These excerpts taken from the ACN 10-K filed Oct 19, 2009.
We are one of the worlds leading management consulting, technology services and outsourcing organizations, with approximately 177,000 employees; offices and operations in more than 200 cities in 52 countries; and revenues before reimbursements (net revenues) of $21.58 billion for fiscal 2009.
Our high performance business strategy builds on our expertise in consulting, technology and outsourcing to help clients perform at higher levels so they can create sustainable value for their
customers, stakeholders and shareholders. We use our industry and business-process knowledge, our service offering expertise and our insight into and deep understanding of emerging technologies to identify new business and technology trends and formulate and implement solutions for clients under demanding time constraints. We help clients improve operational performance, deliver their products and services more effectively and efficiently, increase revenues in existing markets and identify and enter new markets.
We operate globally with one common brand and business model designed to enable us to provide clients around the world with the same high level of service. Drawing on a combination of industry expertise, functional capabilities, alliances, global resources and technology, we deliver competitively priced, high-value services that help our clients measurably improve business performance. Our global delivery model enables us to provide a complete end-to-end delivery capability by drawing on our global resources to deliver high-quality, cost-effective solutions to clients under demanding timeframes.
Our results of operations are affected by economic conditions, including macroeconomic conditions, credit market conditions and levels of business confidence. Revenues are driven by the ability of our executives to secure new contracts and to deliver solutions and services that add value relevant to our clients current needs and challenges. We add value to clients and drive revenues based on our ability to deliver market-leading service offerings and to deploy skilled teams of professionals quickly and on a global basis.
The global economic downturn in fiscal 2009 was widespread, leading to economic contraction in many industries and geographies where we operate. It also impacted the needs of our clients and the revenues in our consulting and outsourcing businesses. These changing demand patterns have had and will continue to have an adverse effect on our new contract bookings and revenue growth, compared to the prior fiscal year.
Revenues before reimbursements (net revenues) for fiscal 2009 were $21.58 billion, compared with $23.39 billion in fiscal 2008, a decrease of 8% in U.S. dollars and flat in local currency. Net revenues for the fourth quarter of fiscal 2009 were $5.15 billion, compared with $6.00 billion in the fourth quarter of fiscal 2008, a decrease of 14% in U.S. dollars and 7% in local currency.
In our consulting business, net revenues for fiscal 2009 were $12.56 billion, compared with $14.12 billion for fiscal 2008, a decrease of 11% in U.S. dollars and 4% in local currency. Consulting net revenues for the fourth quarter of fiscal 2009 were $2.91 billion, compared with $3.61 billion for the fourth quarter of fiscal 2008, a decrease of 19% in U.S. dollars and 12% in local currency. Starting in January 2009, the global economic downturn led to lower current demand for new consulting services. Many clients are focused on initiatives designed to deliver near- and medium-term cost savings and performance improvement. Some clients continue to exercise caution and to seek flexibility in launching new large consulting commitments and instead have shifted to a more phased approach to contracting work. Certain clients have slowed the pace of on-going projects and/or have deferred decisions to expand scope beyond current commitments. In addition, we are experiencing pricing pressures from some clients and in response, where practicable, have shifted to lower-cost resources at reduced price levels, particularly in our systems integration business.
In our outsourcing business, net revenues for fiscal 2009 were $9.02 billion, compared with $9.27 billion for fiscal 2008, a decrease of 3% in U.S. dollars and an increase of 6% in local currency. Outsourcing net revenues for the fourth quarter of fiscal 2009 were $2.23 billion, compared with $2.39 billion for the fourth quarter of fiscal 2008, a decrease of 7% in U.S. dollars and an increase of 1% in local currency. In response to clients seeking to reduce operating costs with requests for price concessions and more favorable contract terms, we have shifted and expect to continue to shift to lower-cost resources at a reduced price level. In addition, we have experienced a lower volume of scope expansions on existing contracts. Client strategy changes and consolidations have also resulted in more contract terminations and restructuring, primarily in Financial Services, and to a lesser extent in Communications & High Tech and Resources.
As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations. During the majority of fiscal 2008, the U.S. dollar weakened against many currencies, resulting in favorable currency translation and greater reported U.S. dollar revenues. However, beginning in the fourth quarter of fiscal 2008, the U.S. dollar began to strengthen against many currencies and this trend continued until the fourth quarter of fiscal 2009. The foreign-exchange impact on our full fiscal 2009 revenue growth was approximately 8% lower growth in U.S. dollars, compared to our growth in local currency. In the future, if the U.S. dollar strengthens against other currencies, our revenue growth in U.S. dollars may be lower than our growth in local currency. If the U.S. dollar weakens against other currencies, our revenue growth in U.S. dollars may be higher than our growth in local currency.
The primary categories of operating expenses include cost of services, sales and marketing and general and administrative costs. Cost of services is primarily driven by the cost of client-service personnel, which consists mainly of compensation, 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 utilization of our client-service personnel and the level of non-payroll costs associated with the growth of new outsourcing contracts. Utilization represents the percentage of our professionals time spent on billable consulting work. Utilization for the fourth quarter of fiscal 2009 was approximately 86%, an increase from 83% for the third quarter of fiscal 2009, and was at the top of the range we expected. Utilization for the fourth quarter of fiscal 2008 was approximately 84%. Sales and marketing expense is driven primarily by compensation costs for business-development activities, the development of new service offerings 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, as a percentage of revenues, at levels consistent with or lower than levels in prior-year periods.
Operating expenses in fiscal 2009 also included restructuring costs of $253 million recorded in the fourth quarter. These costs included $111 million related to global consolidation of our office space and
$142 million related to realignment of our workforce, primarily at the senior-executive level, to reset our cost structure and better align our organization for the future. Restructuring costs are reflected in operating expenses, along with reorganization costs and benefits, which may vary substantially from year to year. Reorganization costs and benefits were immaterial in both fiscal 2009 and fiscal 2008.
Gross margin (Net revenues less Cost of services before reimbursable expenses as a percentage of Net revenues) for the fourth quarter of fiscal 2009 was 32.3%, compared with 31.7% for fiscal 2008. Gross margin for fiscal 2009 was 31.7%, compared with 30.7% for fiscal 2008. The increase for both periods was driven primarily by improved overall outsourcing contract profitability.
Our cost-management strategies include anticipating changes in demand for our services and executing cost-management initiatives. In addition to the workforce actions included in the Restructuring costs, we aggressively plan and manage our payroll costs and take on-going actions as needed to address changes in the anticipated demand for our services, given that payroll costs are the most significant portion of our operating expenses. Based on current and projected future demand, we have reduced our headcount to approximately 177,000 as of August 31, 2009, compared with more than 186,000 as of August 31, 2008. Annualized attrition, excluding involuntary terminations, for fiscal 2009 was 10%, compared to 16% for fiscal 2008. We evaluate voluntary attrition and have used increased involuntary terminations and reduced levels of new hiring as a means to keep our supply of skills and resources in balance with client demand. Our margins could be adversely affected if we are unable to manage headcount, attrition and severance costs, recover increases in compensation and/or effectively assimilate and utilize new employees.
Sales and marketing and general and administrative costs as a percentage of net revenues were 18.3% for fiscal 2009, compared with 17.7% for fiscal 2008. The increase was primarily due to an increase in selling costs as a percentage of net revenues and a bad debt provision of $75 million, or 0.3% of net revenues. This provision reflects our best estimate of collectibility risks on outstanding receivables, in light of the current global economic conditions, particularly from clients in high-risk industries or with potential liquidity issues.
Operating income for fiscal 2009 was $2,644 million, compared with $3,012 million for fiscal 2008. Operating margin (Operating income as a percentage of Net revenues) for fiscal 2009 was 12.3%, compared with 12.9% for fiscal 2008. Operating income for the fourth quarter of fiscal 2009 was $420 million, compared with $785 million for the fourth quarter of fiscal 2008. Operating margin for the fourth quarter of fiscal 2009 was 8.2%, compared with 13.1% for the fourth quarter of fiscal 2008. The restructuring costs of $253 million recorded in the fourth quarter of fiscal 2009 reduced Operating margin by 110 basis points for fiscal 2009. Excluding the effects of the restructuring costs, Operating income as a percentage of net revenues for fiscal 2009 increased 50 basis points compared with fiscal 2008.
Our Operating income and Earnings per share are also affected by currency exchange-rate fluctuations on revenues and costs. Due to the significant strengthening of the U.S. dollar against many other currencies, this impact was unfavorable during fiscal 2009. Most of our costs are incurred in the same currency as the related revenues. Where practical, we also seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues, by using currency protection provisions in our customer contracts and through our hedging programs. We estimate that the aggregate percentage impact of foreign exchange rates on our operating expenses is similar to that disclosed for Net revenues. For more information on our hedging programs, see Note 7 (Derivative Financial Instruments) to our Consolidated Financial Statements under Item 8, Financial Statements.