RISK FACTORS

 

        You should carefully consider each of the risks described below and all of the other information in this prospectus before deciding to invest in our Class A common shares.

 

Risks That Relate to Our Business

 

A significant or prolonged economic downturn could have a material adverse effect on our results of operations.

 

        Our results of operations are affected by the level of business activity of our clients, which in turn is affected by the level of economic activity in the industries and markets that they serve. In addition, our business tends to lag behind economic cycles in an industry. A decline in the level of business activity of our clients could have a material adverse effect on our revenues and profit margin. While we are now seeing some evidence of a business slowdown in some markets, we have not yet observed tangible signs of a contraction in our business. Nevertheless, we are not immune to these global economic conditions, and we cannot provide assurance that our business will not be adversely affected in the future. We see continued growth in revenues in the second half of this fiscal year, though at a slower rate of growth than in the first half. We will implement cost-savings initiatives to manage our expenses as a percentage of revenues, but we may not be able to reduce the rate of growth in our costs on a timely basis or control our costs to maintain our margins.

 

 

        Our success will depend, in part, on our ability to develop and implement management and technology solutions that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences. We may not be successful in anticipating or responding to these developments on a timely basis, and our ideas may not be successful in the marketplace. Also, products and technologies developed by our competitors may make our service or product offerings uncompetitive or obsolete. Any one of these circumstances could have a material adverse effect on our ability to obtain and successfully complete important client engagements.

 

        Our business is also dependent, in part, upon continued growth in the use of technology in business by our clients and prospective clients and their customers and suppliers. If the growth in the use of technology does not continue, demand for our services may decrease. Use of new technology for commerce generally requires the understanding and acceptance of a new way of conducting business and exchanging information. Companies that have already invested substantial resources in traditional means of conducting commerce and exchanging information may be particularly reluctant or slow to adopt a new approach that may make some of their existing personnel and infrastructure obsolete.

 

 

        As a professional services firm, we depend to a large extent on our relationships with our clients and our reputation for high-caliber professional services and integrity to attract and retain clients. As a result, if a client is not satisfied with our services or products, including those of subcontractors we employ, it may be more damaging in our business than in other businesses. Moreover, if we fail to meet our contractual obligations or fail to disclose our financial or other arrangements with our alliance partners, we could be subject to legal liability or loss of client relationships. Our contracts typically include provisions to limit our exposure to legal claims relating to our services and the applications we develop, but these provisions may not protect us or may not be enforceable in all cases.

 

 

        We cannot be sure that our services and products, or the products of others that we offer to our clients, do not infringe on the intellectual property rights of third parties, and we may have infringement claims asserted against us or against our clients. These claims may harm our reputation, cost us money and prevent us from offering some services or products. Historically in our contracts, we have generally agreed to indemnify our clients for any expenses or liabilities resulting from claimed infringements of the intellectual property rights of third parties. In some instances, the amount of these indemnities may be greater than the revenues we receive from the client. Any claims or litigation in this area, whether we ultimately win or lose, could be time-consuming and costly, injure our reputation or require us to enter into royalty or licensing arrangements. We may not be able to enter into these royalty or licensing arrangements on acceptable terms. In addition, we may not have the right to resell or reuse solutions developed for specific clients. Any limitation on our ability to resell or reuse a solution could cause us to lose revenue-generating opportunities and require us to incur additional expenses to develop new solutions for future projects.

 

 

        When making proposals for engagements, we estimate the costs and timing for completing the projects. These estimates reflect our best judgment regarding the efficiencies of our methodologies and professionals as we plan to deploy them on projects. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on our profit margin.

 

        In addition, our clients typically retain us on an engagement-by-engagement basis, rather than under long-term contracts, and a substantial majority of our contracts and engagements can be terminated by our clients with short notice and without significant penalty. Furthermore, because large client projects involve multiple engagements or stages, there is a risk that a client may choose not to retain us for additional stages of a project or that a client will cancel or delay additional planned engagements. These terminations, cancellations or delays could result from factors unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client or the economy generally. When contracts are terminated, we lose the associated revenues and we may not be able to eliminate associated costs in a timely manner.

 

        We also undertake some major engagements where a portion of our compensation is tied to the results of our services. Accordingly, if these engagements do not result in demonstrable benefits to our clients, our profit margin on these engagements will suffer. In addition, in limited circumstances we extend financing to our clients. Failure to collect these amounts may adversely affect our earnings.

 

 

        We have invested a substantial amount of time and resources in our affiliates, alliances and venture capital portfolio companies, and we plan to make substantial additional investments in the future. The benefits we anticipate from these relationships are an important component of our growth strategy. If these relationships do not succeed, we may lose our investments or fail to obtain the benefits we hope to derive from them. Similarly, we may be adversely affected by the failure of one or more of our affiliates or alliances, which could lead to reduced marketing exposure, diminished sales and a decreased ability to develop and gain access to solutions. Moreover, because most of our alliance relationships are nonexclusive, our alliance partners are able to form closer or preferred arrangements with our competitors. In addition, our venture capital activities may suffer from the poor performance of the portfolio companies in which we invest or our inability to obtain attractive returns on our investments or to monetize these investments at all. These losses or failures could have a material and adverse impact on our growth strategy, which, in turn, could adversely affect our financial condition and results of operations.

 

 

        We have offices in 46 countries around the world. In fiscal 2000, approximately 54% of our revenues were attributable to activities in the Americas, 38% of our revenues were attributable to our activities in Europe, the Middle East, Africa and India, and 8% of our revenues were attributable to our activities in the Asia/Pacific region. As a result, we are subject to a number of risks, including:

 

 

 

 

 

 

 

 

 

 

 

 

        The consulting, information technology and outsourcing markets in which we operate include a large number of participants and are highly competitive. Our primary competitors include:

 

 

 

 

 

 

In addition, a client may choose to use its own resources, rather than engage an outside firm for the types of services we provide.

 

        Our marketplace is experiencing rapid changes in its competitive landscape. Some of our competitors have sought access to public and private capital and others have merged or consolidated with better-capitalized partners. These changes may create larger and better capitalized competitors with enhanced abilities to compete for market share generally and our clients specifically, in some cases, through significant economic incentives to clients to secure contracts. These competitors may also be better able to compete for skilled professionals by offering them large compensation incentives. In addition, one or more of our competitors may develop and implement methodologies which result in superior productivity and price reductions without adversely affecting the competitors’ profit margins. Any of these circumstances may impose additional pricing pressure on us, which would have an adverse effect on our revenues and profit margin.

 

 

        Our success and ability to grow are dependent, in part, on our ability to hire and retain large numbers of talented people at a time when our industry is generally experiencing a shortage of skilled professionals and a high rate of employee turnover. We hired approximately 17,000 new employees in fiscal year 2000. We have already hired approximately 17,000 new employees in fiscal 2001, and we may hire several thousand more, as needed, before the end of the fiscal year. The cumulative rate of turnover among our employees was 22% for the fiscal year ended August 31, 2000 and, on an annualized basis, approximately 16% for the seven months ended March 31, 2001, excluding involuntary terminations. The inability to attract qualified employees in sufficient numbers to meet demand or the loss of a significant number of our employees could have a serious negative effect on us, including our ability to obtain and successfully complete important client engagements and thus maintain or increase our revenues. To attract and retain the number of employees we need to grow our business, we may have to increase our compensation levels in the future. This would adversely affect our operating margins.

 

 

        We face additional retention risk because of our transition to a corporate structure. Our partners will receive substantial amounts of our equity in exchange for the interests in the partnerships and corporations that they previously held. Their ownership of this equity will not be dependent upon their continued employment. While these equity interests will be subject to transfer restrictions, the transfer restrictions lapse over time, may not be enforceable in all cases and can be waived. See “Certain Relationships and Related Transactions—Voting Agreement” and “—Accenture SCA Transfer Rights Agreement.” In addition, in connection with our transition to a corporate structure, our partners have accepted significant reductions in their cash compensation. The substitution of equity, equity-based incentives and other employee benefits in lieu of higher cash compensation may not be sufficient to retain these individuals in the near or long term. There is no guarantee that the non-competition agreements we have entered into with our partners are sufficiently broad to prevent them from leaving us for our competitors or other opportunities or that these agreements will be enforceable in all cases.

 

        In connection with the offering and our transition to a corporate structure, our non-partner employees will also receive equity incentives. These incentives to attract, retain and motivate employees may not be as effective as the opportunity, which existed prior to our transition to a corporate structure, to hold a partnership interest in Accenture. If these incentives are not effective, our ability to hire, retain and motivate skilled professionals will suffer.

 

 

        Our success depends, in part, upon our ability to protect our proprietary methodologies and other intellectual property. Existing laws of some countries in which we provide services or products may offer only limited protection of our intellectual property rights. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to protect our intellectual property rights. The steps we take in this regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights.

 

Risks That Relate to Our Financial Results and Our Lack of Experience in Managing a Public Company

 

 

        Our profit margin, and therefore our profitability, is largely a function of the rates we are able to charge for our services and the utilization rate, or chargeability, of our professionals. Accordingly, if we are not able to maintain the rates we charge for our services or an appropriate utilization rate for our professionals, we will not be able to sustain our profit margin and our profitability will suffer. The rates we are able to charge for our services are affected by a number of factors, including our clients’ perception of our ability to add value through our services, competition, the introduction of new services or products by us or our competitors, the pricing policies of our competitors and general economic conditions. Our utilization rates are also affected by a number of factors, including seasonal trends, primarily as a result of our hiring cycle and holiday and summer vacations, our ability to transition employees from completed projects to new engagements, our ability to forecast demand for our services and thereby maintain an appropriate headcount, and our ability to manage attrition.

 

        Our profitability is also a function of our ability to control our costs and improve our efficiency. As we increase the number of our professionals and execute our strategy for growth, we may not be able to manage a significantly larger and more diverse workforce, control our costs or improve our efficiency.

 

 

        Our quarterly revenues, operating results and profitability have varied in the past and are likely to vary significantly from quarter to quarter, making them difficult to predict. The factors that are likely to cause these variations are:

 

 

 

 

 

 

 

 

 

 

 

 

        Consequently, we believe that period-to-period comparisons of our results of operations will not necessarily be meaningful and should not be relied upon as an indication of future performance. This may lead to volatility in our share price.

 

 

        The historical financial information in this prospectus does not reflect the added costs we expect to incur as a public company or the resulting changes that have occurred in our capital structure and operations. Because we historically operated through partnerships in many countries prior to our transition to a corporate structure, we paid little or no taxes on profits and no salaries to our partners who are now our employees. In preparing our pro forma financial information we deducted and charged to earnings the estimated income taxes based on an estimated tax rate, which may be different from our actual tax rate in the future, and the estimated salaries, payroll taxes and benefits for our partners who became our employees after our transition to a corporate structure. The estimates we used in our pro forma financial information may not be similar to our actual experience as a public corporation. For more information on our historical combined financial statements and pro forma financial information, see “Pro Forma Combined Financial Information” and our historical combined financial statements and related notes included elsewhere in this prospectus.

 

 

        Our management team has historically operated our business as a privately owned series of partnerships and corporations. The individuals who now constitute our management have never had responsibility for managing a publicly traded company.

 

 

        We expect to record a substantial net loss in the fiscal quarter ended August 31, 2001, primarily as a result of the following nonrecurring items relating to our transition to a corporate structure and the offering:

 

 

 

Risks That Relate to Your Ownership of Our Class A Common Shares

 

 

        Upon completion of the offering, our partners will collectively own or control shares representing a      % voting interest in Accenture Ltd, or     % if the underwriters exercise their overallotment option in full. These shares will be subject to a voting agreement, which will require our partners to vote as a group with respect to all matters submitted to shareholders. See “Certain Relationships and Related Transactions—Voting Agreement” for a discussion of these voting arrangements.

 

        As long as our partners continue to own or control a significant block of voting rights, they will control us. This will enable them, without the consent of the public shareholders, to:

 

 

 

 

 

        Furthermore, as a result of a partner matters agreement, our partners will continue to have influence with respect to a wide variety of matters over which neither shareholders nor employees of a public company typically have input. See “Certain Relationships and Related Transactions—Partner Matters Agreement.”

 

        In addition, immediately following the offering, Accenture Ltd will own shares representing a     % voting interest in Accenture SCA, and our partners will own shares representing a     % voting interest in Accenture SCA. Accenture SCA is organized under Luxembourg law, and a 66  ² / 3 % shareholder vote is required to amend the articles of association of Accenture SCA, liquidate Accenture SCA, sell all or substantially all of the assets of Accenture SCA and authorize the general partner to increase the issued share capital of Accenture SCA. Luxembourg law requires a unanimous shareholder vote for a migration of Accenture SCA to a different jurisdiction or for the levying of an assessment on the Accenture SCA shares. Accordingly, there is the possibility that our partners holding an equity interest in Accenture SCA could block Accenture Ltd from causing Accenture SCA to take any of these actions. See “Accenture Organizational Structure” for a discussion of our organizational structure.

 

 

        Sales of substantial amounts of Accenture Ltd Class A common shares, or the perception of these sales, may adversely affect the price of the Class A common shares and impede our ability to raise capital through the issuance of equity securities in the future. Upon consummation of the offering, there will be               Class A common shares outstanding, or              Class A common shares if the underwriters exercise their overallotment option in full. Of these Class A common shares,              Class A common shares sold in the offering, or              Class A common shares if the underwriters exercise their overallotment option in full, will be freely transferable without restriction or further registration under the Securities Act of 1933. The remaining              Class A common shares generally will be available for future sale upon the expiration or waiver of transfer restrictions or, in the case of restricted share units, following delivery of the underlying Class A common shares. Our partners will hold              Accenture SCA Class I common shares or Accenture Canada Holdings exchangeable shares that may be redeemed or exchanged on a one-for-one basis for Accenture Ltd Class A common shares. We expect that these Class A common shares, subject to the expiration or waiver of transfer restrictions, generally will be available for future sale. In addition,                   Class A common shares underlying options will become exercisable over the five years following consummation of the offering. We expect that the underlying Class A common shares will be freely transferable without further restriction.

 

        Beginning on the first anniversary of the consummation of the offering, we expect that our partners will hold                  freely transferable Class A common shares, and Accenture SCA Class I common shares and Accenture Canada Holdings exchangeable shares that may be redeemed or exchanged for                  freely transferable Class A common shares. Our partners may be more likely to sell all or a portion of these Class A common shares to provide liquidity they may need as a result of the reduction in partner compensation in connection with our transition to a corporate structure or to diversify their portfolios.

 

        See “Shares Eligible for Future Sale” for a discussion of the Class A common shares that may be sold in the public market in the future.

 

 

        The price of the Class A common shares after the offering may fluctuate widely, depending upon many factors, including our perceived prospects and those of the consulting and technology industries in general, differences between our actual financial and operating results and those expected by investors and analysts, changes in analysts’ recommendations or projections, changes in general economic or market conditions, and broad market fluctuations.

 

 

        The initial public offering price of the Class A common shares will be substantially higher than the pro forma net tangible book value per share of our Class A common shares. Pro forma net tangible book value represents the amount of our tangible assets on a pro forma basis, less our total liabilities. As a result, we currently expect that you will incur immediate dilution of $             per share based upon an assumed initial public offering price of $             per share. For more information, see “Dilution.”

 

 

        We may need to raise additional funds through public or private debt or equity financings in order to:

 

 

 

 

 

        Any additional capital raised through the sale of equity may dilute your ownership percentage in us. Furthermore, any additional financing we may need may not be available on terms favorable to us, or at all.

 

 

        We are organized under the laws of Bermuda, and a significant portion of our assets will be located outside the United States. It may not be possible to enforce court judgments obtained in the United States against us in Bermuda or in countries, other than the United States, where we have assets based on the civil liability provisions of the federal or state securities laws of the United States. In addition, there is some doubt as to whether the courts of Bermuda and other countries would recognize or enforce judgments of United States courts obtained against us or our directors or officers based on the civil liabilities provisions of the federal or state securities laws of the United States or would hear actions against us or those persons based on those laws. We have been advised by our legal advisors in Bermuda that the United States and Bermuda do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not based solely on United States federal or state securities laws, would not automatically be enforceable in Bermuda. Similarly, those judgments may not be enforceable in countries, other than the United States, where we have assets.

 

 

        Our shareholders may have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. As a Bermuda company, we are governed by the Companies Act 1981 of Bermuda. The Companies Act differs in some material respects from laws generally applicable to United States corporations and shareholders, including the provisions relating to interested directors, mergers and acquisitions, takeovers, shareholder lawsuits and indemnification of directors. See “Description of Share Capital.”