and, consequently, neither is the impact on operating group revenues caused by these transitions. Local currency fluctuations also tend to affect our operating groups differently, depending on the historical and current geographic concentrations and locations of their businesses.

     The following tables provide revenues for each of these operating groups.