ACCENTURE SCA - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Edgar Glimpses |

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, 2013, 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, 2013. We use the terms "we," the "Company," "our" and "us" in this report to refer to Accenture SCA and its subsidiaries. Accenture plc ("Accenture") is the sole general partner of the Company. All references to years, unless otherwise noted, refer to our fiscal year, which ends on August 31. For example, a reference to "fiscal 2014" means the 12-month period that will end on August 31, 2014. All references to quarters, unless otherwise noted, refer to the quarters of our fiscal year. We use the term "in local currency" so that certain financial results may be viewed without the impact of foreign currency exchange rate fluctuations, thereby facilitating period-to-period comparisons of business performance. Financial results "in local currency" are calculated by restating current period activity into U.S. dollars using the comparable prior year period's foreign currency exchange rates. This approach is used for all results where the functional currency is not the U.S. dollar. Disclosure Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") relating to our operations, results of operations and other matters that are based on our current expectations, estimates, assumptions and projections. Words such as "may," "will," "should," "likely," "anticipates," "expects," "intends," "plans," "projects," "believes," "estimates," "positioned," "outlook" and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: • Our results of operations could be adversely affected by volatile, negative

or uncertain economic conditions and the effects of these conditions on our

clients' businesses and levels of business activity.

• Our business depends on generating and maintaining ongoing, profitable client

demand for our services and solutions, and a significant reduction in such

demand could materially affect our results of operations.

• If we are unable to keep our supply of skills and resources in balance with

client demand around the world and attract and retain professionals with

strong leadership skills, our business, the utilization rate of our professionals and our results of operations may be materially adversely affected.

• The markets in which we compete are highly competitive, and we might not be

able to compete effectively.

• Our profitability could suffer if our cost-management strategies are

unsuccessful, and we may not be able to improve our profitability through

improvements to cost-management to the degree we have done in the past.

• Our results of operations could materially suffer if we are not able to

obtain sufficient pricing to enable us to meet our profitability

expectations.

• If our pricing estimates do not accurately anticipate the cost, risk and

complexity of performing our work or third parties upon whom we rely do not

meet their commitments, then our contracts could have delivery inefficiencies

and be unprofitable.

• We could have liability or our reputation could be damaged if we fail to

protect client and/or Company data or information systems as obligated by law

or contract or if our information systems are breached.

• Our results of operations and ability to grow could be materially negatively

affected if we cannot adapt and expand our services and solutions in response

to ongoing changes in technology and offerings by new entrants.

• As a result of our geographically diverse operations and our growth strategy

to continue geographic expansion, we are more susceptible to certain risks.

• Our Global Delivery Network is increasingly concentrated in India and the

Philippines, which may expose us to operational risks. 14

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• We might not be successful at identifying, acquiring or integrating

businesses or entering into joint ventures.

• Our work with government clients exposes us to additional risks inherent in

the government contracting environment.

• Our business could be materially adversely affected if we incur legal

liability.

• Our results of operations could be materially adversely affected by

fluctuations in foreign currency exchange rates.

• Our alliance relationships may not be successful or may change, which could

adversely affect our results of operations.

• Outsourcing services and the continued expansion of our other services and

solutions into new areas subject us to different operational risks than our

consulting and systems integration services.

• Our services or solutions could infringe upon the intellectual property

rights of others or we might lose our ability to utilize the intellectual

property of others.

• If we are unable to protect our intellectual property rights from

unauthorized use or infringement by third parties, our business could be

adversely affected.

• Our ability to attract and retain business and employees may depend on our

reputation in the marketplace.

• Many of our contracts include payments that link some of our fees to the

attainment of performance or business targets and/or require us to meet

specific service levels. This could increase the variability of our revenues

and impact our margins.

• Changes in our level of taxes, and audits, investigations and tax

proceedings, or changes in Accenture's treatment as an Irish company, could

have a material adverse effect on our results of operations and financial

condition.

• If we are unable to manage the organizational challenges associated with our

size, we might be unable to achieve our business objectives.

• If we are unable to collect our receivables or unbilled services, our results

of operations, financial condition and cash flows could be adversely

affected.

• The share price of Accenture plc Class A ordinary shares and our results of

operations could fluctuate and be difficult to predict.

• Our results of operations and the share price of Accenture plc Class A

ordinary shares could be adversely affected if we are unable to maintain

effective internal controls.

• We make estimates and assumptions in connection with the preparation of our

consolidated financial statements, and any changes to those estimates and

assumptions could adversely affect our financial results.

• Accenture SCA is incorporated in Luxembourg and a significant portion of our

assets are located outside the United States. As a result, it might not be

possible for shareholders to enforce civil liability provisions of the

federal or state securities laws of the United States. We may also be subject

to criticism and negative publicity related to our incorporation in

Luxembourg.

• Luxembourg law differs from the laws in effect in the United States and might

afford less protection to shareholders.

• We might be unable to access additional capital on favorable terms or at all.

If we raise equity capital, it may dilute our shareholders' ownership

interest in us.

For a more detailed discussion of these factors, see the information under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended August 31, 2013. We undertake no obligation to update or revise any forward-looking statements.

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Overview

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. The level of revenues we achieve is based 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 affected by economic conditions, including macroeconomic conditions and levels of business confidence. There continues to be volatility and economic and geopolitical uncertainty in certain markets around the world, as well as lower levels of spending on some of the types of services we provide, all of which may impact our business. We continue to monitor the impact of this volatility and uncertainty and seek to manage our costs in order to respond to changing conditions. Revenues before reimbursements ("net revenues") for the third quarter of fiscal 2014 were $7.74 billion, compared with $7.20 billion for the third quarter of fiscal 2013, an increase of 7\% in both U.S. dollars and local currency. Net revenues for the nine months ended May 31, 2014 were $22.23 billion, compared with $21.48 billion for the nine months ended May 31, 2013, an increase of 3\% in U.S. dollars and 4\% in local currency. During the third quarter of fiscal 2014, all of our operating groups experienced year-over-year revenue growth in local currency. Revenue growth in local currency was strong in outsourcing and solid in consulting during the third quarter of fiscal 2014. Clients continue to request a higher volume of outsourcing services, place a greater emphasis on cost savings initiatives and manage the pace and level of spending on existing consulting and outsourcing contracts. The business environment continues to be competitive and, in many areas, we are experiencing pricing pressures. In our consulting business, net revenues for the third quarter of fiscal 2014 were $4.09 billion, compared with $3.87 billion for the third quarter of fiscal 2013, an increase of 6\% in U.S. dollars and 5\% in local currency. Net consulting revenues for the nine months ended May 31, 2014 were $11.72 billion, compared with $11.58 billion for the nine months ended May 31, 2013, an increase of 1\% in U.S. dollars and 2\% in local currency. Clients continued to be focused on initiatives designed to deliver cost savings and operational efficiency, as well as projects to integrate their global operations and grow and transform their businesses. We continue to experience growing demand for our services in emerging technologies, including digital services (digital marketing, analytics and mobility) and cloud computing. Compared to fiscal 2013, we continued to provide a greater proportion of systems integration consulting through use of lower-cost resources in our Global Delivery Network. This trend has resulted in work volume growing faster than revenue, and we expect this trend to continue. In our outsourcing business, net revenues for the third quarter of fiscal 2014 were $3.65 billion, compared with $3.33 billion for the third quarter of fiscal 2013, an increase of 10\% in U.S. dollars and 9\% in local currency. Net outsourcing revenues for the nine months ended May 31, 2014 were $10.50 billion, compared with $9.90 billion for the nine months ended May 31, 2013, an increase of 6\% in U.S. dollars and 7\% in local currency. Clients continue to be focused on transforming their operations to improve effectiveness and save costs. Compared to fiscal 2013, we continued to provide a greater proportion of application outsourcing through use of lower-cost resources in our Global Delivery Network. As we are a global company, our revenues are denominated in multiple currencies and may be significantly affected by currency exchange rate fluctuations. If the U.S. dollar weakens against other currencies, resulting in favorable currency translation, our revenues and revenue growth in U.S. dollars may be higher. If the U.S. dollar strengthens against other currencies, resulting in unfavorable currency translation, our revenues and revenue growth in U.S. dollars may be lower. When compared to the third quarter of fiscal 2013, in aggregate, there was minimal foreign currency translation impact during the third quarter of fiscal 2014, resulting in U.S. dollar revenue growth that was approximately the same as our revenue growth in local currency. When compared to the nine months ended May 31, 2013, the U.S. dollar strengthened against many currencies during the nine months ended May 31, 2014. This resulted in unfavorable currency translation and U.S. dollar revenue growth that was approximately 1\% lower than our revenue growth in local currency for the nine months ended May 31, 2014. Assuming that exchange rates stay within recent ranges for the remainder of fiscal 2014, we estimate the foreign-exchange impact to our full fiscal 2014 revenue growth will be approximately 0.5\% lower growth in U.S. dollars 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, subcontractor 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 outsourcing contracts. Utilization primarily represents the percentage of our consulting professionals' time spent on billable work. Utilization for the third quarter of fiscal 2014 was approximately 88\%, up from 87\% for the second quarter of fiscal 2014, flat with the third quarter of fiscal 2013 and within our target range. This level of utilization reflects continued strong demand for resources in our Global Delivery Network and in most countries. We continue to hire to meet current and projected future demand. 16

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We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services, given that compensation costs are the most significant portion of our operating expenses. Based on current and projected future demand, we have increased our headcount, the majority of which serve our clients, to more than 293,000 as of May 31, 2014, compared with approximately 289,000 as of February 28, 2014 and approximately 266,000 as of May 31, 2013. The year-over-year increase in our headcount reflects an overall increase in demand for our services, including those delivered through our Global Delivery Network in lower-cost locations, as well as headcount added in connection with acquisitions. Annualized attrition, excluding involuntary terminations, for the third quarter of fiscal 2014 was 14\%, up from 12\% in both the second quarter of fiscal 2014 and the third quarter of fiscal 2013. We evaluate voluntary attrition, adjust levels of new hiring and use involuntary terminations as means to keep our supply of skills and resources in balance with changes in client demand. In addition, we adjust compensation in certain skill sets and geographies in order to attract and retain appropriate numbers of qualified employees, and we may need to continue to adjust compensation in the future. For the majority of our personnel, compensation increases for fiscal 2014 became effective September 1, 2013. We strive to adjust pricing and/or the mix of resources to reduce the impact of compensation increases on our gross margin. Our ability to grow our revenues and maintain or increase our margins could be adversely affected if we are unable to: keep our supply of skills and resources in balance with changes in the types or amounts of services clients are demanding, such as the increase in demand for various outsourcing and emerging technology services; recover increases in compensation; deploy our employees globally on a timely basis; manage attrition; and/or effectively assimilate and utilize new employees. Gross margin (Net revenues less Cost of services before reimbursable expenses as a percentage of Net revenues) for the third quarter of fiscal 2014 was 32.8\%, compared with 33.9\% for the third quarter of fiscal 2013. Gross margin for the nine months ended May 31, 2014 was 32.5\%, compared with 32.8\% for the nine months ended May 31, 2013. There were several factors affecting cost of services and gross margin in the nine months ended May 31, 2014. We experienced lower consulting and outsourcing contract profitability compared to the same period in fiscal 2013, primarily due to pricing pressures and higher payroll costs and, to a lesser extent, lower margins in the early stages of a few large contracts. We expect to continue our efforts to adjust the mix of resources to reduce these impacts and to recover annual compensation increases that were effective September 1, 2013. In addition, we made higher investments associated with acquisitions and offerings. While we accrued significant variable compensation during the nine months ended May 31, 2014, the amounts accrued are lower than the same period in fiscal 2013 and largely offset the impacts noted above. Sales and marketing and general and administrative costs as a percentage of net revenues were 17.5\% for the third quarter of fiscal 2014 and 18.1\% for the nine months ended May 31, 2014, compared with 18.7\% for the third quarter of fiscal 2013 and 18.4\% for the nine months ended May 31, 2013. Sales and marketing costs are driven primarily by: compensation costs for business development activities; investment in offerings; marketing- and advertising-related activities; and acquisition-related costs. General and administrative costs primarily include costs for non-client-facing personnel, information systems and office space. We continuously monitor these costs and implement cost-management actions, as appropriate. For the nine months ended May 31, 2014 compared to the nine months ended May 31, 2013, sales and marketing costs as a percentage of net revenues decreased 10 basis points, while general and administrative costs as a percentage of net revenues decreased 20 basis points. Our margins could be adversely affected if our cost-management actions are not sufficient to maintain sales and marketing and general and administrative costs at or below current levels as a percentage of net revenues. Operating income for the third quarter of fiscal 2014 was $1,179 million, compared with $1,142 million for the third quarter of fiscal 2013. Operating income for the nine months ended May 31, 2014 was $3,221 million, compared with $3,355 million for the nine months ended May 31, 2013. Operating margin (Operating income as a percentage of Net revenues) for the third quarter of fiscal 2014 was 15.2\%, compared with 15.9\% for the third quarter of fiscal 2013. Operating margin for the nine months ended May 31, 2014 was 14.5\%, compared with 15.6\% for the nine months ended May 31, 2013. We recorded reorganization benefits of $50 million in the third quarter of fiscal 2013 and $274 million in the nine months ended May 31, 2013 which increased operating margin by 70 and 130 basis points, respectively. Excluding the effects of the reorganization benefits, operating margin for the third quarter of fiscal 2013 and the nine months ended May 31, 2013 would have been 15.2\% and 14.3\%, respectively. The effective tax rates for the third quarter of fiscal 2014 and the nine months ended May 31, 2014 were 25.0\% and 24.7\%, respectively. The effective tax rates for the third quarter of fiscal 2013 and the nine months ended May 31, 2013 were 23.8\% and 16.2\%, respectively. The above noted reorganization benefits recorded in the third quarter of fiscal 2013 and in the nine months ended May 31, 2013 increased income before income taxes without any increase in income tax expense. In addition, during the second quarter of fiscal 2013, we recorded a benefit of $243 million related to settlements of U.S. federal tax audits for fiscal years 2006 through 2009. Absent these items, our effective tax rates for the third quarter of fiscal 2013 and the nine months ended May 31, 2013 would have been 24.8\% and 25.5\%, respectively. Our Operating income is also affected by currency exchange rate fluctuations on revenues and costs. Most of our costs are incurred in the same currency as the related net revenues. Where practical, we also seek to manage foreign currency exposure for costs not incurred in the same currency as the related net revenues, such as the cost of our Global Delivery Network, by using currency protection provisions in our customer contracts and through our hedging programs. We seek to manage our costs, taking into consideration the residual positive and negative effects of changes in foreign exchange rates on those costs. 17

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Bookings and Backlog New bookings for the third quarter of fiscal 2014 were $8.77 billion, with consulting bookings of $4.31 billion and outsourcing bookings of $4.46 billion. New bookings for the nine months ended May 31, 2014 were $27.55 billion, with consulting bookings of $13.20 billion and outsourcing bookings of $14.35 billion. We provide information regarding our new bookings, which include new contracts, including those acquired through acquisitions, as well as renewals, extensions and changes to existing contracts, because we believe doing so provides useful trend information regarding changes in the volume of our new business over time. New bookings can vary significantly quarter to quarter depending in part on the timing of the signing of a small number of large outsourcing contracts. The types of services clients are demanding and the pace and level of their spending may impact the conversion of new bookings to revenues. For example, outsourcing bookings, which are typically for multi-year contracts, generally convert to revenue at a slower pace compared to consulting bookings. Information regarding our new bookings is not comparable to, nor should it be substituted for, an analysis of our revenues over time. New bookings involve estimates and judgments. There are no third-party standards or requirements governing the calculation of bookings. We do not update our new bookings for material subsequent terminations or reductions related to bookings originally recorded in prior fiscal years. New bookings are recorded using then-existing foreign currency exchange rates and are not subsequently adjusted for foreign currency exchange rate fluctuations. The majority of our contracts are terminable by the client on short notice, and some 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. Revenues by Segment/Operating Group Our five reportable operating segments are our operating groups, which are Communications, Media & Technology; Financial Services; Health & Public Service; Products; and Resources. Operating groups are managed on the basis of net revenues because our management believes net revenues are a better indicator of operating group performance than revenues. In addition to reporting net revenues by operating group, we also report net revenues by two types of work: consulting and outsourcing, which represent the services sold by our operating groups. Consulting net revenues, which include management and technology consulting and systems integration, reflect a finite, distinct project or set of projects with a defined outcome and typically a defined set of specific deliverables. Outsourcing net revenues typically reflect ongoing, repeatable services or capabilities provided to transition, run and/or manage operations of client systems or business functions. 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. The mix between consulting and outsourcing is not uniform among our operating groups. Local currency fluctuations also tend to affect our operating groups differently, depending on the geographic concentrations and locations of their businesses. While we provide discussion about our results of operations below, we cannot measure how much of our revenue growth in a particular period is attributable to changes in price or volume. Management does not track standard measures of unit or rate volume. Instead, our measures of volume and price are extremely complex, as each of our services contracts is unique, reflecting a customized mix of specific services that does not fit into standard comparability measurements. Pricing for our services is a function of the nature of each service to be provided, the skills required and outcome sought, as well as estimated cost, risk, contract terms and other factors. 18

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Results of Operations for the Three Months Ended May 31, 2014 Compared to the Three Months Ended May 31, 2013 Net revenues (by operating group, geographic region and type of work) and reimbursements were as follows: Percent Percent Increase Increase (Decrease) Percent of Total Net Revenues Three Months Ended May 31, (Decrease) Local for the Three Months Ended May 31, 2014 2013 U.S. Dollars Currency 2014 2013 (in millions of U.S. dollars) OPERATING GROUPS Communications, Media & Technology $ 1,525 $ 1,426 7 \% 7 \% 20 \% 20 \% Financial Services 1,677 1,574 7 5 21 22 Health & Public Service 1,314 1,191 10 11 17 16 Products 1,915 1,725 11 10 25 24 Resources 1,302 1,279 2 2 17 18 Other 4 3 n/m n/m - - TOTAL NET REVENUES 7,736 7,198 7 \% 7 \% 100 \% 100 \% Reimbursements 505 510 (1 ) TOTAL REVENUES $ 8,240 $ 7,708 7 \% GEOGRAPHIC REGIONS Americas $ 3,637 $ 3,444 6 \% 7 \% 47 \% 48 \% EMEA (1) 3,130 2,778 13 7 40 39 Asia Pacific 969 975 (1 ) 6 13 13 TOTAL NET REVENUES $ 7,736 $ 7,198 7 \% 7 \% 100 \% 100 \% TYPE OF WORK Consulting $ 4,086 $ 3,867 6 \% 5 \% 53 \% 54 \% Outsourcing 3,649 3,331 10 9 47 46 TOTAL NET REVENUES $ 7,736 $ 7,198 7 \% 7 \% 100 \% 100 \% _______________ n/m = not meaningful Amounts in table may not total due to rounding. (1) EMEA includes Europe, the Middle East and Africa. Net Revenues The following net revenues commentary discusses local currency net revenue changes for the third quarter of fiscal 2014 compared to the third quarter of fiscal 2013: Operating Groups • Communications, Media & Technology net revenues increased 7\% in local

currency. Consulting revenues reflected strong growth, driven by

Electronics & High Tech and Media & Entertainment across all geographic

regions, partially offset by declines in Communications across all

geographic regions. Outsourcing revenues reflected strong growth, driven

by all industry groups in Americas, particularly in Electronics & High

Tech, partially offset by a decline in Electronics & High Tech in EMEA.

• Financial Services net revenues increased 5\% in local currency.

Outsourcing revenues reflected very strong growth, driven by all industry

groups in EMEA and Asia Pacific and Capital Markets in Americas. These increases were partially offset by declines in Insurance and Banking in

Americas. Consulting revenues were flat, as growth in Banking in EMEA and

Asia Pacific was offset by declines in Insurance across all geographic

regions. In certain industries we continued to experience higher demand

for outsourcing services, including transformational projects, and lower

demand for short-term consulting services.

• Health & Public Service net revenues increased 11\% in local currency.

Outsourcing revenues reflected very strong growth, led by Health and Public Service in Americas, partially offset by a decline in Health in EMEA. Consulting revenues reflected strong growth, led by Health and Public Service in Americas and Public Service in Asia Pacific. 19

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• Products net revenues increased 10\% in local currency. Consulting revenues

reflected strong growth, driven by most industry groups in EMEA and

Americas, led by Retail in EMEA and Consumer Goods & Services in Americas.

Outsourcing revenues reflected strong growth, driven by most industry

groups across all geographic regions, led by Air Freight & Travel Services

in Americas and Retail in EMEA. • Resources net revenues increased 2\% in local currency. Outsourcing

revenues reflected strong growth, led by Energy in Americas, Utilities in

EMEA and Natural Resources in Asia Pacific. Consulting revenues reflected

a slight decline, due to declines in Natural Resources across all

geographic regions and Energy in Americas, partially offset by growth in

Energy and Chemicals in Asia Pacific and Utilities in EMEA. Some of our

clients, primarily in Natural Resources, continued to reduce their level

of consulting investments. In addition, several large systems integration

projects have ended or have transitioned to smaller phases and demand for

our services has moderated. We expect these trends will continue to impact

Resources year-over-year net revenue growth in the near term.

Geographic Regions • Americas net revenues increased 7\% in local currency, driven by the United

States and Brazil, partially offset by a decline in Canada.

• EMEA net revenues increased 7\% in local currency, driven by France, Italy,

the United Kingdom, Norway and Germany. These increases were partially

offset by declines in South Africa and Spain.

• Asia Pacific net revenues increased 6\% in local currency, driven by Japan

and to a lesser extent India, partially offset by declines in Singapore

and South Korea. Operating Expenses Operating expenses for the third quarter of fiscal 2014 were $7,061 million, an increase of $495 million, or 8\%, over the third quarter of fiscal 2013, and increased as a percentage of revenues to 85.7\% from 85.2\% during this period. Operating expenses before reimbursable expenses for the third quarter of fiscal 2014 were $6,557 million, an increase of $501 million, or 8\%, over the third quarter of fiscal 2013, and increased as a percentage of net revenues to 84.8\% from 84.1\% during this period. Operating expenses in the third quarter of fiscal 2013 included reorganization benefits of $50 million as a result of final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure in 2001. Cost of Services Cost of services for the third quarter of fiscal 2014 was $5,704 million, an increase of $434 million, or 8\%, over the third quarter of fiscal 2013, and increased as a percentage of revenues to 69.2\% from 68.4\% during this period. Cost of services before reimbursable expenses for the third quarter of fiscal 2014 was $5,199 million, an increase of $439 million, or 9\%, over the third quarter of fiscal 2013, and increased as a percentage of net revenues to 67.2\% from 66.1\% during this period. Gross margin for the third quarter of fiscal 2014 decreased to 32.8\% from 33.9\% for the third quarter of fiscal 2013. We experienced lower consulting and outsourcing contract profitability compared to the same period in fiscal 2013, primarily due to pricing pressures and higher payroll costs and, to a lesser extent, lower margins in the early stages of a few large contracts. Sales and Marketing Sales and marketing expense for the third quarter of fiscal 2014 was $899 million, an increase of $13 million, or 1\%, over the third quarter of fiscal 2013, and decreased as a percentage of net revenues to 11.6\% from 12.3\%. The decrease as a percentage of net revenues was due to growth of selling and other business development costs at a rate lower than that of net revenues. General and Administrative Costs General and administrative costs for the third quarter of fiscal 2014 were $458 million, flat with the third quarter of fiscal 2013, and decreased as a percentage of net revenues to 5.9\% from 6.4\% during this period. The decrease as a percentage of net revenues was due to growth of general and administrative costs at a rate lower than that of net revenues. 20

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Operating Income and Operating Margin Operating income for the third quarter of fiscal 2014 was $1,179 million, an increase of $37 million, or 3\%, over the third quarter of fiscal 2013. During the third quarter of fiscal 2013, we recorded reorganization benefits of $50 million, which increased operating margin by 70 basis points. Excluding the effects of the fiscal 2013 reorganization benefits, operating margin for the third quarter of fiscal 2014 was flat compared with the third quarter of fiscal 2013. Operating income and operating margin for each of the operating groups were as follows: Three Months Ended May 31, 2014 2013 Operating Operating Operating Operating Income Margin Income Margin (in millions of U.S. dollars)

Communications, Media & Technology $ 223 15 \% $ 213

15 \% Financial Services 253 15 276 18 Health & Public Service 213 16 168 14 Products 253 13 264 15 Resources 236 18 221 17 Total $ 1,179 15.2 \% $ 1,142 15.9 \% _______________ Amounts in table may not total due to rounding. Operating Income and Operating Margin Excluding Reorganization Benefits (Non-GAAP) Three Months Ended May 31, 2014 2013 Operating Income and

Operating Income and Operating Margin

Operating Margin as

Excluding Reorganization Benefits

Reported (GAAP)

(Non-GAAP)

Operating Operating Operating Income

Reorganization Operating Income Operating Increase

Income Margin (GAAP) Benefits (1) (2) Margin (2) (Decrease) (in millions of U.S. dollars) Communications, Media & Technology $ 223 15 \% $ 213 $ 10 $ 204 14 \% $ 19 Financial Services 253 15 276 11 265 17 (12 ) Health & Public Service 213 16 168 9 159 13 54 Products 253 13 264 12 252 15 1 Resources 236 18 221 9 212 17 24 Total $ 1,179 15.2 \% $ 1,142 $ 50 $ 1,092 15.2 \% $ 86 _______________

Amounts in table may not total due to rounding.

(1) Represents reorganization benefits related to final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure during 2001. (2) We have presented Operating income and operating margin excluding

reorganization benefits, as we believe the effect of the reorganization

benefits on Operating income and operating margin facilitates

understanding as to both the impact of these benefits and our operating

performance. 21

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The commentary below provides additional insight into operating group performance and operating margin for the third quarter of fiscal 2014 compared with the third quarter of fiscal 2013, exclusive of reorganization benefits recorded in fiscal 2013: • Communications, Media & Technology operating income increased, primarily

due to revenue growth and lower sales and marketing costs as a percentage

of net revenues, partially offset by lower contract profitability,

including early-stage work at lower margins on a few large contracts.

• Financial Services operating income decreased, primarily due to lower contract profitability, including early-stage work at lower margins on a

few large outsourcing contracts, partially offset by outsourcing revenue

growth.

• Health & Public Service operating income increased due to revenue growth

and higher consulting contract profitability, including improved delivery

efficiency.

• Products operating income was flat, as revenue growth was offset by lower

consulting contract profitability, including delivery inefficiencies on a few contracts.

• Resources operating income increased, primarily due to higher outsourcing

contract profitability and outsourcing revenue growth.

Provision for Income Taxes The effective tax rate for the third quarter of fiscal 2014 was 25.0\%, compared with 23.8\% for the third quarter of fiscal 2013. During the third quarter of fiscal 2013, we recorded reorganization benefits of $50 million, which increased income before income taxes without any increase in income tax expense. Absent this item, our effective tax rate for the third quarter of fiscal 2013 would have been 24.8\%. Net Income Net income for the third quarter of fiscal 2014 was $882 million, an increase of $8 million, or 1\%, over the third quarter of fiscal 2013. We recorded reorganization benefits of $50 million in the third quarter of fiscal 2013, which increased income before taxes without any increase in income tax expense. Excluding the impact of the reorganization benefits, net income increased $58 million compared with the third quarter of fiscal 2013, primarily due to higher revenues and operating results. 22

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Results of Operations for the Nine Months Ended May 31, 2014 Compared to the Nine Months Ended May 31, 2013 Net revenues (by operating group, geographic region and type of work) and reimbursements were as follows: Percent Percent Increase Increase (Decrease) Percent of Total Net Revenues Nine Months Ended May 31, (Decrease) Local for the Nine Months Ended May 31, 2014 2013 U.S. Dollars Currency 2014 2013 (in millions of U.S. dollars)

OPERATING GROUPS Communications, Media & Technology $ 4,344 $ 4,296 1 \% 2 \% 19 \% 20 \% Financial Services 4,839 4,646 4 4 22 22 Health & Public Service 3,728 3,558 5 6 17 16 Products 5,461 5,104 7 7 25 24 Resources 3,842 3,853 - 1 17 18 Other 11 19 n/m n/m - - TOTAL NET REVENUES 22,225 21,476 3 \% 4 \% 100 \% 100 \% Reimbursements 1,382 1,393 (1 ) TOTAL REVENUES $ 23,607 $ 22,869 3 \% GEOGRAPHIC REGIONS Americas $ 10,432 $ 10,057 4 \% 5 \% 47 \% 47 \% EMEA (1) 8,914 8,404 6 3 40 39 Asia Pacific 2,879 3,015 (5 ) 5 13 14 TOTAL NET REVENUES $ 22,225 $ 21,476 3 \% 4 \% 100 \% 100 \% TYPE OF WORK Consulting $ 11,721 $ 11,580 1 \% 2 \% 53 \% 54 \% Outsourcing 10,504 9,896 6 7 47 46 TOTAL NET REVENUES $ 22,225 $ 21,476 3 \% 4 \% 100 \% 100 \% _______________ n/m = not meaningful (1) EMEA includes Europe, the Middle East and Africa. Net Revenues The following net revenues commentary discusses local currency net revenue changes for the nine months ended May 31, 2014 compared to the nine months ended May 31, 2013: Operating Groups • Communications, Media & Technology net revenues increased 2\% in local

currency. Consulting revenues reflected modest growth, led by Electronics

& High Tech in Americas and EMEA, partially offset by declines in Communications across all geographic regions and Electronics & High Tech in Asia Pacific. Outsourcing revenues reflected slight growth, as

significant growth in Electronics & High Tech and Media & Entertainment in

Americas was largely offset by declines in Electronics & High Tech in EMEA

and Communications in Asia Pacific. • Financial Services net revenues increased 4\% in local currency.

Outsourcing revenues reflected very strong growth, driven by all industry

groups in EMEA and Asia Pacific and Capital Markets in Americas. These

increases were partially offset by a decline in Insurance in Americas.

Consulting revenues reflected a slight decline, due to declines in

Insurance in Americas and EMEA and Banking in Americas, partially offset

by growth in Banking in EMEA and Asia Pacific. In certain industries we

continued to experience higher demand for outsourcing services, including

transformational projects, and lower demand for short-term consulting

services.

• Health & Public Service net revenues increased 6\% in local currency.

Outsourcing revenues reflected strong growth, led by Health and Public

Service in Americas, partially offset by a decline in Health in EMEA.

Consulting revenues reflected modest growth, driven by Public Service and

Health in Americas and Public Service in Asia Pacific, partially offset by

a decline in Public Service in EMEA. 23

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• Products net revenues increased 7\% in local currency. Outsourcing revenues

reflected strong growth, driven by growth across all geographic regions in

most industry groups, led by Air Freight & Travel Services and Life

Sciences in Americas and Retail in EMEA. These increases were partially

offset by declines in Retail in Americas, and Air Freight & Travel

Services and Consumer Goods & Services in EMEA. Consulting revenue growth

was driven by most industry groups in EMEA, led by Retail and Consumer

Goods & Services, and in Americas, led by Air Freight & Travel Services.

This growth was partially offset by declines in Retail in Asia Pacific and

Industrial Equipment across all geographic regions. • Resources net revenues increased 1\% in local currency. Outsourcing

revenues reflected modest growth, driven by Energy in Americas, partially

offset by declines in Utilities and Chemicals in Americas. Consulting

revenues were flat, as growth in Energy in Asia Pacific and EMEA,

Utilities in EMEA and Chemicals in Americas were offset by declines in

Natural Resources across all geographic regions and Energy in Americas.

Some of our clients, primarily in Natural Resources, continued to reduce

their level of consulting investments. In addition, several large systems

integration projects have ended or have transitioned to smaller phases and

demand for our services has moderated. We expect these trends will

continue to impact Resources year-over-year net revenue growth in the near

term.

Geographic Regions • Americas net revenues increased 5\% in local currency, driven by the United

States, partially offset by a decline in Canada.

• EMEA net revenues increased 3\% in local currency, driven by France, Italy,

Switzerland, the United Kingdom, Germany and Norway. These increases were partially offset by declines in Spain, Finland and South Africa.

• Asia Pacific net revenues increased 5\% in local currency, driven by Japan

and to a lesser extent India, partially offset by declines in Singapore

and South Korea. Operating Expenses Operating expenses for the nine months ended May 31, 2014 were $20,386 million, an increase of $872 million, or 4\%, over the nine months ended May 31, 2013, and increased as a percentage of revenues to 86.4\% from 85.3\% during this period. Operating expenses before reimbursable expenses for the nine months ended May 31, 2014 were $19,004 million, an increase of $883 million, or 5\%, over the nine months ended May 31, 2013, and increased as a percentage of net revenues to 85.5\% from 84.4\% during this period. Operating expenses for the nine months ended May 31, 2013 included reorganization benefits of $274 million as a result of final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure in 2001. Cost of Services Cost of services for the nine months ended May 31, 2014 was $16,392 million, an increase of $557 million, or 4\%, over the nine months ended May 31, 2013, and increased as a percentage of revenues to 69.4\% from 69.2\% during this period. Cost of services before reimbursable expenses for the nine months ended May 31, 2014 was $15,009 million, an increase of $568 million, or 4\%, over the nine months ended May 31, 2013, and increased as a percentage of net revenues to 67.5\% from 67.2\% during this period. Gross margin for the nine months ended May 31, 2014 decreased to 32.5\% from 32.8\% for the nine months ended May 31, 2013. There were several factors affecting cost of services and gross margin in the nine months ended May 31, 2014. We experienced lower consulting and outsourcing contract profitability compared to the same period in fiscal 2013, primarily due to pricing pressures and higher payroll costs and, to a lesser extent, lower margins in the early stages of a few large contracts. In addition, we made higher investments associated with acquisitions and offerings. We accrued lower variable compensation in the nine months ended May 31, 2014 compared to the same period in fiscal 2013, which largely offset the impacts noted above. Sales and Marketing Sales and marketing expense for the nine months ended May 31, 2014 was $2,665 million, an increase of $76 million, or 3\%, over the nine months ended May 31, 2013, and decreased as a percentage of net revenues to 12.0\% from 12.1\% during this period. General and Administrative Costs General and administrative costs for the nine months ended May 31, 2014 were $1,348 million, a decrease of $15 million, or 1\%, from the nine months ended May 31, 2013, and decreased as a percentage of net revenues to 6.1\% from 6.3\% during this period. 24

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Operating Income and Operating Margin Operating income for the nine months ended May 31, 2014 was $3,221 million, a decrease of $134 million, or 4\%, from the nine months ended May 31, 2013. During the nine months ended May 31, 2013, we recorded reorganization benefits of $274 million, which increased operating margin by 130 basis points. Excluding the effects of the fiscal 2013 reorganization benefits, operating margin for the nine months ended May 31, 2014 increased 20 basis points compared with the nine months ended May 31, 2013. Operating income and operating margin for each of the operating groups were as follows: Nine Months Ended May 31, 2014 2013 Operating Operating Operating Operating Income Margin Income Margin (in millions of U.S. dollars)

Communications, Media & Technology $ 558 13 \% $ 622

14 \% Financial Services 726 15 761 16 Health & Public Service 538 14 499 14 Products 706 13 764 15 Resources 693 18 709 18 Total $ 3,221 14.5 \% $ 3,355 15.6 \% Operating Income and Operating Margin Excluding Reorganization Benefits (Non-GAAP) Nine Months Ended May 31, 2014 2013 Operating Income and

Operating Income and Operating Margin

Operating Margin as

Excluding Reorganization Benefits

Reported (GAAP)

(Non-GAAP)

Operating Operating Operating Income

Reorganization Operating Income Operating Increase

Income Margin (GAAP) Benefits (1) (2) Margin (2) (Decrease) (in millions of U.S. dollars) Communications, Media & Technology $ 558 13 \% $ 622 $ 53 $ 569 13 \% $ (11 ) Financial Services 726 15 761 59 702 15 23 Health & Public Service 538 14 499 48 451 13 87 Products 706 13 764 65 699 14 7 Resources 693 18 709 49 660 17 34 Total $ 3,221 14.5 \% $ 3,355 $ 274 $ 3,081 14.3 \% $ 140

_______________

Amounts in table may not total due to rounding.

(1) Represents reorganization benefits related to final determinations of certain reorganization liabilities established in connection with our transition to a corporate structure during 2001. (2) We have presented Operating income and operating margin excluding

reorganization benefits, as we believe the effect of the reorganization

benefits on Operating income and operating margin facilitates

understanding as to both the impact of these benefits and our operating

performance. 25

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During the nine months ended May 31, 2014, the financial results of each operating group benefited from a reduction in variable compensation compared to the nine months ended May 31, 2013. The commentary below provides additional insight into other factors affecting operating group performance and operating margin for the nine months ended May 31, 2014 compared with the nine months ended May 31, 2013, exclusive of the reorganization benefit recorded in fiscal 2013: • Communications, Media & Technology operating income was impacted by lower

contract profitability, including delivery inefficiencies on a few large

contracts and early-stage work at lower margins on a few large contracts.

• Financial Services operating income was impacted by lower contract profitability, including early-stage work at lower margins on a few large

outsourcing contracts, higher sales and marketing costs as a percentage of

net revenues, and a decline in consulting revenue. Operating income was favorably impacted by outsourcing revenue growth.

• Health & Public Service operating income increased due to revenue growth.

• Products operating income was impacted by lower consulting contract

profitability, including delivery inefficiencies on a few contracts. Operating income was favorably impacted by revenue growth.

• Resources operating income was impacted by lower consulting contract

profitability and higher sales and marketing costs as a percentage of net

revenues. Operating income was favorably impacted by higher outsourcing

contract profitability.

Provision for Income Taxes The effective tax rate for the nine months ended May 31, 2014 was 24.7\%, compared with 16.2\% for the nine months ended May 31, 2013. During the nine months ended May 31, 2013, we recorded reorganization benefits of $274 million, which increased income before income taxes without any increase in income tax expense. In addition, during the second quarter of fiscal 2013, we recorded a benefit of $243 million related to settlements of U.S. federal tax audits for fiscal years 2006 through 2009. Absent these items, our effective tax rate for the nine months ended May 31, 2013 would have been 25.5\%. Our provision for income taxes is based on many factors and subject to volatility year to year. We expect the fiscal 2014 annual effective tax rate to be in the range of 25.5\% to 26.5\%. As a result of the benefits mentioned above, the fiscal 2013 annual effective tax rate was 18.1\%. Net Income Net income for the nine months ended May 31, 2014 was $2,416 million, a decrease of $411 million, or 15\%, from the nine months ended May 31, 2013. We recorded reorganization benefits of $274 million in the nine months ended May 31, 2013 which increased income before taxes without any increase in income tax expense. In addition, during the second quarter of fiscal 2013, we recorded a benefit of $243 million related to settlements of U.S. federal tax audits for fiscal years 2006 through 2009. Excluding the impact of these benefits, net income increased $106 million compared with the nine months ended May 31, 2013, primarily due to higher revenues and operating results, and a lower effective tax rate. 26

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Liquidity and Capital Resources Our primary sources of liquidity are cash flows from operations, available cash reserves and debt capacity available under various credit facilities. In addition, Accenture could raise additional funds through public or private debt or equity financings. We may use our available or additional funds to, among other things: • facilitate purchases, redemptions and exchanges of Accenture's and our

shares and pay dividends;

• acquire complementary businesses or technologies;

• take advantage of opportunities, including more rapid expansion; or

• develop new services and solutions.

As of May 31, 2014, Cash and cash equivalents was $4.0 billion, compared with $5.6 billion as of August 31, 2013. Cash flows from operating, investing and financing activities, as reflected in our Consolidated Cash Flows Statements, are summarized in the following table: Nine Months Ended May 31, 2014 2013 Change (in millions of U.S. dollars) Net cash provided by (used in): Operating activities $ 1,837 $ 2,028 $ (191 ) Investing activities (892 ) (624 ) (268 ) Financing activities (2,581 ) (2,042 ) (539 ) Effect of exchange rate changes on cash and cash equivalents 52

(64 ) 117 Net decrease in cash and cash equivalents $ (1,583 ) $ (702 ) $ (881 )

_______________

Amounts in table may not total due to rounding. Operating activities: The reduction in operating cash flow was primarily driven by higher current year operational spending (offset in our operating income by approximately $300 million in lower variable compensation accruals) and lower collections on net client balances (receivables from clients, current and non-current unbilled services and deferred revenues). Operating cash flow in fiscal 2013 included a discretionary cash contribution of $500 million made to our U.S. defined benefit pension plan, which had a net impact of $350 million, after tax. Investing activities: The $268 million increase in cash used was primarily due to increased spending on business acquisitions. For additional information, see Note 4 (Business Combinations and Goodwill) to our Consolidated Financial Statements under Item 1, "Financial Statements." Financing activities: The $539 million increase in cash used was primarily due to an increase in the net purchases of shares and an increase in cash dividends paid. For additional information, see Note 5 (Material Transactions Affecting Shareholders' Equity) to our Consolidated Financial Statements under Item 1, "Financial Statements." We believe that our available cash balances and the cash flows expected to be generated from operations will be sufficient to satisfy our current and planned working capital and investment needs for the next twelve months. We also believe that our longer-term working capital and other general corporate funding requirements will be satisfied through cash flows from operations and, to the extent necessary, from our borrowing facilities and future financial market activities. 27

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Borrowing Facilities As of May 31, 2014, we had the following borrowing facilities, including the issuance of letters of credit, to support general working capital purposes: Borrowings Facility Under Amount Facilities (in millions of U.S. dollars) Syndicated loan facility $ 1,000 $ -

Separate, uncommitted, unsecured multicurrency revolving credit facilities

560 - Local guaranteed and non-guaranteed lines of credit 175 - Total $ 1,736 $ - _______________ Amounts in table may not total due to rounding. Under the borrowing facilities described above, we had an aggregate of $176 million of letters of credit outstanding as of May 31, 2014. Share Purchases and Redemptions The Board of Directors of Accenture plc has authorized funding for purchases and redemptions of Accenture plc Class A ordinary shares, Accenture SCA Class I common shares and Accenture Canada Holdings Inc. exchangeable shares held by our current and former members of Accenture Leadership and their permitted transferees. As of May 31, 2014, Accenture's and our aggregate available authorization was $5,325 million for Accenture's publicly announced open-market share purchase and these other share purchase programs. Our share purchase activity during the nine months ended May 31, 2014 was as follows: Accenture SCA Class I

Common Shares and Accenture Canada Holdings Inc.

Exchangeable Shares Shares Amount (in millions of U.S. dollars) Accenture SCA Class I common shares 1,521,135 $ 120 Accenture Canada Holdings Inc. exchangeable shares 124,046 10 Total 1,645,181 $ 130 Accenture and we intend to continue to use a significant portion of cash generated from operations for share repurchases during the remainder of fiscal 2014. The number of shares ultimately repurchased under Accenture's open-market share purchase program may vary depending on numerous factors, including, without limitation, share price and other market conditions, Accenture's and our ongoing capital allocation planning, the levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic and/or business conditions, and board and management discretion. Additionally, as these factors may change over the course of the year, the amount of share repurchase activity during any particular period cannot be predicted and may fluctuate from time to time. Share repurchases may be made from time to time through open-market purchases, in respect of purchases and redemptions of Accenture SCA Class I common shares and Accenture Canada Holdings Inc. exchangeable shares, through the use of Rule 10b5-1 plans and/or by other means. The repurchase program may be accelerated, suspended, delayed or discontinued at any time, without notice. 28

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Other Share Redemptions During the nine months ended May 31, 2014, Accenture issued 593,483 Accenture plc Class A ordinary shares upon redemptions of an equivalent number of Accenture SCA Class I common shares pursuant to Accenture's registration statement on Form S-3 (the "registration statement"). The registration statement allows Accenture, at its option, to issue freely tradable Accenture plc Class A ordinary shares in lieu of cash upon redemptions of Accenture SCA Class I common shares held by current and former members of Accenture Leadership and their permitted transferees. For a complete description of all share purchase and redemption activity for the third quarter of fiscal 2014, see Part II, Item 2, "Unregistered Sales of Equity Securities and Use of Proceeds." Off-Balance Sheet Arrangements In the normal course of business and in conjunction with some client engagements, we have entered into contractual arrangements through which we may be obligated to indemnify clients with respect to certain matters. These arrangements with clients can include provisions whereby we have joint and several liability in relation to the performance of certain contractual obligations along with third parties also providing services and products for a specific project. In addition, our consulting arrangements may include warranty provisions that our solutions will substantially operate in accordance with the applicable system requirements. Indemnification provisions are also included in arrangements under which we agree to hold the indemnified party harmless with respect to third party claims related to such matters as title to assets sold or licensed or certain intellectual property rights. Typically, we have contractual recourse against third parties for certain payments made by us in connection with arrangements where third party nonperformance has given rise to the client's claim. Payments by us under any of the arrangements described above are generally conditioned on the client making a claim which may be disputed by us, typically under dispute resolution procedures specified in the particular arrangement. The limitations of liability under these arrangements may be expressly limited or may not be expressly specified in terms of time and/or amount. For arrangements with unspecified limitations, we cannot reasonably estimate the aggregate maximum potential liability, as it is inherently difficult to predict the maximum potential amount of such payments, due to the conditional nature and unique facts of each particular arrangement. To date, we have not been required to make any significant payment under any of the arrangements described above. For further discussion of these transactions, see Note 7 (Commitments and Contingencies) to our Consolidated Financial Statements under Item 1, "Financial Statements". Recently Adopted Accounting Pronouncement In September 2013, we adopted guidance issued by the Financial Accounting Standards Board ("FASB"), which requires enhanced disclosures about certain financial instruments and derivative instruments that are offset in the Consolidated Balance Sheets or that are subject to enforceable master netting arrangements. The guidance also requires the disclosure of the gross amounts subject to rights of offset, amounts of offset and the related net exposure. The adoption of this guidance did not have a material impact on our Consolidated Financial Statements. For additional information related to master netting arrangements, see Note 6 (Derivative Financial Instruments) to our Consolidated Financial Statements under Item 1, "Financial Statements". New Accounting Pronouncement On May 28, 2014, the FASB issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU is that an entity should recognize revenue for the transfer of goods or services equal to the amount that it expects to be entitled to receive for those goods or services. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments. The ASU will be effective for us beginning September 1, 2017, including interim periods in our fiscal year 2018, and allows for both retrospective and prospective methods of adoption. We are in the process of determining the method of adoption and assessing the impact of this ASU on our Consolidated Financial Statements.

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