##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
  Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED
    MARCH 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
    FROM          
    TO   Commission File Number:
    000-51748
  AVANADE INC.
 (Exact name of Registrant as
    specified in its charter)
  Washington(State or other
    jurisdiction of
    incorporation or organization)

91-2032865(I.R.S. Employer
    Identification No.)   2211 Elliott Avenue, Suite 200
 Seattle, Washington 98121
 (Address of principal executive
    offices)
  (206) 239-5600
 (Registrants telephone
    number, including area code)
  o þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




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##### 



AVANADE
    INC.
  INDEX
  
  PagePart I.


Financial
    Information


3Item 1.


Financial
    Statements


3Consolidated
    Balance Sheets as of March 31, 2006 (unaudited) and
    September 30, 2005


3Consolidated Income
    Statements (unaudited) for the three and six months ended
    March 31, 2006 and 2005


4Consolidated
    Stockholders Equity and Comprehensive Income Statements
    (unaudited) for the six months ended March 31, 2006


5Consolidated Cash
    Flows Statements (unaudited) for the six months ended
    March 31, 2006 and 2005


6Notes to
    Consolidated Financial Statements (unaudited)


7Item 2.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


16Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


26Item 4.


Controls and
    Procedures


26Part II.


Other
    Information


26Item 1.


Legal
    Proceedings


26Item 2.


Unregistered Sales
    of Equity Securities and Use of Proceeds; Issuer Purchases of
    Equity Securities


27Item 3.


Defaults upon
    Senior Securities


27Item 4.


Submission of
    Matters to a Vote of Security Holders


27Item 5.


Other
    Information


27Item 6.


Exhibits


28Signatures


29CertificationCertificationCertification   2




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##### Table of Contents



PART I  FINANCIAL
    INFORMATION ITEM 1.  FINANCIAL
    STATEMENTS  AVANADE
    INC.
 CONSOLIDATED BALANCE SHEETS

March 31, 2006 and September 30, 2005

(In thousands of U.S. dollars, except share and per
    share amounts) March 31,


September 30,2006


2005(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
49,804


$
55,256Receivables from clients, net of
    allowances of $1,698 and $1,042, respectively


16,521



16,125Due from related parties


47,690



43,433Unbilled services to clients


15,482



14,421Unbilled services to related parties


29,631



18,580Deferred income taxes, net


443



450Other current assets


6,594



4,647Total current assets


166,165



152,912NON-CURRENT ASSETS:Restricted cash equivalents


225



278Property and equipment, net of
    accumulated depreciation of $33,025 and $29,917, respectively


11,257



11,084Goodwill


11,975



11,975Other intangible assets, net of
    accumulated amortization of $3,741 and $3,092, respectively


1,791



2,440Deferred income taxes, net


116



117Other non-current assets


863



668Total non-current assets


26,227



26,562TOTAL ASSETS

$
192,392


$
179,474LIABILITIES AND
    STOCKHOLDERS EQUITYCURRENT LIABILITIES:Due to related parties

$
6,416


$
6,654Accounts payable


10,653



12,748Deferred revenues


3,824



2,737Accrued payroll and related benefits


32,939



30,177Accrued expenses


12,838



14,259Income taxes payable


4,150



6,801Other accrued liabilities


581



283Total current liabilities


71,401



73,659NON-CURRENT
    LIABILITIES:


665



780COMMITMENTS AND
    CONTINGENCIESREDEEMABLE COMMON STOCK AND
    EMPLOYEE STOCK OPTIONS


101,485



75,380STOCKHOLDERS
    EQUITY:Convertible Series A preferred
    stock, par value of $0.0001 per share (aggregate
    liquidation preference of $587,329 as of March 31, 2006 and
    September 30, 2005), 105,000,000 shares authorized;
    74,750,903 shares issued and outstanding as of
    March 31, 2006 and September 30, 2005, respectively


7



7Common stock, par value
    $0.0001 per share, 150,000,000 shares authorized;
    4,349,098 and 2,891,313 shares outstanding as of
    March 31, 2006 and September 30, 2005, respectively






Additional
    paid-in-capital


205,071



226,654Deferred share-based compensation






(1,728
)Notes receivable from exercise of
    stock options


(2,165
)


Accumulated deficit


(190,947
)


(201,073
)Accumulated other comprehensive
    income


6,875



5,795Total stockholders equity


18,841



29,655TOTAL LIABILITIES AND
    STOCKHOLDERS EQUITY

$
192,392


$
179,474    3




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##### Table of Contents



AVANADE
    INC.
 CONSOLIDATED INCOME STATEMENTS

For the Three and Six Months Ended March 31, 2006
    and 2005

(In thousands of U.S. dollars, except share and per
    share amounts)

(Unaudited) Three Months Ended
    March 31,


Six Months Ended
    March 31,2006


2005


2006


2005REVENUES:Revenues before reimbursements:Related parties

$
86,703


$
73,831


$
162,634


$
140,087Other


31,514



20,216



58,779



40,541118,217



94,047



221,413



180,628Reimbursements:Related parties


4,265



4,256



8,456



7,962Other


3,663



4,402



6,953



7,1817,928



8,658



15,409



15,143Revenues


126,145



102,705



236,822



195,771OPERATING EXPENSES:Cost of services:Cost of services before
    reimbursable expenses


82,375



65,751



159,743



127,556Reimbursable expenses


7,928



8,658



15,409



15,143Cost of services


90,303



74,409



175,152



142,699Selling, general and administrative


25,620



19,637



48,224



37,604Restructuring and asset impairment
    costs






3







1Total operating expenses


115,923



94,049



223,376



180,304OPERATING INCOME


10,222



8,656



13,446



15,467Investment (losses) income, net


(849
)


843



1,556



(8,389
)Interest income


421



233



801



380Interest expense


(3
)


(217
)


(4
)


(530
)Other income (expense)


974



(1,608
)


(1,684
)


6,009INCOME BEFORE INCOME
    TAXES


10,765



7,907



14,115



12,937Provision for income taxes


3,110



1,896



3,989



3,075NET INCOME

$
7,655


$
6,011


$
10,126


$
9,862    4




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##### Table of Contents



AVANADE
    INC.
 CONSOLIDATED STOCKHOLDERS EQUITY AND COMPREHENSIVE
    INCOME STATEMENTS

For the Six Months Ended March 31, 2006

(In thousands of U.S. dollars and in thousands of share
    amounts)

(Unaudited) Convertible Series A














NotesPreferred


Common








Receivable





AccumulatedStock


Stock


Additional


Deferred


from





Other


TotalNo.





No.


Paid-in


Share-Based


Exercise of


Accumulated


Comprehensive


StockholdersAmount


Shares


Amount


Shares


Capital


Compensation


Stock Options


Deficit


Income


EquityBalance at September 30, 2005

$
7



74,750,903


$




2,891,313


$
226,654


$
(1,728
)

$



$
(201,073
)

$
5,795


$
29,655Comprehensive income:Net income






























10,126







10,126Foreign currency translation
    adjustments


































1,080



1,080Comprehensive income






































11,206Income tax benefit on share-based
    compensation plans


















148



















148Accenture contributions


















5



















5Change in redeemable common stock
    and options


















(26,105
)


















(26,105
)Share-based compensation expense


















3,706



















3,706Effect of adoption of SFAS 123R


















(1,728
)


1,728















Issuance of common stock related to
    employee share programs














1,664,472



3,652







(2,113
)










1,539Purchases of common stock














(206,687
)


(1,261
)


















(1,261
)Interest on loans to employees


























(52
)










(52
)Balance at March 31, 2006

$
7



74,750,903


$




4,349,098


$
205,071


$



$
(2,165
)

$
(190,947
)

$
6,875


$
18,841    5




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##### Table of Contents



AVANADE
    INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended March 31, 2006 and 2005

(In thousands of U.S. dollars)

(Unaudited) Six Months Ended
    March 31,2006


2005CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
10,126


$
9,862Adjustments to reconcile net income
    to net cash from operating activities Depreciation and amortization


3,890



3,304(Gain) loss on investments, net


(1,618
)


8,129Unrealized foreign currency loss
    (gain) on intercompany notes


1,702



(6,070
)Loss on disposal of property and
    equipment






7Non-cash related party interest
    expense






157Share-based compensation expense


3,706



747Change in operating assets and
    liabilities, net of acquisitions:Receivables from clients, net


(502
)


(2,087
)Due from related parties


(4,294
)


13,527Unbilled services to clients


(1,127
)


2,588Unbilled services to related parties


(11,075
)


(3,184
)Other current assets


(332
)


(213
)Other non-current assets


(189
)


82Due to related parties


(238
)


2,635Accounts payable


(2,041
)


2,296Deferred revenue


1,060



305Accrued payroll and related benefits


2,806



2,715Accrued expenses


(1,514
)


1,864Income taxes payable


(2,582
)


(2,607
)Other current liabilities


301



10Net cash (used in) provided by
    operating activities


(1,921
)


34,067CASH FLOWS FROM INVESTING
    ACTIVITIES:Proceeds from sales of property and
    equipment


2



1Purchases of property and equipment


(3,408
)


(3,063
)Purchase of business, net of cash
    acquired






(4,614
)Transfer from restricted cash
    equivalents


53



24Net cash used in investing
    activities


(3,353
)


(7,652
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Payment of capital lease obligations


(1
)


(34
)Excess tax benefits from
    share-based payment arrangements


117



Capital contribution from Accenture


5



Proceeds from the exercise of stock
    options


1,539



Purchases of common shares


(1,261
)


Payment of note payable to related
    party






(4,853
)Net cash provided by (used in)
    financing activities


399



(4,887
)Effect of exchange rate changes on
    cash and cash equivalents


(577
)


721NET (DECREASE) INCREASE IN CASH
    AND CASH EQUIVALENTS


(5,452
)


22,249CASH AND CASH EQUIVALENTS,beginning of period


55,256



18,630CASH AND CASH EQUIVALENTS,end of period

$
49,804


$
40,879Supplemental cash flow information:Cash paid for interest

$
3


$
4Cash paid for income taxes

$
6,595


$
5,461Non-cash investing and financing
    activities:Convertible Series A preferred
    stock issued to Microsoft for note payable

$



$
5,646Common stock issued upon exercise
    of employee stock options in exchange for notes receivable

$
2,121


$
    6




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##### Table of Contents



AVANADE
    INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(In thousands of U.S. dollars, except share and per
    share amounts or as otherwise disclosed)
    (Unaudited)
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Basis of
    Presentation
  Form 10-Q
  Significant
    Accounting Policies
    2.
    REDEEMABLE
    COMMON STOCK AND EMPLOYEE STOCK OPTIONS  Share-Based Payment Accounting for Stock-Based
    Compensation Accounting for Stock Issued to Employees
   7




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
    For the Three Months Ended


For the Six Months EndedMarch 31, 2006


March 31, 2006Under





UnderAs Reported


APB No. 25


As Reported


APB No. 25Income from continuing operations
    before income taxes

$
10,765


$
12,218


$
14,115


$
17,312Net income

$
7,655


$
9,025


$
10,126


$
13,152Cash flows from operating
    activities

$
8,196


$
8,203


$
(1,921
)

$
(1,804
)Cash flows from financing
    activities

$
377


$
370


$
399


$
282     For the Three


For the SixMonths Ended


Months EndedMarch 31,


March 31,2005


2005Net income as reported

$
6,011


$
9,862Add: Share-based compensation
    expense already included in Net income as reported, net of tax


397



710Deduct: total share-based employee
    compensation expense determined under fair value based method
    for all awards, net of tax


(2,836
)


(5,030
)Pro forma Net income

$
3,572


$
5,542   Employee
    Stock and Employee Put Rights
     8




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
     As of


As ofMarch 31,


September 30,2006


2005Vested common stock subject to put
    rights

$
29,138


$
17,752Intrinsic value of stock options


72,347



57,628$
101,485


$
75,380   Overview
    of the Plans
      30-day
   9




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
      For the


For theThree Months


Six MonthsEnded March 31,


Ended March 31,2006


2005


2006


2005Total share-based compensation
    expense included in 
    Net income

$
1,658


$
417


$
3,706


$
747Income tax benefit related to
    share-based compensation
    included in Net income

$
95


$
20


$
198


$
36     WeightedAverageWeighted


RemainingAverage


Contractual


AggregateNumber of


Exercise


Term


IntrinsicOptions


Price


(In Years)


ValueOptions outstanding as of
    September 30, 2005


22,789,518


$
2.74Granted





$
Exercised


(1,664,472
)

$
2.19Expired


(293,857
)

$
2.77Forfeited


(308,124
)

$
3.75Options outstanding as of
    March 31, 2006


20,523,065


$
2.77



6.53


$
80,570Options exercisable as of
    March 31, 2006


16,635,917


$
2.50



6.13


$
69,813     For the Three Months


For the Six MonthsEnded March 31,


Ended March 31,2006


2005


2006


2005Weighted average grant-date fair
    value of stock options granted during the period


N/A


$
2.77



N/A


$
2.99Total fair value of stock options
    vested

$
1,645


$
1,313


$
5,753


$
3,765Total intrinsic value of stock
    options exercised

$
902


$



$
6,835


$
     N/A  not applicable
    for the period presented.
     10




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
      For the Six Months EndedMarch 31,2006


2005Expected life (in years)


N/A



6Expected volatility


N/A



55
%Risk-free interest rate


N/A



3.87
%Expected dividend yield


N/A



0
%     N/A  no stock
    options were granted by the Company for the six months ended
    March 31, 2006.
    3.
    RESTRUCTURING
    COSTS  Form 10-Q.
    Three Months Ended
    March 31,


Six Months Ended
    March 31,2006


2005


2006


2005Restructuring liability balance at
    the beginning of the period

$
685


$
1,853


$
887


$
1,791Utilized


(279
)


(373
)


(481
)


(311
)Restructuring liability balance at
    the end of the period

$
406


$
1,480


$
406


$
1,480     4.
    ACCUMULATED
    OTHER COMPREHENSIVE INCOME   11




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
     5.
    COMMITMENTS
    AND CONTINGENCIES  Guarantees
  and/or
  Legal
    Contingencies
      6.
    RELATED-PARTY
    BALANCES AND TRANSACTIONS   12




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
     Three Months Ended
    March 31,


Six Months Ended
    March 31,2006


2005


2006


2005Related-party revenues before
    reimbursements:Accenture

$
79,348


$
66,399


$
150,438


$
125,820Microsoft


7,355



7,432



12,196



14,267Total

$
86,703



73,831


$
162,634


$
140,087Related-party reimbursements:Accenture

$
3,463


$
3,586


$
7,236


$
6,674Microsoft


802



670



1,220



1,288Total

$
4,265


$
4,256


$
8,456


$
7,962Related-party expenses:Accenture

$
7,414


$
4,605


$
13,306


$
7,301Microsoft


758



624



1,504



1,104Total

$
8,172


$
5,229


$
14,810


$
8,405     As of


As ofMarch 31, 2006


September 30,
    2005Due from related parties:Accenture

$
43,800


$
38,297Microsoft


3,890



5,136Total

$
47,690



43,433Unbilled services to related
    parties:Accenture

$
26,749


$
17,064Microsoft


2,882



1,516Total

$
29,631


$
18,580Due to related parties:Accenture

$
5,959


$
6,357Microsoft


457



297Total

$
6,416


$
6,654Deferred revenue:Accenture

$
1,238


$
386Microsoft


1,283



369Total

$
2,521


$
755   month-to-month
 13




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
      7.
    SEGMENT
    REPORTING  Disclosures about Segments of an Enterprise and Related
    Information
        Three Months Ended
    March 31,2006


2005Revenues before


Operating


Revenues before


OperatingReimbursements


Income


Reimbursements


IncomeAmericas

$
63,012


$
11,875


$
47,381


$
6,434Europe


48, 437



8,644



41,978



6,299Asia Pacific


7,249



(1,085
)


5,724



(464
)Corporate and
    eliminations(1)


(481
)


(9,212
)


(1,036
)


(3,613
)Total

$
118,217


$
10,222


$
94,047


$
8,656   Six Months Ended
    March 31,2006


2005Revenues before


Operating


Revenues before


OperatingReimbursements


Income


Reimbursements


IncomeAmericas

$
117,754


$
18,579


$
91,196


$
10,879Europe


90,586



12,605



80,629



16,882Asia Pacific


14,364



(1,984
)


10,581



(2,294
)Corporate and
    eliminations(1)


(1,291
)


(15,754
)


(1,778
)


(10,000
)Total

$
221,413


$
13,446


$
180,628


$
15,467     (1)
    Corporate and eliminations include general corporate expenses,
    inter-company eliminations and other charges not directly
    attributable to the segments. 14




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##### Table of Contents



AVANADE
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share and per share
    amounts or as otherwise disclosed)
    (Unaudited)
     Three Months Ended
    March 31,


Six Months Ended
    March 31,2006


2005


2006


2005COUNTRY:United States


46
%


45
%


46
%


45
%United Kingdom


19
%


22
%


18
%


22
%  15




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##### Table of Contents



ITEM 2.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  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 Form 10/A and with the information under the
    heading Managements Discussion and Analysis of
    Financial Condition and Results of Operations in our
    Form 10/A.
  We use the terms Avanade, we,
    our Company, our and us in
    this report to refer to Avanade Inc. and its subsidiaries. We
    use the term Accenture to refer to Accenture Ltd and
    its affiliates, and the term Microsoft to refer to
    Microsoft Corporation and its affiliates. All references to
    years, unless otherwise noted, refer to our fiscal year, which
    ends on September 30. For example, a reference to
    fiscal 2005 or fiscal year 2005 means
    the 12-month
    period that ended on September 30, 2005. All references to
    quarters, unless otherwise noted, refer to the quarters of our
    fiscal year. All amounts expressed in dollars are in thousands
    of dollars unless otherwise indicated. For example, a reference
    to $40,800 means $40.8 million.
  We do not publish copies of our SEC filings on our websites
    because our shares are not publicly traded. However, copies of
    our filings with the Securities and Exchange Commission are
    available upon written request to Shareholder Relations, Avanade
    Inc., 2211 Elliott Avenue Suite 200, Seattle WA 98121,
    206-239-5600. Copies of our filings may also be obtained
    directly from the SEC website at www.sec.gov.
  Disclosure
    Regarding Forward-Looking Statements
  Form 10-Q
  
    Our results of operations are materially affected by economic
    conditions, levels of business activity and rates of change in
    the industries we serve.
    There will not be a consistent pattern in our financial results
    from quarter to quarter, which may result in increased
    volatility of the value of our stock.
    Our profitability will suffer if we are not able to maintain our
    prices and utilization rates and control our costs.
    Our profitability may decline due to financial and operational
    risks inherent in our worldwide operations.
    If we are unable to attract, retain and motivate employees, we
    will not be able to compete effectively and will not be able to
    grow our business.
    We may face damage to our professional reputation or legal
    liability if our customers are not satisfied with our services.
    The technology consulting markets are highly competitive and we
    may not be able to compete effectively.
    We may lose money if we do not accurately estimate the costs of
    large fixed-price engagements. 16




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
    Our contracts can be terminated by our customers with short
    notice, or our customers may cancel or delay projects, any of
    which could result in reduced operating income.
    Our business will be negatively affected if we are not able to
    anticipate and keep pace with rapid changes in technology.
    We currently have only a limited ability to protect our
    important intellectual property rights, which could affect our
    ability to operate in the future.
    Our services may infringe upon the intellectual property rights
    of others, which could result in legal liability, reduced
    operating income
    and/or
    materially adversely affect our ability to operate in the future.
    Loss of our significant corporate relationships could reduce our
    revenue and growth prospects.
    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.
    We rely on Accenture for a primary source of our liquidity, and
    the loss of that liquidity could have a material adverse impact
    on our ability to fund our cash needs.
    We rely on Accenture for a significant portion of our revenue,
    and the loss of that revenue would have a significant adverse
    impact on our results of operations.
    Our global delivery network relies on Accenture, and the loss of
    that network would increase our operating expenses.
    Microsoft has certain minority ownership rights, and may
    exercise those rights to protect its own interests.
    We are committed to using Microsoft related technologies, and
    our inability to use those technologies would adversely impact
    our results of operations.
    All stock issued pursuant to awards granted under our stock
    option plans is subject to certain put rights, which, if
    exercised, could have a materially adverse impact on our
    liquidity.    Overview
  out-of-pocket
     17




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##### Table of Contents



Three Months Ended
    March 31,


Six Months Ended
    March 31,2006


2005


2006


2005Revenues before reimbursements:Accenture


67
%


71
%


68
%


70
%Microsoft


6
%


8
%


6
%


8
%         Critical
    Accounting Policies and Estimates
    Revenues
    by Segments/Geographic Business Areas
   18




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##### Table of Contents



Percent ofTotal RevenuesBeforePercent


ReimbursementsThree Months Ended


Percent


Increase


for the Three Months EndedMarch 31,


Increase


Local


March 31,2006


2005


US$


Currencies


2006


2005SEGMENTAmericas

$
63,012


$
47,381



33
%


32
%


53
%


50
%Europe


48,437



41,978



15
%


25
%


41



45Asia Pacific


7,249



5,724



27
%


32
%


6



6Corporate and
    eliminations(1)


(481
)


(1,036
)


n/m



n/m







(1
)Total revenues before
    reimbursements


118,217



94,047



26
%


30
%


100
%


100
%Reimbursements


7,928



8,658



(8
)%


(6
)%Total revenues

$
126,145


$
102,705



23
%


27
%     n/m = not meaningful
  (1)
    
    Corporate and eliminations include
    general corporate expenses, inter-company eliminations and other
    charges not directly attributable to the segments.    Three Months Ended
    March 31,


Six Months Ended
    March 31,2006


2005


2006


2005COUNTRY:United States


46
%


45
%


46
%


45
%United Kingdom


19
%


22
%


18
%


22
%   Results
    of Operations
  Three
    Months Ended March 31, 2006 Compared to Three Months Ended
    March 31, 2005
  Revenues
     19




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Operating
    Expenses
    Cost
    of Services
      Selling,
    General and Administrative Expenses
    Operating
    Income
   20




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##### Table of Contents



Three Months Ended
    March 31,Increase2006


2005


(Decrease)Operating income (loss):Americas

$
11,875


$
6,434


$
5,441Europe


8,644



6,299



2,345Asia Pacific


(1,085
)


(464
)


(621
)Corporate and eliminations


(9,212
)


(3,613
)


(5,599
)$
10,222


$
8,656


$
1,566     
    Americas operating income increased primarily due to a 33%
    increase in revenues before reimbursements and improved gross
    margin.
    The increase in the Europe segment was primarily due to
    increased revenues before reimbursements partially offset by
    higher payroll costs.
    Asia Pacific operating loss increased due to increased operating
    expenses, primarily from higher payroll costs.
    Corporate and eliminations increased primarily due to higher
    payroll costs and an increase in share-based compensation
    expense as a result of the adoption of SFAS No. 123R.
    The Company does not allocate share-based compensation expenses
    among segments.  Investment
    (losses) income, net
    Other
    income (expense)
    Provision
    for Income Taxes
     21




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##### Table of Contents



Six
    Months Ended March 31, 2006 Compared to Six Months Ended
    March 31, 2005
    Percent of Total RevenuesBefore ReimbursementsPercent


for the SixPercent


Increase


Months EndedSix Months Ended
    March 31,


Increase


Local


March 31,2006


2005


US$


Currencies


2006


2005SEGMENTAmericas

$
117,754


$
91,196



29
%


28
%


53
%


50
%Europe


90,586



80,629



12
%


22
%


41



45Asia Pacific


14,364



10,581



36
%


42
%


7



6Corporate and
    eliminations(1)


(1,291
)


(1,778
)


n/m



n/m



(1
)


(1
)Total revenues before
    reimbursements


221,413



180,628



23
%


27
%


100
%


100
%Reimbursements


15,409



15,143



2
%


5
%Total revenues

$
236,822


$
195,771



21
%


25
%     n/m = not meaningful
  (1)
    
    Corporate and eliminations include
    general corporate expense inter-company eliminations and other
    charges not directly attributable to the segments.  Revenues
         22




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##### Table of Contents



Operating
    Expenses
    Cost
    of Services
      Selling,
    General and Administrative Expenses
    Operating
    Income
      Six Months Ended
    March 31,Increase2006


2005


(Decrease)Operating income (loss):Americas

$
18,579


$
10,879


$
7,700Europe


12,605



16,882



(4,277
)Asia Pacific


(1,984
)


(2,294
)


310Corporate and eliminations


(15,754
)


(10,000
)


(5,754
)$
13,446


$
15,467


$
(2,021
)  23




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##### Table of Contents




    Americas operating income increased primarily due to a 29%
    increase in revenues before reimbursements and improved gross
    margins.
    The decrease in the Europe segment reflected a decline in gross
    margins and an increase in operating expenses primarily as a
    result of expansion of our operations into other European
    countries.
    Asia Pacific operating loss decreased due to a 36% increase in
    revenues before reimbursements and improved gross margins.
    Corporate and eliminations increased primarily due to higher
    payroll costs and an increase in share-based compensation
    expense as a result of the adoption of SFAS No. 123R.
    The Company does not allocate share-based compensation expenses
    among segments.  Investment
    (losses) income, net
    Other
    income (expense)
    Provision
    for Income Taxes
        Liquidity
    and Capital Resources
   24




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##### Table of Contents



Six Months Ended
    March 31,Increase2006


2005


(Decrease)Net cash (used in) provided by:Operating activities

$
(1,921
)

$
34,067


$
(35,988
)Investing activities


(3,353
)


(7,652
)


4,299Financing activities


399



(4,887
)


5,286Effect of exchange rate changes on
    cash and cash equivalents


(577
)


721



(1,298
)Net (decrease) increase in cash
    and cash equivalents

$
(5,452
)

$
22,249


$
(27,701
)   Operating Activities.
  Investing Activities.
  Financing Activities.
  Accounting for Derivative
    Instruments and Hedging Activities. Form 10-Q.
  10-Q.
   25




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##### Table of Contents



Off-Balance
    Sheet Arrangements
  and/or
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    ITEM 4.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Form 10-Q, Rule 13a-14(c) 15d-14(c)
  Changes
    in Internal Control Over Financial Reporting
   PART II  OTHER
    INFORMATION  ITEM 1.
    LEGAL
    PROCEEDINGS     26




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##### Table of Contents



ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS; ISSUER PURCHASES
    OF EQUITY SECURITIES    Approximate DollarTotal Number of


Value of SharesShares Purchased as


that May Yet BePart of Publicly


Purchased UnderTotal Number of


Average Price


Announced Plans or


Publicly AnnouncedPeriod

Shares Purchased(1)


Paid per Share


Programs


Plans or ProgramsJanuary 1,
    2006  January 31, 2006


401


$
6.14







February 1,
    2006  February 28, 2006


4,031


$
6.32







March 1,
    2006  March 31, 2006


4,813


$
6.32







Total


9,245


$
6.31







     (1)
    
    During the second quarter of fiscal
    2006, the Company purchased 9,245 of its common shares in
    transactions unrelated to publicly announced share plans or
    programs. These transactions consisted of acquisitions of shares
    of the Companys common stock via share withholding for
    payroll for obligations due from employees in connection with
    the delivery of shares of the Company common stock under the
    Companys various equity share plans.  ITEM 3.
    DEFAULTS
    UPON SENIOR SECURITIES    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS      Abstain/


BrokerName

For


Against


Withheld


Non-VotesAppointment of Directors:Mitchell Hill


75,699,934



0



0



0Jackson L. Wilson


75,699,934



0



0



0Simon Witts


75,699,934



0



0



0Basilio Rueda


75,699,934



0



0



0Robert N. Frerichs


75,699,934



0



0



0Pamela J. Craig


75,699,934



0



0



0   ITEM 5.
    OTHER
    INFORMATION     27




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##### Table of Contents



ITEM 6.
    EXHIBITS    ExhibitNumber

Exhibit Description3
.1

Restated Articles of Incorporation
    of the Company, dated as of December 4, 2003*3
.2

Amended and Restated By-laws of
    the Company, dated as of February 28, 2003*31
.1

Certification of Chief Executive
    Officer pursuant to
    Rule 13a-14(a)
    or 15d-14(a)
    of the Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200231
.2

Certification of Chief Financial
    Officer pursuant to
    Rule 13a-14(a)
    or 15d-14(a)
    of the Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the Sarbanes-Oxley Act of 200232
.1

Certification of the Chief
    Executive Officer and the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002     *
    
    Incorporated by reference to the like-numbered exhibit to the
    Companys Form 10, filed January 20, 2006. 28




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##### Table of Contents



SIGNATURES       By:
    /s/  Dennis K. Knapp    Title:
    Chief Financial Officer   29