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Operator
Ladies and gentlemen, thank you for standing by and welcome to the Accenture fourth quarter and full year fiscal 2003 earnings teleconference.
At this time, all participants are in a listen-only mode.
Later we will conduct a question and answer session.
If you wish to ask a question at that time, please press star and then one on your touchtone phone.
You will hear a tone indicating that you have been placed in queue and you may remove yourself from queue at any time by pressing the pound key.
If you should require operator assistance during the call, please press star and then zero and an operator will assist you.
As a remainder, this teleconference is being recorded.
I would now like to turn the conference over to Managing Partner of Investor Relations, Ms. Carol Meyer.
Carol Meyer - Director of Investors Relations
Thank you, operator thanks everyone for joining us today.
With me are Joe Forehand, Accenture Chairman and Chief Executive Officer and Harry You our CFO.
We are pleased that all of you are joining us on our FY ‘03 fourth quarter year-end earnings announcement.
By now I hope you had an opportunity to review the news release we issued earlier today.
As we progress through the call, Joe will provide you with his comments on the current market conditions, our overall results and key priorities and then Hairy will speak to the details numbers and we will save some time at the end for questions.
As a remainder, when we discuss revenues during today's call we will talk about revenues before reimbursements or net revenues.
Some of the matters we will discuss in this conference call are forward-looking and I would like to advise you that these forward-looking statements are subject to known and unknown risks and uncertainty that could cause actual results to differ materially from those expressed or implied by such statements.
Such risk and uncertainties are include but not limited to general economic conditions and those factor set forth in today's press release and discussed under then heading risk factors in our registration statement on file with the SEC.
Accenture assumes no obligation to update the information presented on this call.
But also on today's call our speakers will referencecertain non-GAAP financial measures which we believe provide useful information to investors and we will reconcile those measures to GAAP on the Investor Relations page of our web site.
So now let me turn it over to Joe.
Joe Forehand - Chairman and CEO
Thank you, Carol.
And good morning to everyone.
And thanks for joining us today.
I'd like to begin my comments with an overview of our fourth quarter and year-end results and then talk about the announcements we made last week regarding our high performance delivered positioning and strategy and after my remarks, Harry you will cover the financial details.
First in terms of fourth quarter year-end results overall we had a solid year financially despite continued dismal market conditions, pressures on pricing and margins.
I am extremely proud of the entire Accenture team around the world and want to acknowledge our people for their commitment for serving our client, and helping run a world class business.
Revenues for the fiscal year were $11.82 billion, an increase of 2% in U.S. dollars and decrease of 4% in local currency.
In the fourth quarter revenues were 3.02 billion an increase of 12% in U.S. dollars and increase of 5% in local currency.
This was our first double digit revenue increase since the IPO and our first positive local currency growth in five quarters and that's very encouraging to us.
Diluted earnings per share for the fiscal year were $1.05 compared to 56 cents for the prior fiscal year.
Diluted EPS for fourth quarter was 25 cents compared to 8 cents in the fourth quarter last year.
Operating income for the fiscal year was $1.55 billion, or 13.1% of net revenues.
Operating income for the fourth quarter was $350 million or 11.6% of net revenues.
We continue to be very pleased with our performance in out sourcing which grew 37% in U.S. dollars and 32% in local currency.
Over last year.
In fiscal year '03 outsourcing was 30% of our total revenue, up from 23% last fiscal year.
Although we had a 10% decline in consulting revenues during FY '03, we did achieve flat growth in consulting in U.S. dollars in the fourth quarter compared with the fourth quarter last year.
Harry will discuss our results in more detail by operating group.
Also very pleased with your cash flow growth in fiscal year '03.
Free cash flow was defined as operating cash flow net of property and equipment was $1.3 billion, which was up $501 million in the prior year.
Also we ended the year with $2.4 billion in cash, cash equivalents and restricted cash up $302 million from the third quarter.
Let me turn to new bookings for FY '03 in the fourth quarter, again which were very encouraging.
We finished the fiscal year with $16.1 billion in new bookings in the fourth quarter new becomes were $3.8 billion a 34% increase over the same period last year.
Our consulting new bookings in the fourth quarter were also strong.
An increase of 28% over the same period last year.
Overall in the fourth quarter we had sales -- four sales over $100 million each as well as another 10 in the range of $40 to $100 million each.
We are starting to see business volume increases as evidenced by the past two quarters of strong new bookings.
As I said, our investor and analyst conference and road show we see moderate overall recovery and good outsourcing growth.
We see some moderate pick up in business and technology spending although it varies by industry and geography.
The issue we are watching closely is whether the pickup is sustainable as particularly as we get into the January new budget cycles.
I also want to comment on the announcement we made with SAP on September 25 to jointly develop and deliver IT solutions for banks, and insurance companies worldwide.
We are excited about this.
We consider this to be a major move to differentiate Accenture in the marketplace and extend our long term relationship with SAP.
Under the agreement Accenture and SAP will team to sell a joint portfolio of solutions and services to financial services institutions.
We will become SAP's largest development partner for clients in banking and insurance.
We will also being the preferred integrator for our SAP's enterprise solutions for banking and insurance clients and we hold the exclusive multi-client license for SAP banking and insurance solutions.
We see this as a significant step in our global competitive position.
Finally, while I am on the topic of accomplishments or return for invested capital for FW '03 was 73%.
Which would rank us first relative to the S&P100.
We also invested nearly $400 million last year in revitalizing our training programs.
Despite the tough economic environment.
We created a new core curriculum for our consulting work force, more than 4,500 consultants had now attended.
Put together an overall leadership development program for our partners, which was now 1700 partners have gone through.
We are quipping our partners and employees with the tools and capabilities to compete in a rapidly changing market.
So that was FY '03.
Let's look ahead.
We have sound fundamentals including a strong balance sheet, a commitment to controlling cost, a good business prospects and most importantly the right people.
All of which will help us fuel continued growth in market leadership.
And so let's spend a few minutes talking about that which is the growth opportunity ahead.
Last week we held our annual partners meeting to discuss our growth strategy and new offerings to take to the market.
My partners and I left that meeting very enthusiastic about how we are evolving or strategy to help our clients become high performance businesses.
The partners also showed support for our new advertising campaign which features Tiger Woods.
Tiger is universally recognized as a contemporary definition of a high performer.
We are confident he will help us to accelerate the awareness of our new positioning.
Let me recap why this evolution to high performance is so important for us and also for our clients.
Our business strategy begins with our clients.
We believe our clients will face an increasingly complex environment in the years ahead that will require flexible strategies and the ability to manage both short term cycles as well as create long term growth.
So for the past six months we've had an effort underway to take our value based business outcome approach with clients to the next level.
And we started this effort by asking ourselves what makes and will make a great organization consistently perform above others in its industry?
So in response we have offered a new framework to understand high performance in business and in government as along with a methodology to help organizations become high performing.
We are also aligning our capabilities, our image activities and branding and our training so everyone in our company is focused on enabling high performance for our clients.
This evolution to high performance delivered is important for number of reasons.
It help us engage with more executives with our client, increase the range of issues, we can help them address.
It helps us reach a broader set of clients and increase our focus on business outcomes, helping clients perform at the next highest level.
And we also believe it raises the bar in our industry taking Accenture to a new and more differentiated position.
Underpinning our high performance delivered positioning, our three growth platforms which I referenced on last quarter's call.
Let me say a few words about each to explain how our strategy aimed at growth.
The first of these platform is to grow business consulting.
This is an area of expertise Accenture is known for.
This is what we do at the top of CEO agenda.
It draws upon our/ industry and service line capability.
Second is to extend our leadership and systems integration technology services.
This is about making sure we are the best at innovation in bringing technology enable business applications to our clients while also recognizing we need to meet client demands for lower delivery cost through our solutions work force and global delivery centers.
This platform is squarely focused on delivering more value to CIO.
The third growth platform is to accelerate business process outsourcing.
BPO continues to ignite new growth for us, extend the market for our services.
We established an early leadership position and rapidly expanding marketplace.
We double our BPO revenues in FY '03 and expect to do is same in FY '04.
So we believe we have a bold aspiration and strategy that builds on our strength and consulting technology in outsourcing.
We are also creating an edge to capitalize on demand for our high performance in the marketplace and continue to position Accenture in a class by itself.
Before I hand the Harry, I want to say and give a special thank you to our newest investors and those investors who also increased their positions in Accenture during our recent secondary offering.
We are pleased with the results of the offering and even more pleased to have you as our shareholders.
With that, let me turn the call over to Harry to give you more details behind our results.
Harry You - CFO
Thank you, Joe.
I will cover a lot of ground here so I thank you in advance for your patience to be more efficient on time, much of this material builds upon my and Joe's discussion at the investor and analyst conference we held in New York last month.
An audio cast of those presentations is available on our web site until October 24.
First I will go through our results for the fiscal year '03 and I will review our fourth quarter results.
In our second full year as a public company, we performed extremely well against our target especially in the face of one of the worst economic downturns and certainly the most serious tech recession of the last three decades.
Diluted earnings per share for fiscal year '03 with $1.05 which compares to 56 cents for fiscal year '02.
Fiscal year '02 diluted earnings per share included a loss of investment of 321 million or 28 cents per share and a real estate consolidation charge of $111 million or 7 cents per share.
Adjusting fiscal year 2002 for these items, pro-forma diluted EPS for fiscal year ’02 was 91 cents growing comparative for fiscal 2003 at 16%.
Net revenue for fiscal year '03 was 11.82 billion an increase of 2% in US dollars and decrease in 4% of local currency compared with fiscal year 2002.
Operating income for the full fiscal year was 1.551 billion or 13.1% of net revenue a growth of 12% over fiscal 2002 which totaled 1.385 billion or 12.0% of net revenue.
Fiscal year 2002 operating income included a $111 million real estate consolidation charge.
Absent this charge fiscal year 2002 operating income would have totaled 1.496 billion or 12.9% of net revenue and fiscal year 2003 growth would have been 4% over the adjusted 2002 operating income.
Absent severance of $161 million in fiscal year 2003.
FYO operating income would have totaled 1.712 billion or 14.5% of net revenue compared to 1.686 billion or 14.6% of net revenue in fiscal year 2002 absent 190 million of severance and $111 million of real estate consolidation cost.
In addition to these items absent variable compensation expense of 11 million in fiscal year 2003, fiscal year '03 operating income would have totaled 1.723 billion or 14.6% of net revenue compared to 1.791 billion or 15.5% of net revenue in fiscal year 2002 absent 105 million of variable compensation expense.
Although we continue to see pressures on our gross profit margin which represented 36.5% of net revenue for fiscal year 2003, compared to 40.4% of net revenues in 2002, due to our shift in our business mix toward outsourcing which carries lower gross margins particularly in the first year of new contracts.
However, we are able to grow our operating income and our operating margin by 20 basis points in fiscal year 2003 due to improved efficiencies in our selling, general, and administrative costs.
Our SG&A decreased 423 million or 13% from fiscal year 2002 and decreases as a percentage of net revenues from 27.5% to 23.3%.
These cost savings were due to year-over-year declines in facilities and technology spending of $143 million, bad debt expense of 100 million, business protection expense of $61 million, business and market development spending of $55 million and lower variable compensation within SG&A of 29 million.
Looking forward, we have at least another couple of years of continued efficiencies which partially reflects shifting to an inherently lower SG&A base relative to our growing outsourcing business.
I am very proud of our progress this year and I hope you recognize that we have worked hard to make ourselves for efficient.
Let me make a few more comments about our gross margin performance.
Absent severance cost impacted our costs of services line of 147 million for fiscal 2003 or gross margin was 37.7% of net revenue compared to 41.9% in fiscal 2002 absent $174 million of severance cost from the same basis.
When we strip out variable compensation expense that hits our costs of services line year on year $8 million in fiscal '03 and $74 million in fiscal '02 our FY '03 gross margin was 37.8% compared to 42.6% in fiscal '02.
Of this 480 basis points decline in our adjusted gross profit margin approximately $130 basis points of the decline is dew to the shift in our business mix and approximately 350 basis points is primarily attributable to early year margin compression on our outsourcing contract.
In fiscal '03 we incurred lower severance cost of 161 million compared to 190 million of severance in fiscal 2002.
We expect severance cost to continue in fiscal '04 however I want to emphasize future severance action do not reflect the underlying demand conditions but rather our desire to have the proper work force pyramid to support the business and manage performance related issues.
Also during 2003, we expanse $11 million in variable compensation expanse compared with 105 million in fiscal 2002.
As a result of the real estate consolidation charge we took in the fourth quarter of fiscal year 2002, operating expenses were 6 million less than they would have been otherwise for the fourth quarter of fiscal '03 and 33 million less for the full fiscal year 2003.
We are now starting to review our real estate requirements for the fiscal year 2004 for possible additional savings opportunity and I hope to be able to update you on that effort on our first quarter earnings call.
Our annual effective tax rate for fiscal year 2003 decreased 38.0% to 35.1% which reduced the provision for taxes by 47 million resulting in a 5 cent benefit to diluted earnings per share for the full fiscal year.
The reduction in the effective tax rate was primarily due to a reversal of previously accrued taxes the in third and fourth quarter following favorable settlement of certain prior year non-US income tax liability and lower than estimated non-U.S. withholding tax requirement.
Income before minority interest totaled $1.047 billion this fiscal year compared to 576 million in fiscal 2002.
As previously mentioned Fiscal year 2002 income before minority interest included 321 million loss on investments and 111 million real estate consolidation charge as well as corresponding tax benefit of 79 million.
Adjustments to these items fiscal year 2002 income before minority interest would have totaled $929 million and fiscal year 2003 income before minority interest would have increased 118 million or 13% over fiscal year 2002.
Consistent with previous quarters we are providing with you the calculations for core earnings as formulated by Standard & Poor’s.
The S&P core earnings calculations principally Reflects adjustments to add back minority interest includes stock options and related compensation expanse and excludes non-operational items such as net gains and losses on investments.
Accenture's core, 897 million or 90 cents per fully diluted share for fiscal year 2003, compared to 610 million or 60 cents for fully diluted share last year.
Accenture's core earnings per share of 90 cents compare with GAAP reported fully diluted earnings per share of $1.05 primarily reflecting the impact of employed stock options and share purchase plan expense.
We anticipate our GAAP earnings and S&P core residential will track more closely by fiscal year 2006 reflecting our strong quality of earnings and diminution in financial accounting importance of larger pre-IPO option grand to our employees.
One adjustment to SNP core earnings pension obligation has received a lot of media attention lately so I want to briefly comment on Accenture's defined benefit pension plan which Accenture maintains and administrators for certain non-partners in countries where we have a defined benefit plan.
The annual costs of these plans can be significantly affected by changes and assumptions and differences between expected and actual experience.
In 2003, pension expense increased 72 million compared with 53 million in 2002.
In 2004 for the U.S. pension plans we decreased our expected return on assets to 8%, actually a bit lower than the median U.S. large company assumption to be conservative and decreased our discount rates to 6%.
Our modest unfunded obligations provide us a source of competitive financial advantage in future performance against the industry.
Our projected pension benefit obligations ended fiscal year 2003 at 862 million.
We estimate the pension expense to increase to 118 million in fiscal year 2004 which is a 46 million increase over 2003.
We anticipate making cash contributions to various pension plans in the first half of this new fiscal year.
Let me describe our operating group performance in U.S. dollars.
Our government operating group led the way this year with revenues of 1.58 billion, an increase of 20% over fiscal year 2002.
This increase is primarily due to increased revenues from large outsourcing contracts in North America and western Europe which were slight offset by lower consulting revenues.
Our communications and high technical operating group delivered 3.29 billion in revenues an increase of 3% over fiscal ‘02, due to increased revenues from large outsourcing contract which offset lower consulting revenues.
Financial services revenues were $2.36 billion representing flat year on year growth primarily due to the continued impact of the economic downturn on the capital markets industry.
The resources operating group generated 1.97 billion in revenues a decrease of over 2% over fiscal year '02 mainly due to lower consulting revenues and weaknesses in the chemicals, energy, forest products and metals and minding industry groups which more than offset favorable currency translation and growth in the utilities industry group.
Our products operating group delivered revenues of $2.61 billion, a decrease of 3% primarily due to reductions in the retail industry group in Europe and decreases in the health services industry group.
In addition, our outsourcing business which represented 30% of net revenues or 3.57 billion in fiscal year '03 through 37% in U.S. dollars and 32% in local currency compared to fiscal year '03 where as consulting revenues which represented 67% of net revenue or 7.92 billion declined 10% in U.S. dollars and 16% in local currency compared to fiscal year '02.
The remaining 3% of net revenue represents revenue associated with certain consolidated businesses.
Beginning with our first quarter release of FY '04 all of our revenues will be classified and reported as either consulting or outsourcing revenue.
This is slight change from the way we shared our revenue performs with you today.
Approximately 3% of total revenue is related to certain consolidated company as you Avanade and Accenture HR services.
In FY ‘04 we will report their revenues in our related type of work as either consulting or outsourcing.
As a base line, using fiscal year '03 these companies in total delivered 335 million in revenue of which approximately 132 million is related to consulting revenue and 203 million is related to outsourcing revenue.
We continue to position ourselves to achieve a greater percentage of our revenue and growth through our business process outsourcing or BPO.
For fiscal year '03 our BPO revenue which as a reminder includes both consulting and outsourcing revenue reach $1.44 billion.
This was double the BPO revenue we reported for fiscal year '02 in our BPO revenue is now among the highest in our industry.
Since BPO is one of our strategic growth areas, going forward we will provide you visibility to our BPO revenue performance.
In fiscal year '03 we experienced significant effect from exchange rate movement.
Revenue growth in Europe increased 8% in U.S. dollars a decline in 6% in local currency for the full year ’03 as the U.S. dollar weakened significantly against all major currencies in Europe.
The Euro's relative strength against the U.S. dollar continues to significantly impact or reported European growth is over half of all revenue generated in our European business is denominated in Euro.
Most notably the Euro and the British pound appreciated 17% and 9% respectively against the dollar.
European revenues impacted by foreign currency movement year on year with revenue decline in Germany of 12% in local currency and growth of 3% in U.S. dollars.
Likewise, revenues declined in France by 7% in local currency yet grew 9% in U.S. dollars.
The UK declined 6% in local currency yet grew 4% in U.S. dollars and Italy declined 6% in local currency yet grew 10% in U.S. dollars while revenues in Spain grew 2% in local currency and 17% in U.S. dollars.
Asia-Pacific revenues grew by 2% in U.S. dollars but declined 3% in local currency primarily due to the depreciation of the Australian dollar and Japanese Yen.
Revenues in Japan grew 13 % in U.S. dollars, and 8% in local currency.
Finally our America's region reported a 3% revenue decline in U.S. dollars and 2% decline in local currency reflecting the strength of the U.S. dollar against the Mexican peso, Brazilian Real, and the Argentinean peso .
Contributing to Americas performance this fiscal year is a 4% revenue decline in the U.S. in both U.S. dollars and in local currency offset by growth in Canada of 60% in U.S. dollars and 50% in local currency.
Chargeability for the year totaled 79% an increase of 260 basis points over fiscal year '02.
Our chargeability breaks down as 78%, consulting work force chargeability and 84% solutions work force chargeability.
We have seen considerable improvements in most of our geography including the U.S., Canada, Latin America, UK, Ireland, France, Germany, Spain, Portugal, Japan and Southeast Asia over Last year.
New bookings for fiscal year ’03 were 16.1 billion which was in line with our target of 16 billion for the year and flat over fiscal year '02 new bookings.
The split between consulting and outsourcing new bookings was 52% and 48% respectively.
Consulting new booking declined 6% over last year, while outsourcing increased 8%.
Geographic 51% of new booking for the year were in the Americas, 43% were in Europe, Middle East and Africa, and 6% in Asia Pacific.
Our balance sheet remains strong with cash, cash equivalent and restricted cash totaling over 2.41 billion at the end of August, an increase of 1.02 billion over August 2002.
The $1 billion in cash generation in 2003 was source from $1.5 billion from cash from operations with favorable working capital movements and increased profits.
This was offset by a use of cash of 109 million in investing activities and use of cash of 492 million in financing primarily due to stock repurchases and the payment for the termination of our contract obligation with Anderson worldwide.
In addition we had a favorable effect from exchange rate on cash and cash equivalent of $103 million.
Debt totaled $60 million decrease of 7 million over August 2002.
We ended fiscal year 2003 with 336 million of client capital on our balance sheet, 203 million in current unbuild services and 133 million in non-current unbilled services a total increase of 70 million from the 265 million at August 2002.
Non-current unbilled services related to client capital only increased $26 million after having signed close to 8 billion in new books and outsourcing contracts as I mentioned before, these statistics highlight the difference of our transformational outsourcing and BPO model compared to infrastructure outsourcing.
Unbilled services, client receivables and deferred revenues increased 54 million, 86 million and 133 million respectively over August 2002 primarily driven by foreign exchange factors.
When you net these effects, there's an underlying increase in capital efficiency.
I am very pleased with our day services outsourcing, our DSO metric finished fiscal 2003 at 44 days or five days below last year's performance.
A 44 day DSO is clearly in a different space than the rest of our industry which operates in the 100 day plus range.
This performance is clearly a test amount to all of our partners and their efforts to end the year with solid results.
Our total non-investment grade inventory and receivables balance from our top 200 clients totaled 87 million in August of 2003 down 1 million from 88 million at May 31, 2003 and up 27 million from 60 million in August 2002.
Of these receivables, 42 million are over 1 month in age.
As I mentioned in the previous earnings call, we continue to be diligent in monitoring our client's credit quality and do not see an increase in risk of our receivables portfolio.
Operating cash for fiscal year ‘03 was 1.513 billion.
Free cash flow for the year net of capital expenditures of 212 million was 1.301 billion exceeding our target of 1 billion as we continued to be very parsimonious on PP&E expenditures and using capital for transformational outsourcing deals via our capital committee approval process.
Fiscal year '03 free cash flow increased 501 million over fiscal year '02 due to increased profits, net of non-cash items of 263 million, lower growth and client balances of 204 million, lower income tax payments of 297 million, lower capital expenditures on property and equipment, of 51 million, offset by a decrease in a group payroll and related benefits of 201 million and decreases in other assets and liabilities of 112 million.
As Joe mentioned our credit ratios and returns lead the industry with ROIC of 73% of the year, number one against the S&P 100.
ROA and ROE on leading 18% and 79% ranging third and fourth quarter against the S&P100 companies.
Our fiscal year revenue growth 2% in U.S. dollars ranked 67th against S&P 100 and our earnings per share growth for the year of 16% ranked 44th against the S&P 100.
Our E V.A. or economic value added was 9.5% of net revenue in fiscal year 2003 exceeding our target of 9.0% and slightly improved over fiscal 2002.
I am very pleased with our partners ability to take up our E V.A. maximization initiatives this year to become even more operational efficient and capital stingy than we were in a partnership.
In addition we were able to deliver financial results strengthening Accenture's shareholder value during a period of unusual economic duress and technology challenge.
Weighted average diluted shares outstanding for fiscal year '03 with 996.8 million compared to 1.024 billion for fiscal year '02 reflecting our continued commitment to our public share holders and partners not to be significantly dilutive if our financial performance does not warrant it.
Our head count in August 31, '03, stood at approximately 83,400, an increase of 8% over last year due to growth in our services and solutions work force.
Approximately 74,300 are billable head counts.
The billable head count breaks down across our different work forces as follows, consulting at 39,200, solutions at 11,000, and services at 24,100.
Support head count at August 31, 2003, was approximately 9,100.
Our attrition rate continues to be approximately 12%.
Let me now comment on our fourth quarter results which show some important signs of a business recovery.
Diluted earnings per share for the fourth quarter were 25 cents compared with 8 cents for the fourth quarter of fiscal year '02.
Diluted earnings per share for the fourth quarter fiscal year '02 included a real estate consolidation charge of 111 million or 7 cents per share and a loss on investments of 15 million or 1 penny per share.
Adjusting for these items the fourth quarter EPS of fiscal year '02 would have totaled 16 cents and fiscal year 2003 EPS growth would have been 58% over the adjusted 2002 earnings per share.
Net revenues for the fourth quarter were 3.02 billion an increase of 12% in U.S. dollars and 5% in local currency compared with 2.69 billion for the fourth quarter of fiscal year 2002.
This is the first quarter since the IPO that we have reached double digit growth as we are starting to see positive signals about where our business is headed.
Outsourcing accounted for 1.04 billion of net revenues, growth of 41% in U.S. dollars and 33% in local currency over the fourth quarter of last year.
All five of our operating groups reported double digit outsourcing growth this period.
Consulting revenues accounted for 1.87 billion of net revenues and break even to last year's fourth quarter and U.S. dollar turn and the decline of 8% in local currency over the fourth quarter of last year.
In U.S. dollar terms all five operating groups posted positive revenue growth over the fourth quarter of last year.
Our government operating group grew by 35% in the fourth quarter due to strong growth in both consulting and outsourcing.
Resources increased 17% over the fourth quarter of last fiscal year, primarily due to solid growth in utilities and energy industry group partially offset by declines in chemicals, forest products and metals and minding industry group.
Our products offering group increased by 9% led by growth in the pharmaceuticals and medical products industry group and increased outsourcing revenue across most of the other product industry group.
Our financial services operating group increased 7% in the fourth quarter due to growth in our banking and insurance industry group primarily associated with outsourcing contracts.
Our communications and high technical operating group increased 6% over the fourth quarter of last fiscal year due to favorable outsourcing revenues and currency transaction.
European revenues for the fourth quarter increased 20% in U.S. dollars and 3% in local currency.
The first quarter of a favorable local currency growth since May 2002 which is a strong testament to the strength and hard work of our partners in Europe and the franchise that they have built in the key countries in Europe.
European revenues primarily impacted by foreign currency movements year on year with local -- excuse me, with revenues growth in the UK of 10% in local currency and 20% in U.S. dollars, growth in Spain of 13% in local currency and 34% in U.S. dollars, growth in France of 4% in local currency and 25% in U.S. dollars.?
And finally in Germany our business declined 5% in local currency which for the past four quarters has been at a progressively lesser rate of decline each quarter and which grew at 14% in U.S. dollars.
Italy decline in 1% in local currency a growth of 19% in U.S. dollars.
Revenues in Asia-Pacific increased 8% in U.S. dollars and 2% in local currency reflecting the strength of the Austria dollar.
Most notably Australia’s revenue decline by 12% in local currency but grew 3% in U.S. dollars first time we have seen favorable U.S. dollar growth in Australia since the time of the IPO.
The Americas increased 6% in both U.S. dollars and local currency.
Operating income for the fourth quarter was 350 million or 11.6% of net revenue compared to $148 million or 5.5% of net revenue for the same quarter last year.
Absent the real estate consolidation charge of $111 million, operating income for fiscal year 2002 would have totaled 258 million or 9.6% of net revenue.
In addition, absent severance of 32 million in the fourth quarter of 2003, Q4 '03 operating income would have totaled $382 million or 12.7% of net revenue compared to $351 million in the fourth quarter of '02 absent $93 million of severance representing 13.0% of net revenue.
As you can see, our business can show tremendous increases in operating leverage when conditions improve.
Gross margin for the fourth quarter was 34.4% of net revenue compared with 39.5% of the fourth quarter last fiscal year.
Absent severance costs of 32 million in the fourth quarter of '03, gross margin was 35.5% of net revenue compared to 38.7% in the fourth quarter of '02 absent 77 million of severance costs that hit our costs of services line and credit of 98 million for the reversal of prior fiscal '02 variable compensation.
Of the 320 basis points adjusted gross margin decline, approximately 100 basis points is attributable to business makeshift and 220 basis points is primarily due to early year margin compression on outsourcing contracts.
As we mentioned at the analyst meeting consulting pricing improved in the fourth quarter and first year outsourcing margins have improved in the last two months.
The decline was more than offset by 115 million of improved fishes in the fourth quarter '03 and selling and general administrative costs primarily due to decreases of 27 million in facilities and technology costs, 14 million in bad debt expense, 13 million in business and market development spending and 9 million in business protection expenses.
Chargeability for the fourth quarter totaled 81% an increase of over 400 basis points over the same quarter last year.
Our charge ability breaks down as 80% consulting work force chargeability and 87% solutions work force chargeability.
We have seen considerable improvements across most of our geography.
New bookings for the fourth quarter were 3.75 billion, an increase of 34% over the same quarter last fiscal year.
Consulting new bookings totaled 2.04 billion, an increase of 28% over the same quarter last fiscal year providing 2 consecutive quarters of positive growth.
Outsourcing new bookings totaled 1.72 billion, an increase of 43% over the same quarter last fiscal year.
Operating cash flow for the fourth quarter was 434 million compared to an impressive 517 million for the fourth quarter of last fiscal year.
Free cash flow for the fourth quarter defined as operating cash flow less property and equipment additions of 78 million was 356 million a decrease of 53 million over the fourth quarter of last fiscal year.
I think we did a much better job over the course of this last fiscal year in terms of being balance sheet efficient throughout the year and continuing to make improvements as highlighted by our DSO's at 44 days.
Let me now comment on the secondary offering that we executed last month.
Accenture limited sold 57.4 million class A common shares and our partners, former partners and their permitted transferees sold 24.6 million class A common shares all at a price to the public of $21.
Additionally, our underwriters exercised the purchase additional 12.3 million class A common shares from Accenture to cover over allotment at the same price.
Accenture intensity use proceeds from sale of shares to acquire or redeem a comparable number of Accenture SCA class 1 common shares and Accenture Canada holdings exchangeable shares held by current partners, former partners and their permitted transferee.
We currently have underway a tender offer to the shareholders of Accenture SCA we expect will result in the purchase or redemption of numbers of shares similar to the number of shares Accenture issued and sold in the secondary offering.
Joe and I along with our partners are very pleased both with the execution of the secondary offering and investors confidence and understanding of our share management plan.
We added 134 new institutional investors during this offering and increased our European ownership and European investors participated in 11% of the offering.
After giving effect to all transactions related to the recent primarily and secondary offering including application of the underwriters over allotment option our active partners will control approximately 46% of Accenture's outstanding share.
As we move into fiscal year 2004, Joe and I continue to be committed to balance sheet quality and being in a position of industry leadership with strong cash flow, cash balances, and virtually no debt.
Our industry leadership on key credit and cash flow ratios continue as we operated a triple A level.
We're targeting property and equipment additions for fiscal year '04 to be 300 million and free cash flow as we define it as 1.3 to 1.5 billion which would represent 15% growth apples to apples over free cash flow for fiscal year '03 taking into account our current assumption of the contribution to cash flow for fiscal year '04 from infrequent and non-recurring items will be comparable to the 130 million contributed by such items in fiscal year '03.
We continue to think that by providing more visibility on free cash flow and reconciling to operating cash flow and future quarters we can provide another consistent metric for which the quality of our business may be monitored.
We will continue to grow our cash balances in fiscal year '04 for several purposes.
First of all, having solid cash and cash flow is we feel a good defense mechanism relevant to the vagaries of the global economy and our industry.
We would like to keep an extra cushion of cash as future secondary offering contingency holding our cash for another year or so as a protection against a potential of low performing equity markets so we can provide our partners with liquidity and not disrupt the stock price performance that all of our investors deserve.
Also, as we increase our cash, we expect to continue to repurchase shares as we have done in the past.
And with greater repurchase of shares we may give more share grants for our younger partners and other high performing partners and non-partners.
This is critically important to us to ensure that we reward the next generation of Accenture leaders so they have the same equity culture of that of our pre-IPO partners.
We would give greater grants in a generally non-dilutive manner.
Also, at some point in the future, we may consider paying a dividend although the earliest this could occur would be fiscal year 2005 because of foreign personal holding company issues are constrained that we have on our U.S. shareholders and our partners qualification for the benefit under President Bush's recent dividend tax change.
In addition we will continue to look at tactic M&A with very stringent criteria.
Ideally we look for deals to be GAAP EPS accretive with in a year as well to be cash-flow accretive.
We also target companies that have similar financial characteristics to us which is not an easy thing but we certainly do not want to dilute the financial performance of Accenture.
Over the past 14 years, we have grown revenue per annum 17%, all organically and although we can continue to do it organically we don't want to miss out any tactical opportunities especially on a consolidating industry if they generally meet our criteria.
We are still committed to financial targets we mentioned over two years ago at our IPO.
First and foremost we want you to feel that as shareholder of Accenture you are truly our partner in the very special high performing business that is our firm.
Second, we want to deliver revenues growth that exceeds that of our industry.
Next, we want to maintain and hopefully enhance our operating margin.
Fourth ,we will strive to have long term EPS growth in the low to mid teens consistent with the 15% EPS growth we have had over the last four years.
Finally, we want to continue our position of industry leadership relative to key credit and cash flow ratio.
On our financial trajectory, let me reiterate what we mentioned at our analyst meeting and on the road show for the recent secondary offering.
At our recent partner meeting, we again challenged our partners to grow and manage our business in fiscal year '04 at our above the dollar 10 EPS benchmark for fiscal '04.
Therefore the $1.10 is not guidance for fiscal year ’04 because of various accounting changes, but we are hoping to achieve better than $1.10 in addition to accruing variable compensation.
The $1.10 internal benchmark may change somewhat to receive the client reaction 00-21 although the magnitude of change will be likely to be small as clients appear to be initially receptive and flexible.
It is increasingly less likely that the $1.10 will change because of new options accounting rules in the current fiscal year.
As we mentioned in the analysts meeting we need to pay our people.
We have given payroll increases totaling over 200 million to our non-partners.
Part of running a premiere professionals services firm is to keep the compensation of our main asset, our people, competitive.
At the same time, our partners have cut 72 million from the base salary to fund the good portion of these raises.
Should our business continue to improve, management in our board of directors will try to achieve top cortile operating earnings performance relative to the peers in our proxy as well as trying to exceed the operating earnings performance of the S&P 500.
Our partners are individually large shareholders and driven to achieving shareholder value in addition to setting a good example as a high performing business.
Earnings growth we hope will accelerate as the year progresses as projected utilization increases and pyramid benefits more then offset the compensation increases.
We have also targeted continued SG&A reduction to compensate for higher pension, insurance, and health benefit costs.
Severance will continue to decrease and we hope to bring significant cost efficiencies from our critical mass of outsourcing contract.
Underlying all this is our confidence that we can grow free cash flow by at least 15% to a reported level including some one time item of 1.5 billion.
Relative to the fiscal year first quarter of fiscal year 2004 we expect earnings per share to come in between 27 and 28 cents, this takes into account the fact that there is almost a penny earnings per share dilution because there are temporarily a greater number of shares outstanding in this quarter due to the tender offer related to the secondary.
We are comfortable with the analysts consensus for first quarter revenue of 3.09 billion.
As a matter of housekeeping, the dates of our earnings release for this fiscal year will be January 13, April 13 and July 14.
In summary, business continues to improve at a low and steady pace consistent with what we described in our analysts meeting.
Pricing may be improving but it is still quite volatile.
We are winning a larger share of business but each deal is hard fought and well earned.
Metaphorically fiscal year 2003 have a difficulty but good result of Tiger Woods 2002 yard three iron bunker shot at PGA last year in the second round.
This year we face a 200 yard iron shot which fortunately is from the fair way but to a hard and fast green.
With 83,000 men and women of Accenture dedicated to serving the best group of clients in the industry and dedicated to delivering high performance, we are confident that we will be in a position for a birdie putt later this fiscal year where possible result could very well make both you and tiger smile.
Along with Joe, I welcome our new public shareholders and partners.
For those of you who are just initiating your relationship with us, please don't hesitate to call Carol Meyer or her investors team or myself if we can be helpful.
Thank you again for your support and Operator, why don't we open it up for questions.
Operator
Thank you.
Once again, ladies and gentlemen, if you have a question or a comment, please present star and then one on your touchtone phone.
The first line will open as the line of Gregory Gold (ph) from Goldman Sachs, please go ahead.
Gregory Gold - Analyst
Thanks Harry on the adoption of EITF021in the discussion you had with clients, over the last couple of months have you seen any push back in structuring the contracts in a way that's favorable or Accenture?
Harry You - CFO
No, Greg.
As I mentioned, clients appear to be very receptive and flexible.
To reiterate, we've always focused on recognizing revenue when we can bill and collect actual cash and when our clients are comfortable to pay us they are also quite empathetic relative to allowing us to recognize revenue.
As you recall from the analysts meeting also, Greg, if you look at the cumulative 115 million of revenue impact from ITF000-21, 86 million of the 115 million resided in our government operating group and so there will be much less flexibility in the government operating group but so far our commercial clients are very receptive as I mentioned earlier.
Gregory Gold - Analyst
Okay.
And on the gross margin outlook for fiscal '04, particularly for the first quarter, given the numbers you mentioned on revenue and EPS, should the gross margin be up sequentially?
Certainly for seasonal reasons but can you give us a little bit more detail around a range of expectations for Q1.
Harry You - CFO
Well, I think, Greg, we've never really commented before on gross margin.
We focused on operating margin and so we will be looking at year-over-year comparison on that most intimately.
Sequentially, gross margin will, of course, improve from fourth quarter to first quarter but I think people should expect in the first quarter there will be some depressing effect of mix on gross margin as outsourcing continues to increase and I think there is volatility as I mentioned with regard to consulting pricing which recently is improving but was quite volatile so it is very difficult to make a prediction but ultimately how our management team and all our partners is operating the business is to, you know, get to an acceptable EBITDA margin which is consistent with the target or range that we described.
Gregory Gold - Analyst
Okay.
One last question.
The currency impact as you can estimate it right now for the first quarter, should it be about the same benefit as the fourth quarter?
Harry You - CFO
It's about the same.
Currency's been pretty volatile as well.
It looks like in the month of September we, you know, probably had about a 5% benefit maybe a little bit higher.
Gregory Gold - Analyst
Okay.
Thanks.
Operator
The next line will open as the line of David Togut (ph) at Morgan Stanley.
Please go ahead.
David Togut - Analyst
Thanks.
Harry and Joe, comment on the new business pipeline both in consulting and outsourcing and to the extent possible you address trends, both by operating unit and geography.
Joe Forehand - Chairman and CEO
Yeah.
Thanks, David.
I think as we look at the overall opportunities as we see them, they're generally consistent with what we've seen for really the last couple of quarters.
You know, if you look at trajectory of outsourcing continues to be very strong.
Outsourcing itself does generate some consulting demand and consulting seems to be holding steady.
The best general categorization is the pipeline generally is consistent with what we've seen for the last couple of quarters.
As we look at it by industry and geography, the pipeline in the Americas in particularly the U.S. is encouraging as we see some of the economic recovery in the U.S.
Europe I think overall economic conditions are slightly improving but still I think are going to lag as we see the U.S. but I think our strong results from Europe is just largely reflection of increasing market share in Europe particularly given the strength of our operations in Europe historically as well as today.
If we look at outsourcing, it's starting to be some take up in Europe, particularly continental Europe.
If we look at industries, I think overall we are still very bullish on government, you know, across the board and in terms of just continuing to do operating in a stellar fashion in terms of the pipeline and bookings.
I think resources seems to be bottoming out and looking slightly more positive particularly in utilities as we look forward and financial services I think particularly in the U.S. is coming back, although capital markets are still somewhat weak.
And Europe and financial services is holding its own.
Products I think is steady and is we've got a good pipeline as well particularly in consulting.
CNHT is building off of a strong base in terms of what we've done with BPO and CNHT.
It is hard to see the robustness of consulting coming back in CNHT perhaps as quickly as what we are seeing in resources and financial services.
So that's a little bit of a quick snapshot.
David Togut - Analyst
As you look out perceptively at pricing, particularly for the longer sales cycle transactions, are you seeing any change in pricing versus current trends?
Joe Forehand - Chairman and CEO
Only modestly and it is it is still very voluntary volatile.
In some cases we are able to do slightly better but as we commented back in our investor conference, we have not built into our assumptions that we will see any improvement in pricing.
For the next six to nine months and it is hard to see.
We're seeing although the business volume start to pick up a little bit, I think it is like most typical recoveries we will see volume come back, capacity get absorbed and then some better elasticity of pricing but I think that is still frankly toward the back half of our fiscal year is before we will see any -- anything that we can feel like sustainable there.
David Togut - Analyst
Okay.
Thank you.
Operator
Thank you.
Next line will open as the line of Adam Frisch (ph) at UBS.
Please go ahead.
Adam Frisch - Analyst
Thanks.
Good morning, guys.
You mentioned that you are going to determine how much of the -- how many of how much of your earnings based on you are going to measure the progress of our earnings growth guess based on being in the top of the peer group.
There are a lot of peers in that group being politically correct would be to say financially challenged at the moment.
How do you look at that versus the S&P or the Dow or how the NASDAQ have been overturning balance those measurements against what you think the expectations are of your investors.
Harry You - CFO
Well, I think, Adam, it is a good question and our compensation committee and our management team have worked on a long series of guidelines immediately after our IPO two years ago in terms of how you correctly measure operating earnings performance not only of Accenture but the seven peers in our proxy to, you know, take into account one time impacts and charges and, you know, other things that you would probably do to analyze true operating performance.
Then because of your point and just because we were very sensitive to our shareholders and on how all of you analyze and look at us as well as our drive to truly deliver high performance, we benchmark our performance against operating earnings in the S&P-500 because we do feel that we are now in areas of business that few, if any, in our industry can match and more broadly we know that your client base Adam is having benchmarks or metrics on performance relative to the S&P-500.
So we will be looking at both the industry and the broader, you know, U.S. listed companies as guidelines for making sure that we deliver shareholder returns to our public shareholders at the same time it's admittedly a delicate balance as Joe and I have mentioned in the past to make sure we are doing compensation right for our main assets which is our people.
Joe Forehand - Chairman and CEO
Adam, I would add as we look at the year when we finish next August if we hit our 16 to 18 billion in new bookings if we can get to 5 to 10% top line growth, keep our operating margins in the mid teens, get cash flow growth at 15% and deliver some higher variable comp to our people, I think that will be tremendous win for all of our shareholders.
Adam Frisch - Analyst
Thanks for those answers guys.
In terms of the EPS guidance one of the reasons you decided not to giving guidance was accounting regulations of uncertainties and other things.
And Harry the press release was consistent with your comments of 0021 wouldn't be that material, maybe a couple pennies at best.
What else is out there, either accounting or otherwise, could be a large enough delta making you hold back giving at least range for EPS fiscal '04.
Harry You - CFO
We want to be cautious and circumspect at 0021.
As we mentioned at the analyst meeting Adam, while the impact appears to be small I think we didn't want to get into an uncomfortable position where we might get overly fixated on, you know, GAAP EPS versus, you know, doing the right thing to maximize free cash flow and shareholder value relative to a particular large contract or contracts where we might not get flexibility from clients relative to 00-21 so I think we want to see how it progresses.
I think over time, you know, he will get a better sense how comfortable clients are and over time clients will get, I believe, more comfortable but at this point I think it's worth being cautious and it also I think makes sense not to, you know, let ourselves have expectations, you know, possibly get out of line with what accounting realities might be.
But once again underlying all of this is our belief that free cash flow is going to grow 15% and the good shot that we have at double digit top line growth which will, you know, show meaningful improvement in where we feel the business is.
Adam Frisch - Analyst
Would you consider giving a range as we get further into the year and you get more comfortable with 0021.
Harry You - CFO
That could, you know, very well be possible, Adam, yes.
Joe Forehand - Chairman and CEO
I will just bring this to life a minutes.
We had a capital commit meeting this week as we go through all the pipeline of deals and big deals and there is one we talked through that was unclear whether we will get with the client the segmentation of our contracts and we look at it all the economic indicators were good in terms of cash flow growth and we didn't want to let the 0021 stand in the way of, you know, the good deal economics in terms of how to go forward.
We are still hope fell we can get it segmented.
We don't want to walk away from good business.
It got good cash flow.
Harry You - CFO
Your question's a very good one, Adam.
Underlying the answer to your question is a [settelty] because we are a people based business there's an opportunity cost relative to our People's time and the projects they are working on and, you know, life always has to complexity of these contracts or opportunities don't present themselves all at once.
They come sequentially and so we need to make business judgments or calls as the year progresses and as these contracts and opportunities emerge with us and so, therefore, it didn't make sense to have a, you know, four quarter target, you know, rather than making sure that as Joe just eluded that contract by contract we did the smart thing for our shareholders.
Adam Frisch - Analyst
Okay.
Last question here.
Operating margin on the BPO side, understand that there is a ramp up associate wd newer deals.
It seems like you guys are doing newer deals and new spaces so you haven't been able to leverage it there.
Can you quantify when we are going to see the one to many model where you guys from doing more deals in the same spaces or getting some leverage on what you are kind of pioneering I guess in the last 12 months would be a good way to put it.
Harry You - CFO
There is going to be a timing trade off on these two factors.
Jack Wilson our partners in the BPO area as well as in the other outsourcing areas are committed to significantly lowering costs of services as well as SG&A costs relative to these contracts.
At the same time, Joe and I hope we are going to continue to grow these businesses, too, and what we are balancing is, you know, getting cost consolidation and that's going to be happening forthwith but at the same time we are going to grow the business but how we look at it internally is we want to make sure that we can get cost savings that at least fund the new business growth and certainly we'd like to show some cost savings that show some, you know, margin expansion but I think right now we are at the phase where the strategic importance of getting critical mass in some of these new areas as you described is paramount and we want to make sure we don't miss that and once again not be, you know, too fixated on the short term operating performance but rest assured we are going to maintain our operating margins.
Once again we are only going to, you know, grow with what we can fund through cost savings and it certainly adds an extra imperative or, you know, sense of desire for us to get the cost savings you describe.
Adam Frisch - Analyst
Okay.
Joe Forehand - Chairman and CEO
I want to add, Adam, too, just because of the integrated nature of our services through operating groups that, you know, we have to be careful not to look at these lines of business just on their own because, for example, some of the one to many BPO deals often stimulate demand for consulting so we have to look at it holistically in terms of how we think through our business.
Adam Frisch - Analyst
Okay.
Thanks, guys.
Carol Meyer - Director of Investors Relations
Operating I think we have time for one more question, please.
Operator
Thank you, our last question will come from the line of Lou Mersosico (ph) with Lehman Brothers.
Please go ahead.
Lou Mersosico - Analyst
Okay thank you I am not sure if I herd but can you mention where you are in utilization level.
And in this industry if you have people that are not being used and sitting on the beach as saying goes and put back in and put to work how much leverage can that give you and how long do you think it might take to maybe add, you know, five points or ten points of utilization.
Joe Forehand - Chairman and CEO
Right now Lou as I mentioned a run rate of about 81% utilization.
We'd like as the business cycle improves to go up anywhere from 300 to 500 basis points.
Each 100 basis points annualized has about 70 million of operating income benefit or impact to us.
But there is a structural limit in terms of how high you can push utilization.
We continue to push that bar higher and higher but I wouldn't characterize the total potential as, you know, 5 to 10%.
It is really several hundred basis points and you do have to look at annualized impact.
What we saw in the last year improving utilization by 400 basis points that would certainly be a great outcome for this year but I think, you know, we will certainly update you in terms of where we see the structural or capacity limits at the same time it does take time because it entails, you know, the further up you get on the utilization curve getting to geographies that are lower utilization having those improve as well as different industry segments.
So there is I think a diminishing return characteristic as utilization increases but we are still at the early phase of economic recovery here.
So the potential as I mentioned relative to what you just saw in the fourth quarter results potential for operating leverage is significant.
Harry You - CFO
I might add the management paradox on utilization is you can also manage utilization higher by stop hiring new people and eliminating growth.
Its always the balance as we look particularly on a time as we think through the end of next year on the net billable head count we think will be about 7,000 more.
The fact that we are hiring there is some ramp up on utilization that hits us, too.
That's another factor as we have to think about it.
Lou Mersosico - Analyst
Okay.
On the 70 million, that generally would equate to 5 cents on the bottom line.
Harry You - CFO
Yes, a little less than 5 cents.
You are correct, Lou.
Lou Mersosico - Analyst
Second question the $1.10 that we talked about.
Let's say the year progresses well and I heard your comments about possibly hopefully an acceleration in the second half, if we were going to be optimistic and assume some of the stuff kicks back in you have commented a sharing between the shareholders and the actual partners because they've obviously foregone bonuses for quite a while.
Would you think the split maybe 50/50, 70/30 maybe favoring one group over the other.
Joe Forehand - Chairman and CEO
We are very pragmatic, you know, looking at how the benefits are shared.
First and foremost, our partners are the most significant shareholders groups so they are very concerned about maximizing shareholder value and delivering high performance financially so we will look at the trade off but once again we have metrics relative to our peer group as well as to the S&P-500 and we'll make sure that we're suitably outperforming if our numbers give us the basis to make the trade off.
So I think it is really hard Lou to think of it as an income split, you know, because we are also trying to optimize the cash flow metrics, the balance sheet metrics relative to our other stake holders and the rating agencies so it's a little bit like a complex linear programming.
It is really hard to give the coefficient on one equation.
We are trying to solve multiple equations and we think we have done that very well in the last nine quarters and we will continue to make sure that we continue to have the public shareholders trusts on how we adjudicate all the trade offs and balances throughout the coming look.
Lou Mersosico - Analyst
We should not look at 1.10 as a cap but starting point as we go through the year.
Harry You - CFO
As I mentioned the $1.10 is the beverage mark for the accrual of variable comp.
You can look at it as positively possibly the cost savings and leverage we described in the analyst meeting as a level of performance which we are very confident to at least achieving but, you know, above and beyond that, there are accounting issues and I think Joe and I as all of you know and appreciate are, you know, we will want to continue to be cautious and conservative in terms of predicting the global economy.
We are certainly in much better shape than we were a year ago but I don't think anyone would say that the global economy is robust right now either.
Lou Mersosico - Analyst
Final quick question from last year.
The interest expense line seems to being high.
I am curious whether there are other things in there given your debt is pretty low.
Harry You - CFO
Not really.
We can follow up with you Lou, and I can give you a breakdown on that.
There's some FX related stuff and other issues that are, you know, anemones rather than anything else that people should focus on for longer term.
Lou Mersosico - Analyst
Good look on the year.
Harry You - CFO
Thank you.
Joe Forehand - Chairman and CEO
Okay.
Let me close.
I want to thank you all for your questions.
Also, I want you to know that our partners and our people are ready to grow this business and FY '04.
We are ready to deliver high performance to our clients and continue to outperform our competition.
We have the right strategy, the right people, a bold new market positioning that will set us party and again thanks for joining us.
Operator
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