##### 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, 2007ORo

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

91-2032865(State or other jurisdiction
    of

(I.R.S. Employer Identification
    No.)incorporation or
    organization)   2211 Elliott Avenue, Suite 200
    Seattle, Washington 98121 (Address of principal
    executive offices)
  (206) 239-5600 (Registrants telephone
    number, including area code)
   þ o
  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, 2007 (Unaudited) and
    September 30, 2006


3Consolidated Income
    Statements (Unaudited) for the three and six months ended
    March 31, 2007 and 2006


4Consolidated
    Stockholders Equity and Comprehensive Income Statements
    (Unaudited) for the six months ended March 31,
    2007


5Consolidated Cash
    Flows Statements (Unaudited) for the six months ended
    March 31, 2007 and 2006


6Notes to
    Consolidated Financial Statements (Unaudited)


7Item 2.


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


13Item 3.


Quantitative and
    Qualitative Disclosures About Market Risk


24Item 4.


Controls and
    Procedures


24Part II.


Other
    Information


25Item 1.


Legal
    Proceedings


25Item 1A.


Risk
    Factors


25Item 2.


Unregistered Sales
    of Equity Securities and Use of Proceeds


25Item 3.


Defaults upon
    Senior Securities


25Item 4.


Submission of
    Matters to a Vote of Security Holders


26Item 5.


Other
    Information


26Item 6.


Exhibits


26Signatures


27Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO & CFO Pursuant to Section 906   2




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##### Table of Contents



PART I 
    FINANCIAL INFORMATION ITEM 1.  FINANCIAL
    STATEMENTS  AVANADE
    INC.
  CONSOLIDATED BALANCE SHEETS
 March 31, 2007 and September 30, 2006
 (In thousands of U.S. dollars, except share and per
    share amounts)
  March 31,


September 30,2007


2006(Unaudited)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
93,714


$
72,898Receivables from clients, net of
    allowances of $889 and $1,303, respectively


29,162



21,253Due from related parties


65,908



55,426Unbilled services to clients


19,588



21,256Unbilled services to related parties


45,215



32,101Deferred income taxes, net


13,669



1,394Other current assets


4,431



6,116Total current assets


271,687



210,444NON-CURRENT ASSETS:Restricted cash equivalents


598



222Property and equipment, net of
    accumulated depreciation of $38,652 and $36,487, respectively


10,103



10,004Goodwill


10,537



11,975Other intangible assets, net of
    accumulated amortization of $4,745 and $4,250, respectively


786



1,281Deferred income taxes, net


37,256



5,556Other non-current assets


2,555



1,375Total non-current assets


61,835



30,413TOTAL ASSETS

$
333,522


$
240,857LIABILITIES AND
    SHAREHOLDERS EQUITYCURRENT LIABILITIES:Due to related parties

$
15,462


$
9,999Accounts payable


16,417



14,204Deferred revenues


3,884



3,009Accrued payroll and related benefits


45,676



39,890Accrued expenses


14,160



12,747Income taxes payable


11,464



8,251Other current liabilities


4,509



1,282Total current liabilities


111,572



89,382NON-CURRENT
    LIABILITIES


3,025



1,884COMMITMENTS AND
    CONTINGENCIESREDEEMABLE COMMON STOCK AND
    EMPLOYEE STOCK OPTIONS


138,511



123,964SHAREHOLDERS
    EQUITY:Convertible Series A preferred
    stock, par value of $0.0001 per share (aggregate
    liquidation preference of $587,329 as of March 31, 2007 and
    September 30, 2006, respectively), 105,000,000 shares
    authorized,74,750,903 shares issued and outstanding as of
    March 31, 2007 and September 30, 2006, respectively


7



7Common stock, par value
    $0.0001 per share, 150,000,000 shares authorized,
    4,639,071 and 4,244,536 shares outstanding as of
    March 31, 2007 and September 30, 2006, respectively






Additional
    paid-in-capital


158,251



178,128Notes receivable from exercise of
    stock options






(653
)Accumulated deficit


(78,300
)


(154,363
)Accumulated other comprehensive
    income


456



2,508Total shareholders equity


80,414



25,627TOTAL LIABILITIES AND
    SHAREHOLDERS EQUITY

$
333,522


$
240,857    3




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##### Table of Contents



AVANADE
    INC.
 CONSOLIDATED
    INCOME STATEMENTS

For the Three and Six Months Ended March 31, 2007
    and 2006

(In thousands of U.S. dollars)

(Unaudited) Three Months Ended March 31,


Six Months Ended March 31,2007


2006


2007


2006REVENUES:Revenues before reimbursements:Related parties

$
117,192


$
86,872


$
219,190


$
162,604Other


44,225



31,345



80,195



58,809161,417



118,217



299,385



221,413Reimbursements:Related parties


5,110



4,456



10,501



8,866Other


4,702



3,472



8,892



6,5439,812



7,928



19,393



15,409Revenues


171,229



126,145



318,778



236,822OPERATING EXPENSES:Cost of services:Cost of services before
    reimbursable expenses


104,614



82,375



199,993



159,743Reimbursable expenses


9,812



7,928



19,393



15,409Cost of services


114,426



90,303



219,386



175,152Selling, general and
    administrative costs


30,378



25,620



59,007



48,224Total operating expenses


144,804



115,923



278,393



223,376OPERATING INCOME


26,425



10,222



40,385



13,446Interest income


881



421



1,602



801Interest expense






(3
)


(8
)


(4
)Other income (expense)


203



125



340



(128
)INCOME BEFORE INCOME
    TAXES


27,509



10,765



42,319



14,115Provision (benefit) for income
    taxes


7,625



3,110



(33,744
)


3,989NET INCOME

$
19,884


$
7,655


$
76,063


$
10,126    4




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##### Table of Contents



AVANADE
    INC.
  CONSOLIDATED STOCKHOLDERS EQUITY AND
    COMPREHENSIVE INCOME STATEMENTS
 For the Six Months Ended March 31, 2007
 (In thousands of U.S. dollars, except share amounts)
 (Unaudited)
  NotesReceivableConvertible











from





AccumulatedSeries A








Additional


Exercise of





Other


TotalPreferred Stock


Common Stock


Paid-In


Stock


Accumulated


Comprehensive


ShareholdersAmount


No. Shares


Amount


No. Shares


Capital


Options


Deficit


Income


EquityBalance as of September 30,
    2006

$
7



74,750,903


$




4,244,536


$
178,128


$
(653
)

$
(154,363
)

$
2,508


$
25,627Comprehensive income:Net income


























76,063







76,063Foreign currency translation
    adjustments






























(2,052
)


(2,052
)Comprehensive income


































74,011Income tax benefit on share-based
    compensation plans


















106















106Accenture contributions


















90















90Change in redeemable common stock


















(14,547
)














(14,547
)Share-based compensation expense


















1,360















1,360Issuances of common stock related
    to employee share programs














1,807,888



4,324















4,324Purchases of common stock














(1,413,353
)


(11,210
)


662











(10,548
)Repayment of employee notes
    receivable






















1











1Interest on notes received from
    exercise of stock options






















(10
)










(10
)Balance as of March 31, 2007

$
7



74,750,903


$




4,639,071


$
158,251


$



$
(78,300
)

$
456


$
80,414    5




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AVANADE
    INC.
  CONSOLIDATED CASH FLOWS STATEMENTS
 For the Six Months Ended March 31, 2007 and 2006
 (In thousands of U.S. dollars)
 (Unaudited)
  2007


2006CASH FLOWS FROM OPERATING
    ACTIVITIES:Net income

$
76,063


$
10,126Adjustments to reconcile Net income
    to Net cash provided by (used in) operating
    activities  Depreciation and amortization


3,379



3,890Unrealized foreign currency (gain)
    loss on intercompany notes


(5,471
)


1,702Loss on disposal of property and
    equipment, net


12



Deferred income tax (benefit)
    expense


(42,319
)


250Share-based compensation expense


1,360



3,706Change in assets and
    liabilities Receivables from clients, net


(6,484
)


(502
)Due from related parties


(8,378
)


(4,294
)Unbilled services to clients


2,175



(1,127
)Unbilled services to related parties


(12,293
)


(11,075
)Other current assets


1,511



(332
)Other non-current assets






(189
)Due to related parties


5,366



(238
)Accounts payable


733



(2,041
)Deferred revenues


736



1,060Accrued payroll and related benefits


4,303



2,806Accrued expenses


948



(1,514
)Income taxes payable


2,919



(2,832
)Other current liabilities


4,420



(1,317
)Net cash provided by (used in)
    operating activities


28,980



(1,921
)CASH FLOWS FROM INVESTING
    ACTIVITIES:Proceeds from sales of property and
    equipment


8



2Purchases of property and equipment


(2,777
)


(3,408
)Deferred technology infrastructure
    costs


(432
)


Transfer from restricted cash
    equivalents


(363
)


53Net cash used in investing
    activities


(3,564
)


(3,353
)CASH FLOWS FROM FINANCING
    ACTIVITIES:Purchases of common shares


(9,460
)


(1,261
)Proceeds from exercise of stock
    options


3,236



1,539Repayments of employee notes
    receivable


1



Payment of capital lease obligations






(1
)Capital contribution from Accenture


90



5Excess tax benefits from
    share-based payment arrangements


73



117Net cash (used in) provided by
    financing activities


(6,060
)


399Effect of exchange rate changes on
    cash and cash equivalents


1,460



(577
)NET INCREASE (DECREASE) IN CASH
    AND CASH EQUIVALENTS


20,816



(5,452
)CASH AND CASH EQUIVALENTS,beginning of period


72,898



55,256CASH AND CASH EQUIVALENTS,end of period

$
93,714


$
49,804    6




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AVANADE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (In
    thousands of U.S. dollars, except share amounts or as
    otherwise disclosed)
 (Unaudited)
  1.
    SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES  Basis of
    Presentation
  Form 10-Q Form 10-K Form 10-K).
  2.
    ACCUMULATED
    OTHER COMPREHENSIVE INCOME      March 31,2007


2006Three months ended

$
20,242


$
7,208Six months ended


74,011



11,206   3.
    MATERIAL
    TRANSACTIONS AFFECTING SHAREHOLDERS EQUITY     7




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AVANADE,
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share amounts or as
    otherwise disclosed)
    (Unaudited)
  30-day
      March 31,


September 30,2007


2006Vested common stock subject to put
    rights

$
41,008


$
33,785Intrinsic value of stock options


97,503



90,179$
138,511


$
123,964     Shares


AmountShares acquired pursuant to
    exercise of put/call rights(1)


1,056,584


$
8,410Other purchases(2)(3)


356,769



2,8001,413,353



11,210Less:Amounts withheld for employee loan
    repayments(4)






662Non-cash amounts related to
    stock-swaps(3)






1,088Net cash out-lay





$
9,460     (1)
    
    During the 30 day period
    following the semi-annual valuation approved by the Board
    effective November 8, 2006, the Company exercised its call
    rights to purchase shares and certain employee holders of the
    Companys common stock exercised their put rights. This
    resulted in the repurchase, effective December 13, 2006, of
    an aggregate of 1,056,584 shares of the Companys
    common stock at a price of $7.96 per share.(2)
    
    During the six months ended
    March 31, 2007, as authorized under its option plans, the
    Company acquired 221,202 shares of its common stock via
    share withholdings for payroll tax obligations due from
    employees in connection with the delivery of the Companys
    common shares under the option plans.(3)
    
    During the six months ended
    March 31, 2007, as authorized under its option plans, the
    Company acquired 135,567 shares of its common stock as a
    result of shares surrendered to the Company to pay the exercise
    price in connection with so-called stock-swap
    exercises of employee stock options.(4)
    
    The Company withheld $662 of the
    proceeds for repayment of loans, plus accrued interest,
    previously provided to certain employee shareholders for costs
    to exercise the underlying options of employee shares held. As
    of March 31, 2007, no amounts remained outstanding for the
    Company sponsored loans and related accrued interest.  Form 10-K.
 8




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AVANADE,
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share amounts or as
    otherwise disclosed)
    (Unaudited)
   4.
    INCOME
    TAXES      non-U.S. tax
  5.
    COMMITMENTS
    AND CONTINGENCIES  Guarantees
  and/or
  Legal
    Contingencies
   9




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AVANADE,
    INC.
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (In thousands of U.S. dollars, except share amounts or as
    otherwise disclosed)
    (Unaudited)
   6.
    RELATED
    PARTY BALANCES AND TRANSACTIONS      Three Month Ended March 31,


Six Month Ended March 31,2007


2006


2007


2006Related-party revenues before
    reimbursements:Accenture

$
107,842


$
79,190


$
201,236


$
150,067Microsoft


9,350



7,682



17,954



12,537Total

$
117,192


$
86,872


$
219,190


$
162,604Related-party reimbursements:Accenture

$
4,224


$
3,622


$
8,300


$
7,606Microsoft


886



834



2,201



1,260Total

$
5,110


$
4,456


$
10,501


$
8,866Related-party expenses:Accenture

$
13,622


$
7,414


$
23,693


$
13,306Microsoft


861



758



1,815



1,504Total

$
14,483


$
8,172


$
25,508


$
14,810  10




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##### Table of Contents



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


September 30,2007


2006Due from related parties:Accenture

$
60,758


$
52,170Microsoft


5,150



3,256Total

$
65,908


$
55,426Unbilled services to related
    parties:Accenture

$
41,500


$
28,294Microsoft


3,715



3,807Total

$
45,215


$
32,101Due to related parties:Accenture

$
14,550


$
9,154Microsoft


912



845Total

$
15,462


$
9,999Deferred revenue:Accenture

$
1,233


$
1,036Microsoft


1,028



1,013Total

$
2,261


$
2,049   month-to-month
    7.
    SEGMENT
    REPORTING  Disclosures about Segments of an Enterprise and Related
    Information
   11




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##### Table of Contents



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


Six Months EndedMarch 31,


March 31,2007


2006


2007


2006Revenues before reimbursements:Americas

$
81,060


$
63,012


$
147,697


$
117,754Europe


64,574



48,437



123,983



90,586Asia Pacific


14,766



7,249



26,458



14,364Corporate and eliminations


1,017



(481
)


1,247



(1,291
)Total

$
161,417


$
118,217


$
299,385


$
221,413Operating income (loss):Americas

$
20,187


$
11,875


$
32,529


$
18,579Europe


11,802



8,644



19,438



12,605Asia Pacific


1,253



(1,085
)


1,841



(1,984
)Corporate and eliminations


(6,817
)


(9,212
)


(13,423
)


(15,754
)Total

$
26,425


$
10,222


$
40,385


$
13,446   8.
    NEWLY
    ISSUED ACCOUNTING STANDARDS  Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
  Considering the Effects of
    Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements
  Fair Value Measurements
 12




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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 Annual Report on
    Form 10-K
    for the year ended September 30, 2006, and with the
    information under the heading Managements Discussion
    and Analysis of Financial Condition and Results of
    Operations in our Annual Report on
    Form 10-K
    for the year ended September 30, 2006.
  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 our majority
    shareholder, which is a subsidiary of Accenture Ltd, and its
    affiliates. We use the term Microsoft to refer to
    Microsoft Corporation, a minority shareholder, 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 2006 12-month
  Disclosure
    Regarding Forward-Looking Statements
  Form 10-Q
  
    Our results of operations could be negatively affected if we
    cannot expand and develop our services and solutions in response
    to changes in technology and client demand.
    The consulting and systems integration and technology markets
    are highly competitive, and we might not be able to compete
    effectively.
    Our business could be adversely affected if our clients are not
    satisfied with our services.
    Our results of operations may be affected by the rate of growth
    in the use of technology in business and the type and level of
    technology spending by our clients.
    If we are unable to attract, retain and motivate employees or
    efficiently utilize their skills, we might not be able to
    compete effectively and will not be able to grow our business.
    Our results of operations could be affected by economic and
    political conditions in the markets in which we operate and the
    effects of these conditions on our clients businesses and
    levels of business activity.
    Our profitability could suffer if we are not able to maintain
    favorable pricing rates.
    Our profitability could suffer if we are not able to maintain
    favorable utilization rates.
    Our profitability could suffer if we are not able to control our
    costs.
    Our work with government clients exposes us to additional risks
    inherent in the government contracting process.
    Our global operations are subject to complex risks, some of
    which might be beyond our control. 13




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##### Table of Contents




    If we are unable to manage the organizational challenges
    associated with the expansion of our company, we might be unable
    to achieve our business objectives.
    Our business could be negatively affected if we incur legal
    liability in connection with providing our solutions and
    services.
    If our pricing structures do not accurately anticipate the cost
    and complexity of performing our work, then our contracts could
    be unprofitable.
    Our results of operations could be adversely affected if our
    clients terminate their contracts with us on short notice.
    If we are unable to collect our receivables our results of
    operations could be adversely affected.
    We could be subject to liabilities if our subcontractors or the
    third parties with whom we partner cannot deliver their project
    contributions on time or at all.
    We have only a limited ability to protect our intellectual
    property rights, which are important to our success.
    Our services or solutions could infringe upon the intellectual
    property rights of others, which could result in legal
    liability, reduced operating income
    and/or have
    a materially adverse affect on our ability to operate in the
    future.
    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.
    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 as 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 the majority of our revenue. The loss
    of that revenue would have a significant adverse impact on our
    results of operations and may affect our ability to continue to
    operate.
    Our Global Delivery Network relies on Accenture, and the loss of
    that network would increase our operating expenses.
    Microsoft has certain minority rights, and may exercise those
    rights to protect its own interests which may not align with our
    own.
    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.  Form 10-K
  Overview
     14




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##### Table of Contents



out-of-pocket
      Three Months EndedMarch 31,


Six Months Ended March 31,2007


2006


2007


2006Related-party revenues before
    reimbursements:Accenture


67
%


67
%


67
%


68
%Microsoft


6
%


6
%


6
%


6
%            15




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##### Table of Contents



sub-contractors.
          Critical
    Accounting Policies and Estimates
  Form 10-K
  Revenues
    by Segment/Geographic Business Area
   16




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##### Table of Contents



Percent ofTotal RevenuesBeforeReimbursementsPercent


for the ThreeThree Months Ended


Percent


Increase


Months EndedMarch 31,


Increase


Local


March 31,2007


2006


US$


Currency


2007


2006SEGMENTAmericas

$
81,060


$
63,012



29
%


28
%


50
%


53
%Europe


64,574



48,437



33



20



40



41Asia Pacific


14,766



7,249



104



61



9



6Corporate and eliminations(1)


1,017



(481
)


n/m



n/m



1



TOTAL Revenues Before
    Reimbursements


161,417



118,217



37



28



100
%


100
%Reimbursements


9,812



7,928



24



18TOTAL Revenues

$
171,229


$
126,145



36
%


28
%       (1)
    
    Corporate and eliminations include
    inter-company eliminations and other revenues not directly
    attributable to the segments.  Three
    Months Ended March 31, 2007 Compared to Three Months Ended
    March 31, 2006
  Revenues
          Operating
    Expenses
   17




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##### Table of Contents



Cost
    of Services
  sub-contractors.
  Selling,
    General and Administrative Costs
    Operating
    Income
    Three Months Ended March 31,2007


2006


IncreaseAmericas

$
20,187


$
11,875


$
8,312Europe


11,802



8,644



3,158Asia Pacific


1,253



(1,085
)


2,338Corporate and eliminations


(6,817
)


(9,212
)


2,395$
26,425


$
10,222


$
16,203     
    Americas operating income increased primarily due to improved
    contract margins derived from our Global Delivery Network
    resources and lower compensation costs as a percentage of
    revenues before reimbursements.
    Europe operating income increased primarily due to lower
    compensation costs and management and royalty fees as a
    percentage of revenues before reimbursements, partially offset
    by lower contract margins in the United Kingdom.
    Asia Pacific operating income increased primarily due to
    improved gross margins in Australia and Japan and lower
    compensation costs and management and royalty fees as a
    percentage of revenues before reimbursements. 18




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##### Table of Contents




    Corporate and eliminations operating loss decreased primarily
    due to increased intercompany management and royalty fees and
    lower share-based compensation, partially offset by increased
    technology infrastructure costs.  Interest
    Income
    Other
    Income (expense)
    Provision
    (Benefit) for Income Taxes
  non-U.S. deferred
  Six
    Months Ended March 31, 2007 Compared to Six Months Ended
    March 31, 2006
    Percent ofPercent


Total Revenues BeforeSix Months Ended


Percent


Increase


Reimbursements for the SixMarch 31,


Increase


Local


Months Ended March 31,2007


2006


US$


Currency


2007


2006SEGMENTAmericas

$
147,697


$
117,754



25
%


25
%


49
%


53
%Europe


123,983



90,586



37



24



41



41Asia Pacific


26,458



14,364



84



59



9



7Corporate and eliminations(1)


1,247



(1,291
)


n/m



n/m



1



(1
)TOTAL Revenues Before
    Reimbursements


299,385



221,413



35



28



100
%


100
%Reimbursements


19,393



15,409



26



21TOTAL Revenues

$
318,778


$
236,822



35
%


28
%       (1)
    
    Corporate and eliminations include
    inter-company eliminations and other revenues not directly
    attributable to the segments.  Revenues
   19




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##### Table of Contents



Operating
    Expenses
    Cost
    of Services
  sub-contractors.
  Selling,
    General and Administrative Costs
   20




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##### Table of Contents



Operating
    Income
    Six Months Ended March 31,2007


2006


IncreaseAmericas

$
32,529


$
18,579


$
13,950Europe


19,438



12,605



6,833Asia Pacific


1,841



(1,984
)


3,825Corporate and eliminations


(13,423
)


(15,754
)


2,331$
40,385


$
13,446


$
26,939     
    Americas operating income increased primarily due to improved
    contract margins derived from our Global Delivery Network
    resources and lower compensation and facilities costs as a
    percentage of revenues before reimbursements.
    Europe operating income increased primarily due to lower
    management and royalty fees and facilities and other support
    costs as a percentage of revenues before reimbursements.
    Asia Pacific operating income increased primarily due to
    improved gross margins in Australia and Japan and lower
    compensation costs and management and royalty fees as a
    percentage of revenues before reimbursements.
    Corporate and eliminations operating loss decreased primarily
    due to lower share-based compensation.  Interest
    Income
    Other
    Income (expense)
    Provision
    (Benefit) for Income Taxes
  non-U.S. deferred
  Liquidity
    and Capital Resources
   21




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##### Table of Contents



Six Months Ended March 31,Increase2007


2006


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

$
28,980


$
(1,921
)

$
30,901Investing activities


(3,564
)


(3,353
)


(211
)Financing activities


(6,060
)


399



(6,459
)Effect of exchange rate changes on
    cash and cash equivalents


1,460



(577
)


2,037Net increase (decrease) in cash
    and cash equivalents

$
20,816


$
(5,452
)

$
26,268   Operating activities:
  Investing activities:
  Financing activities:
  Foreign
    Exchange Instruments
  Accounting for Derivative Instruments and
    Hedging Activities.
  Redeemable
    Common Stock and Employee Put Rights
  30-day
 22




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##### Table of Contents



30-day
  30-day
  Off-Balance
    Sheet Arrangements
  and/or
  Newly
    Issued Accounting Standards
  Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
  Considering the Effects of
    Prior Year Misstatements when Quantifying Misstatements in
    Current Year Financial Statements
 23




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##### Table of Contents



Fair Value Measurements
  ITEM 3.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Foreign
    Currency Risk
  and/or
    Interest
    Rate Risk
    ITEM 4.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Form 10-Q, Rule 13a-15(e) 15d-15(e)
  Changes
    in Internal Control Over Financial Reporting
   24




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##### Table of Contents



PART II 
    OTHER INFORMATION  ITEM 1.
    LEGAL
    PROCEEDINGS      ITEM 1A.
    RISK
    FACTORS  Form 10-K Form 10-K
  ITEM 2.
    UNREGISTERED
    SALES OF EQUITY SECURITIES AND USE OF PROCEEDS    Purchases
    of Common Shares
    ApproximateTotal Number of


Dollar Value ofShares


Shares that MayPurchased as


Yet BePart of Publicly


Purchased UnderTotal Number


Average


Announced


Publiclyof Shares


Price Paid


Plans or


Announced PlansPeriod

Purchased(1)


per Share


Programs


or ProgramsJanuary 1, 2007 
    January 31, 2007


1,954


$
7.96







February 1, 2007 
    February 28, 2007


119,177



7.96







March 1, 2007 
    March 31, 2007


111,140



8.08







Total


232,271


$
8.02







     (1)
    
    During the second quarter of fiscal
    2007, the Company purchased 232,271 of its common shares in
    transactions unrelated to publicly announced share plans or
    programs. These transactions included the acquisition of 129,446
    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 in addition to
    102,825 shares surrendered to the Company to pay the exercise
    price in connection with so-called stock-swap
    exercises of employee stock options.  ITEM 3.
    DEFAULTS
    UPON SENIOR SECURITIES   25




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##### Table of Contents



ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS      
      BrokerFor


Against


Abstain/Withheld


Non-VotesElection of Directors:Pamela J. Craig


76,881,265



0



1,671,344



*Karl-Heinz Flöther


76,881,265



0



1,671,344



*Robert N. Frerichs


76,881,265



0



1,671,344



*Basilio Rueda


76,881,265



0



1,671,344



*Simon Witts


76,881,265



0



1,671,344



*Mitchell C. Hill


76,881,265



0



1,671,344



*     *
    
    not applicable.  ITEM 5.
    OTHER
    INFORMATION      ITEM 6.
    EXHIBITS    ExhibitNumber

Description of Document3
.1

Restated Articles of Incorporation
    of the Company, dated as of December 3, 2003 (incorporated
    by reference to Exhibit 3.1 to the Companys
    Form 10, filed January 20, 2006)3
.2

Amended and Restated By-laws of
    the Company, dated as of February 29, 2003 (incorporated by
    reference to Exhibit 3.2 to the Companys
    Form 10, filed January 20, 2006)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  26




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##### Table of Contents



SIGNATURES       By:
    /s/  Dennis K. Knapp    Title:
    Chief Financial Officer   27