Mail Stop 4561
February 15, 2006
Dennis Knapp
Chief Financial Officer
Avanade, Inc.
2211 Elliott Avenue, Suite 200
Seattle, Washington 98121
Re: Avanade, Inc.
Registration Statement on Form 10
Filed on January 20, 2006
File No. 0-51748
Dear Mr. Knapp:
We have reviewed the above filing and have the following
comments. Where indicated, we think you should revise your
document
in response to these comments. If you disagree, we will consider
your explanation as to why our comment is inapplicable or a
revision
is unnecessary. Please be as detailed as necessary in your
explanation. In some of our comments, we may ask you to provide
us
with supplemental information so we may better understand your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General Comments
1. Please note that the Form 10 goes effective by lapse of time 60
days after the date filed pursuant to Section 12(g)(1) of the
Securities Exchange Act of 1934. After that date, you will be
subject to the reporting requirements under Section 13(a) of the
Securities Exchange Act of 1934. In addition, we will continue to
review your filing until all of our comments have been addressed.
Item 1. Business - page 2
2. Please revise to indicate the measure whereby you determined
that
Avanade is a "leading" global technology consulting company.
Solutions - page 3
3. Please revise the disclosure found at bullet point three to
indicate briefly what an "enterprise-level" customer is. Likewise,
please briefly explain what an SAP system is.
Competition - page 4
4. To the extent they exist, please revise to indicate the
positive
and negative factors pertaining to the competitive position of
Avanade. Please refer to Item 101(c)(x) of Regulation S-K.
Item 1.A.-Risk Factors
Our results of operations are materially affected by economic
conditions, levels of business activity, and rates of change in
the
markets we serve - page 5
5. As currently drafted, this risk factor appears to be
sufficiently
generic as to apply to virtually any company within your industry.
Please revise to describe a risk particular to Avanade, or
consider
removing it. If you do retain this risk factor, please briefly
describe the uncertain conditions you reference in the first
sentence.
Our contracts can be terminated by our customers with short
notice,
or our customers may cancel or delay projects - page 8
6. As currently drafted, your risk factor heading is a statement
of
fact, and not of risk. Please revise the heading to include the
risk
attendant upon the ability of your customers to terminate
contracts
with short notice. Other risk factors needing similar revision
include:
* We currently have only a limited ability to protect our
important
intellectual property rights. - page 8
* Our services may infringe upon the intellectual property rights
of
others. - page 9
* We rely on Accenture for a primary source of our liquidity. -
page
9
* We rely on Accenture for a significant portion of our revenue. -
page 9
* Our global delivery network relies on Accenture. - page 10
* We are committed to using Microsoft-related technologies. - page
10
* All stock issued pursuant to awards granted under our stock
option
plans is subject to certain put rights. - page 11
Our business will be negatively affected if we are not able to
anticipate and keep pace with rapid changes in technology. - page
8
7. Please revise to describe, insofar as possible, the "negative
affect" upon Avanade`s business in the event you are unable to
keep
pace with rapid technological change. Likewise, insofar as
possible,
please revise to describe the "significant adverse effect" on your
liquidity in the event of the simultaneous exercise of put rights
disclosed under "All stock issued pursuant to awards granted under
our stock option plans is subject to certain put rights" on page
11.
Because we are controlled by Accenture, we have limited ability to
set our own independent strategies, and our business strategy and
direction may be dictated by Accenture`s overall business strategy
- -
page 9
8. Please disclose the size of your board.
9. Please revise to reconcile disclosure here indicating that
Accenture is the beneficial owner of approximately 93.1% of the
outstanding shares of Avanade with disclosure found under
"Microsoft
has certain minority rights, and may exercise those rights to
protect
its own interests" on page 12 indicating that Microsoft is the
beneficial owner of approximately 77.9% of the outstanding shares
of
Avanade.
Microsoft has certain minority rights, and may exercise those
rights
to protect its own interests. - page 10
10. Please disclose Microsoft`s board and observer rights.
Overview - page 12
11. Please revise paragraph 4 to quantify the portion of your
revenues derived from Accenture and Microsoft.
12. Please revise paragraph 6 to briefly define "vertical
integration."
Results of Operations, page 16
Year Ended September 30, 2005 Compared to Year Ended September 30,
2004, page 16
13. Your explanation for changes in operating expenses as a
percentage of revenue appears to indicate there was improvements
in
gross margins in 2005 however your discussion for costs of
services
clearly indicates that gross margins have decreased. Please revise
your disclosure to clarify this apparent discrepancy.
Liquidity and Capital Resources - page 20
14. Please revise to file the line of credit agreement with
Accenture
as an exhibit to your Form 10, or advise us why you believe it is
unnecessary to do so.
15. Please revise to state your cash balance as of the most recent
practicable date.
Obligations and Commitments, page 21
16. Please advise us what consideration you gave to including your
redeemable common stock and put rights in your table of
contractual
cash obligations required by Item 303(a)(5) of Regulation S-K.
Item 4. Security Ownership of Certain Beneficial Owners and
Management - page 23
17. Please revise the fourth column of the table ("% of Stock
Beneficially Owned") to comply with Instruction 1 to Item 403 of
Regulation S-K. In particular, it appears that securities that
are
deemed beneficially owned for Rule 13d-3 purposes have been
included
in the numerator but not the denominator of the percentage
calculation.
Item 5. Directors and Executive Officers - page 24
18. Please identify directors that have been appointed by
Accenture
or Microsoft. Refer to Item 401(a) of Regulation S-K.
Financial Protection Policy - page 29
19. Please briefly describe the definition of "Good Reason."
Common Stock
20. To the extent that the transfer restrictions you reference
comprise a material aspect of the common stock you are
registering,
please revise to describe the restrictions here, as opposed to the
cross reference you include at the conclusion of this section.
Item 13. Financial Statements and Supplementary Data, page F-1
Note 7 - Income Taxes, page F-18
21. Please explain to us how you evaluated the various factors
addressed in paragraphs 20 through 25 of SFAS 109 when determining
that a valuation allowance of $88,140 and $81,958 was appropriate
as
of September 30, 2004 and 2005, respectively. We note from review
of
this document that you have generated positive earnings in each of
the past two years. Additionally, we note your disclosure within
MD&A at pages 18 and 20 that in each of the past two years you
have
utilized net operating loss carryforwards for which no deferred
tax
benefit was previously recognized. Please also enhance you
disclosure in your Critical Accounting Policies and Estimates on
page
14 to clarify how you made your determination.
Exhibits
22. Please file a specimen stock certificate and any other
instruments defining the rights of security holders. Refer to
Item
601(b)(4) of Regulation S-K.
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested supplemental information.
Detailed cover letters greatly facilitate our review. Please
understand that we may have additional comments after reviewing
your
amendment and responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require.
Since the company and its management are in possession of all
facts
relating to a company`s disclosure, they are responsible for the
accuracy and adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments in the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Amanda Sledge, Accountant, at (202) 551-3473
or
Stephen Jacobs, Accounting Branch Chief, at (202) 551-3403 if you
have questions regarding comments on the financial statements and
related matters. Please contact Paul Fischer, Staff Attorney, at
(202) 551-3415 or the undersigned at (202) 551-3852 with any other
questions.
Sincerely,
Michael McTiernan
Special Counsel
cc: Michael Hermsen, Esq. (via facsimile)
??
??
??
??
Mr. Dennis Knapp
Avanade, Inc.
February 15, 2006
Page 6