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 [  ]

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

     The number of shares of the Registrant’s Class A common shares, par value $0.0000225 per share, outstanding as of December 31, 2004 was 577,714,575 (which number does not include 17,746,626 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 December 31, 2004 was 361,762,016.

ACCENTURE LTD

INDEX

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ITEM 1. FINANCIAL STATEMENTS

ACCENTURE LTD

CONSOLIDATED BALANCE SHEETS

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

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ACCENTURE LTD

CONSOLIDATED INCOME STATEMENTS

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

4

ACCENTURE LTD

CONSOLIDATED SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME STATEMENTS
For the Three Months Ended November 30, 2004
(In thousands of U.S. dollars and in thousands of share amounts)
(Unaudited)

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

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ACCENTURE LTD

CONSOLIDATED CASH FLOWS STATEMENTS

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 (the “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 consolidated financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended August 31, 2004 included in the Company’s Annual Report on Form 10-K filed with the SEC on November 5, 2004. 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 months ended November 30, 2004 are not necessarily indicative of the results that may be expected for the fiscal year ending August 31, 2005. Certain prior-period amounts have been reclassified to conform to the current-period presentation.

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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)

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

     Accenture follows the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, to account for its employee stock options and share purchase rights. Accordingly, no compensation expense is recognized for share purchase rights granted in connection with the issuance of stock options under the Company’s employee share incentive plan and through its employee share purchase plan; however, compensation expense is recognized in connection with the issuance of restricted share units granted under the Company’s share incentive plan. Beginning September 1, 2005, Accenture will be required to record compensation cost for its employee stock options and share purchase rights as result of a revision to SFAS No. 123 issued in December 2004. Had compensation cost for employee stock options granted under the Company’s share incentive plan and employee share purchase rights under its share purchase plan been determined based on fair value at the grant date consistent with SFAS No. 123, Accounting for Stock-Based Compensation, with stock options expensed using the accelerated expense attribution method, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

3. EARNINGS PER SHARE

     Basic and diluted earnings per share are calculated as follows:

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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)

4. RESTRUCTURING AND REORGANIZATION COSTS (BENEFITS)

Restructuring

     In fiscal 2002, Accenture recognized restructuring costs of $110,524 (“Fiscal 2002 Restructuring”) related to a global consolidation of office space, consisting of $67,112 to consolidate various locations and $43,412 to abandon the related fixed assets. In the second quarter of fiscal 2004, Accenture recognized restructuring costs of $107,256 (“Fiscal 2004 Restructuring”), primarily in the United States and the United Kingdom, consisting of $89,331 to consolidate various locations and $17,925 to abandon the related fixed assets.

     The Company’s restructuring activity for the period is as follows:

     The recorded liabilities represent the net present value of the estimated remaining obligations related to existing operating leases.

Reorganization

     In fiscal 2001, Accenture recognized a reorganization liability in connection with its transition to a corporate structure. The Company’s reorganization activity for the period is as follows:

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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. ACCUMULATED OTHER COMPREHENSIVE LOSS

     The components of Accumulated other comprehensive loss are as follows:

     Comprehensive income was $239,389 and $200,189 for the three months ended November 30, 2004 and 2003, respectively.

6. GOODWILL

     The changes in the carrying amount of goodwill by reportable segment are as follows:

7. PROFIT SHARING AND RETIREMENT PLANS

     In the United States and certain other countries, Accenture maintains and administers retirement plans and postretirement medical plans for certain active, retired and resigned Accenture employees. The components of net periodic pension and postretirement cost are as follows:

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8. MATERIAL TRANSACTIONS AFFECTING SHAREHOLDERS’ EQUITY

          Since April 2002, the Board of Directors of Accenture Ltd has authorized and periodically confirmed a publicly announced open-market share purchase program for acquiring Accenture Ltd Class A common shares. In addition, the Board of Directors of Accenture Ltd previously authorized funds for the purchase, redemption and exchange of Accenture shares held by our partners, former partners and their permitted transferees, as well as the purchase of certain Accenture Ltd Class A common shares awarded to employees pursuant to restricted share units issued in connection with our initial public offering. Effective as of October 15, 2004, the Board of Directors of Accenture Ltd authorized the purchase, redemption and exchange from time to time of up to an additional $3,000,000 of Accenture shares. The authorization requires that at least $1,000,000 of these funds be used in connection with the open-market share purchase program. The timing and amount of these open-market purchases will be at the Company’s discretion and will be based on market conditions and other factors. At November 30, 2004, there was $1,031,097 available for open-market share purchases and $2,222,506 of previously authorized funds available for the purchase, redemption, and exchange of Accenture shares held by partners, former partners, their permitted transferees and employees.

9. COMMITMENTS AND CONTINGENCIES

Guarantees

          As a result of our increase in 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 certain levels of qualifying revenues. During the three months ended November 30, 2004, Accenture made payments of $11,310. The remaining potential liability at November 30, 2004 was $174,470.

          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. Accenture may also be required to purchase substantially all of the remaining outstanding shares of Avanade, Inc. 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 parties 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 indemnified 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

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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)

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 November 30, 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 November 30, 2004, Accenture estimates it had assumed an aggregate potential liability of approximately $666,294 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 $44,191 if Accenture is obligated to make payments to the clients that are the consequence of a performance default by the other parties. To date, Accenture has not been required to make any payments under any of the contracts described in this paragraph. The aggregate potential liability of $666,294 at November 30, 2004, increased from $603,582 at August 31, 2004. The increase was primarily due to exchange rate fluctuations, offset by a net decrease in the extent of Accenture’s obligations for the performance of others.

Legal Contingencies

          At November 30, 2004, Accenture or its present personnel had been named as a defendant in various litigation matters. All of these are civil in nature. Based on the present status of these litigation matters, the management of Accenture believes they will not ultimately have a material effect on the results of operations, financial position or cash flows of Accenture.

10. 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 its chief executive officer. The operating segments are managed separately because each operating segment represents a strategic business unit providing management consulting, technology and outsourcing services that serves clients in different industries.

          The reportable operating segments are the five operating groups, which are Communications & High Tech, Financial Services, Government, Products and Resources. Revenues before reimbursements and operating income by reportable operating segment are as follows:

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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)

          Reorganization (costs) benefits were allocated to the reportable operating segments as follows:

11. SUBSEQUENT EVENTS

          On December 20, 2004, a tender offer made to Accenture SCA Class I shareholders on November 16, 2004 by Accenture SCA and one of its controlled subsidiaries resulted in redemptions or purchases of 3,463,488 Accenture SCA Class I common shares at a price of $24.61 per share. The total cash outlay for these transactions was $85,236. As a result of this transaction, at December 20, 2004, there was $2,137,270 in remaining authorized funds available for the purchase, redemption and exchange of Accenture shares held by partners, former partners and their permitted transferees.

          On December 31, 2004, as a result of favorable final determinations of certain reorganization liabilities recorded in connection with our transition to a corporate structure in 2001, we recognized benefits of approximately $41,000.

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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 year ended August 31, 2004, 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, 2004.

          We use the terms “Accenture”’ “we,” “our Company,” “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 “fiscal 2004” or “fiscal year 2004” means the 12-month period that ended on August 31, 2004. 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 of 1933 and Section 21E of the Securities Exchange Act of 1934 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 currency 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 engagements with clients may not be profitable or may be terminated by our clients on short notice.

•

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.

•

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 achieve greater 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 more-standardized business process outsourcing services provided through our BPO businesses, from larger portfolios of clients for whom we provide similar services and solutions utilizing standard operating models. As our outsourcing business continues to grow, we may continue to experience increased pressure on our overall margins, particularly during the early stages of new outsourcing contracts.

•

On certain complex engagements where we partner with third parties, clients are increasingly demanding that we guarantee the performance of our business partners whom we do not control.

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•

If we are not able to implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 or attain the attestation of our auditors as to our internal controls as required by the end of the current fiscal year, our reputation, our financial results and the market price of our stock could suffer.

•

We may experience difficulties with new business and financial systems implemented as of September 1, 2004 that could disrupt our ability to timely and accurately process and report key components of our results of operations and financial condition, although, to date, we have not experienced any significant difficulties.

•

Recent tax legislation, future legislation and negative publicity related to Bermuda companies may lead to an increase in our tax burden or affect our relationships with our clients.

•

Our services or solutions may infringe upon the intellectual property rights of others.

•

We have only a limited ability to protect our intellectual property rights, which are important to our success.

•

If our alliances do not succeed, we may not be successful in implementing our growth strategy.

•

We may 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 is 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 year ended August 31, 2004. We undertake no obligation to update or revise any forward-looking statements.

Overview

          Revenues are driven by the ability of our 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.

          Our results of operations are also affected by the economic conditions, levels of business activity and rates of change in the industries we serve, as well as by the pace of technological change and the type and level 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. The strengthening economic recovery continues to stimulate the technology spending of many companies. We are continuing to see increasing numbers of opportunities from companies seeking both revenue-generating and cost-cutting initiatives. Revenue growth rates across our segments will continue to vary from quarter to quarter during fiscal 2005 as the economic recovery continues to take hold at different rates in different industries and geographic markets.

          Revenues before reimbursements for the three months ended November 30, 2004 were $3.73 billion, compared with $3.26 billion for the three months ended November 30, 2003, an increase of 14% in U.S. dollars and 9% in local currency terms.

          Outsourcing revenues before reimbursements for the three months ended November 30, 2004 were $1.35 billion, compared with $1.17 billion for the three months ended November 30, 2003, an increase of 15% in U.S. dollars and 10% in local currency terms. Outsourcing contracts typically have longer terms than consulting contracts and generally have lower gross margins than consulting contracts, particularly in the first year. While outsourcing will continue to deliver solid growth to our business, it is likely to grow overall at a slower rate than it did in fiscal 2004. We have also recently seen a decrease in the average size of most outsourcing contracts. Our long-term relationships with many of our clients continue to contribute to our success in growing our outsourcing business. Maintenance of long-term, complex outsourcing contracts requires ongoing review of their terms and scope of work, in light of our clients’ evolving business needs and our performance expectations. Should the size or number of modifications to these arrangements increase, as our outsourcing portfolio continues to grow and these contracts evolve, we may experience increased variability in expected revenues and profitability.

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          Consulting revenues before reimbursements for the three months ended November 30, 2004 were $2.38 billion, compared with $2.10 billion for the three months ended November 30, 2003, an increase of 14% in U.S. dollars and 8% in local currency terms. The demand for our consulting services is continuing, with emphasis on consulting contracts of $50 million or less and consulting services associated with outsourcing opportunities of $100 million to $200 million.

          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.

          As a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations. In the first quarter of this fiscal year, the strengthening of various currencies versus the U.S. dollar continued to result in favorable currency translation and increased our reported revenues, operating expenses and operating income. If the U.S. dollar strengthens against other currencies, the resulting unfavorable currency translation could lower reported U.S. dollar revenues, operating expenses and operating income and result in U.S. dollar revenue growth lower than growth in local currency terms. While some limited favorable currency translations may continue, we do not expect them to continue to contribute to U.S. dollar growth rates comparable to those experienced in fiscal 2004.

          The primary categories of operating expenses include cost of services, sales and marketing costs, 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 non-payroll 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. Operating expenses include restructuring costs and reorganization benefits, which may vary substantially from quarter to quarter.

          Gross margins (revenues less cost of services) for the three months ended November 30, 2004 were 33% of revenues before reimbursements, compared with 34% for the three months ended November 30, 2003. The decline is primarily due to higher labor costs resulting from greater increases in compensation effective September 1, 2004 (as compared to the prior year) and short-term staffing inefficiencies driven by the increased demand for our services and higher resource utilization levels.

          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, given that payroll costs are the most significant portion of our operating expenses.

          We continue to experience higher-than-planned attrition as global economic conditions continue to improve and the market for skilled professionals becomes increasingly competitive. Our attrition rate for the three months ended November 30, 2004 was 20%, comparable to the attrition rate for the fourth quarter of fiscal 2004. Increasing competition for scarce talent will likely present us with supply-and-demand and skill-level imbalance challenges in certain industry segments, skill sets and geographic regions for the remainder of fiscal 2005. As a result, we continue to add substantial numbers of new employees and will continue to actively recruit new employees to balance our mix of skills and resources to meet current and projected future demands, replace departing employees and expand our global sourcing approach, which includes our network of delivery centers and other capabilities around the world. We may need to continue to adjust compensation over the course of the year in certain industry segments, skill sets and geographies in order to attract and retain appropriate numbers of qualified employees. Our ability to grow our business could also be adversely affected if we do not effectively assimilate substantial numbers of new employees into our workforces. These compensation adjustments and the additional costs of recruiting, hiring, training and assimilating increasing numbers of new employees could adversely affect our operating margins. In cases where we are unable to attain skill-level balances over the near term, our labor resource costs may be higher as we seek to mitigate these shortages in how we provide services on particular contracts.

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          As a result of our ongoing cost-management initiatives and improved efficiencies, sales and marketing and general and administrative costs as a percentage of revenues before reimbursements were 20.5% for the three months ended November 30, 2004, compared with 21.2% for the three months ended November 30, 2003.

          Operating income as a percentage of revenues before reimbursements for the three months ended November 30, 2004 decreased to 12% from 16% for the three months ended November 30, 2003. This decrease was primarily related to a benefit of $86 million recorded in fiscal 2004 resulting from a decrease in certain liabilities established in connection with our transition to a corporate structure in 2001. Excluding this benefit, operating income would have been 13% of revenues before reimbursements for the three months ended November 30, 2003. This 1% decline reflects lower gross margins.

Bookings and Backlog

          New contract bookings for the three months ended November 30, 2004 were $4,030 million, compared with $5,051 million for the three months ended November 30, 2003, a decrease of $1,021 million, or 20%. Consulting bookings for the three months ended November 30, 2004 were $1,963 million, compared with $2,073 million for the three months ended November 30, 2003, a decrease of $110 million, or 5%. Outsourcing bookings for the three months ended November 30, 2004 were $2,067 million, compared with $2,978 million for the three months ended November 30, 2003, a decrease of $911 million, or 31%. The size and scope of many of our new outsourcing contract bookings have decreased when compared to outsourcing contract bookings for the three months ended November 30, 2003. We provide information regarding our bookings because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. However, the timing of large bookings can significantly affect the level of bookings in a particular quarter. Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time.

          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 bookings attributable to 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 critical accounting policies and estimates, refer to our Annual Report on Form 10-K for the year ended August 31, 2004.

Segments/Operating Groups

          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 these are a better indicator of operating group performance than revenues. From time to time, our operating groups work together to sell and implement certain contracts. The resulting revenues and costs from these contracts 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 economic environment and its effects on the industries served by our operating groups affect revenues and operating expenses within our operating groups to differing degrees. Decisions relating to staffing levels are not made uniformly across our operating groups, 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 in mix toward outsourcing contracts is not uniform among our operating groups and, consequently, neither is the impact on operating group results caused by this shift. Local currency fluctuations also tend to affect our operating groups differently, depending on the geographic concentrations and locations of their businesses.

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          Revenues for each of our operating groups, geographic regions and types of work are as follows:

Three Months Ended November 30, 2004 Compared to Three Months Ended November 30, 2003

Revenues

          Our Europe, Middle East and Africa region (“EMEA”) achieved revenues before reimbursements for the three months ended November 30, 2004 of $1,918 million, compared with $1,550 million for the three months ended November 30, 2003, an increase of 24% in U.S. dollars and 12% in local currency terms. A key contributor to this growth was our business in the United Kingdom, where revenues before reimbursements grew 50% in U.S. dollars and 36% in local currency terms over the same period in fiscal 2004. The growth in the United Kingdom was primarily due to several large contracts that were sold during fiscal 2004. Also contributing to this strong growth was our business in Spain, the Netherlands and Germany, as well as the continued strengthening of the Pound Sterling and Euro against the U.S. dollar.

          Our Americas region achieved revenues before reimbursements for the three months ended November 30, 2004 of $1,542 million, compared with $1,491 million for the three months ended November 30, 2003, an increase of 3% in U.S. dollars and in local currency terms. This growth was due to strong growth in our Brazilian business and 4% growth in the United States, and was partially offset by a decline in our Canadian business.

          Our Asia Pacific region achieved revenues before reimbursements for the three months ended November 30, 2004 of $270 million, compared with $220 million for the three months ended November 30, 2003, an increase of 23% in U.S. dollars and 19% in local currency terms. Our business in Australia and Japan continue to drive the growth in our Asia Pacific region.

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          Our Communications & High Tech operating group achieved revenues before reimbursements for the three months ended November 30, 2004 of $973 million, compared with $879 million for the three months ended November 30, 2003, an increase of 11% in U.S. dollars and 6% in local currency terms. The increase was primarily due to growth in consulting revenues across all three industry groups and geographic regions, particularly in our Communications industry group in the Americas and Asia Pacific regions. Outsourcing revenue growth in our EMEA region across all industry groups was offset by a decline in our Communications industry group’s revenues in North America. This decline was due partly to a substantial reduction, which began in fiscal 2004, in the scope of our work with a major telecommunications client as a result of that client’s changing business strategies and may continue to adversely affect the operating group’s growth rates in outsourcing revenues for the next two fiscal quarters as compared to the corresponding quarters of fiscal 2004.

          Our Financial Services operating group achieved revenues before reimbursements for the three months ended November 30, 2004 of $807 million, compared with $646 million for the three months ended November 30, 2003, an increase of 25% in U.S. dollars and 17% in local currency terms. Growth was driven mainly by the strength of our business in the United Kingdom. Each of our three industry groups achieved strong revenue growth, led by Capital Markets and Insurance.

          Our Government operating group achieved revenues before reimbursements for the three months ended November 30, 2004 of $524 million, compared with $478 million for the three months ended November 30, 2003, an increase of 10% in U.S. dollars and 5% in local currency terms. Results were primarily driven by strong growth in consulting revenues for clients in Europe, particularly in the United Kingdom, which was partly offset by a decrease in consulting revenues from clients in the United States. Outsourcing revenues remained relatively flat, with slight growth experienced in our Asia Pacific region.

          Our Products operating group achieved revenues before reimbursements for the three months ended November 30, 2004, of $862 million, compared with $701 million for the three months ended November 30, 2003, an increase of 23% in U.S. dollars and 17% in local currency terms. Results were primarily driven by strong growth in both outsourcing and consulting revenues, particularly in our Retail & Consumer industry group in North America.

          Our Resources operating group achieved revenues before reimbursements for the three months ended November 30, 2004 of $564 million, compared with $555 million for the three months ended November 30, 2003, an increase of 2% in U.S. dollars and a decrease of 4% in local currency terms. We experienced growth in our EMEA region and in our Energy and Metals & Mining industry groups, offset by declines in North America and in our Chemicals and Utilities industry groups. The decrease in local currency revenues was primarily driven by lower bookings of new outsourcing contracts in fiscal 2004 compared with strong outsourcing bookings in fiscal 2003.

Operating Expenses

          Operating expenses for the three months ended November 30, 2004 were $3,613 million, an increase of $546 million, or 18%, over the three months ended November 30, 2003. Operating expenses before reimbursable expenses increased as a percentage of revenues before reimbursements from 84% for the three months ended November 30, 2003 to 88% for the three months ended November 30, 2004. The increase in operating expenses as a percentage of revenues before reimbursements was primarily due to reorganization benefits recorded in fiscal 2004. For the three months ended November 30, 2003, operating expense included benefits of $86 million, resulting primarily from the final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure in 2001.

          The strengthening of various currencies against the U.S. dollar increased reported operating expenses for the three months ended November 30, 2004, compared with the three months ended November 30, 2003, partially offsetting corresponding increases in reported revenues.

          During the three months ended November 30, 2004, we recorded $47 million of variable compensation expense, compared with a $4 million variable compensation benefit for the three months ended November 30, 2003.

Cost of Services

          Cost of services for the three months ended November 30, 2004, was $2,841 million, an increase of $378 million, or 15%, over the three months ended November 30, 2003, and increased as a percentage of revenues from 69% for the three months ended November 30, 2003 to 70% for the three months ended November 30, 2004. Cost of services before reimbursable expenses for the three months ended November 30, 2004, was $2,500 million, an increase of $350 million, or 16%, over the three months

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ended November 30, 2003 and increased as a percentage of revenues before reimbursements from 66% for the three months ended November 30, 2003 to 67% for the three months ended November 30, 2004. Gross margins (revenues less cost of services) for the three months ended November 30, 2004 decreased to 33% of revenues before reimbursements from 34% for the three months ended November 30, 2003.

          The primary drivers of the increase in cost of services and the decrease in gross margins as a percentage of revenues before reimbursements were higher labor costs resulting from greater increases in compensation effective September 1, 2004 (as compared to the prior year) and short-term staffing inefficiencies driven by the increased demand for our services and higher resource utilization levels.

Sales and Marketing

          Sales and marketing expense for the three months ended November 30, 2004 was $361 million, an increase of $10 million, or 3%, over the three months ended November 30, 2003, and decreased as a percentage of revenues before reimbursements from 11% for the three months ended November 30, 2003 to 10% for the three months ended November 30, 2004, reflecting continued cost management.

General and Administrative Costs

          General and administrative costs for the three months ended November 30, 2004 were $404 million, an increase of $64 million, or 19%, over the three months ended November 30, 2003, and increased as a percentage of revenues before reimbursements from 10% for the three months ended November 30, 2003 to 11% for the three months ended November 30, 2004. The increase in general and administrative costs was primarily due to increased payroll costs.

Reorganization Costs (Benefits)

          During the three months ended November 30, 2004, we recorded reorganization costs of $7 million, compared with a benefit of $86 million for the three months ended November 30, 2003. The prior-year benefit was primarily driven by final determinations of certain reorganization costs established in connection with our transition to a corporate structure in 2001. At November 30, 2004, the remaining liability for reorganization liabilities was $502 million, of which $159 million is classified as current liabilities because final determinations could occur within 12 months.

Operating Income

          Operating income for the three months ended November 30, 2004 was $458 million, a decrease of $49 million, or 10%, over the three months ended November 30, 2003, and decreased as a percentage of revenues before reimbursements from 16% for the three months ended November 30, 2003, to 12% for the three months ended November 30, 2004. The decrease in operating income as a percentage of revenues before reimbursements was primarily driven by reorganization benefits recorded in fiscal 2004. For the three months ended November 30, 2003, operating income included a benefit of $86 million resulting from a decrease in certain liabilities established in connection with our transition to a corporate structure in 2001. This benefit had the effect of increasing operating income as a percentage of revenues before reimbursements by 3%.

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          Operating income for each of the operating groups was as follows: