##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended June 30, 2006.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 001-31451
 
 BEARINGPOINT, INC.
 (Exact name of Registrant as specified in its charter)
 
 DELAWARE
    
    22-3680505(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)1676 International Drive, McLean, VA
    
    22102(Address of principal executive offices)
    
    (Zip Code)
 (703) 747-3000
 (Registrants telephone number, including area code)
 
  o þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




---



##### 



BEARINGPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2006
 EXPLANATORY NOTE
    i




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##### 



BEARINGPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2006
 TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1: Financial Statements (unaudited)
    
    
    1Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2006 and 2005
    
    
    1Consolidated Condensed Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    2Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
    
    
    3Notes to Consolidated Condensed Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4: Controls and Procedures
    
    
    39PART IIOTHER INFORMATIONItem 1: Legal Proceedings
    
    
    40Item 1A: Risk Factors
    
    
    40Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3: Defaults Upon Senior Securities
    
    
    40Item 4: Submission of Matters to a Vote of Security Holders
    
    
    40Item 5: Other Information
    
    
    40Item 6: Exhibits
    
    
    40SIGNATURES
    
    
    41
 ii




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##### 



PART I, ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 BEARINGPOINT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    892,680
    
    
    $
    895,245
    
    
    $
    1,726,424
    
    
    $
    1,766,578Costs of service:Professional compensation
    
    
    423,693
    
    
    
    406,344
    
    
    
    852,942
    
    
    
    882,918Other direct contract expenses
    
    
    214,009
    
    
    
    247,139
    
    
    
    456,403
    
    
    
    530,981Lease and facilities restructuring charge
    
    
    2,488
    
    
    
    
    
    
    
    5,288
    
    
    
    19,605Other costs of service
    
    
    60,929
    
    
    
    64,459
    
    
    
    121,756
    
    
    
    130,821Total costs of service
    
    
    701,119
    
    
    
    717,942
    
    
    
    1,436,389
    
    
    
    1,564,325Gross profit
    
    
    191,561
    
    
    
    177,303
    
    
    
    290,035
    
    
    
    202,253Amortization of purchased intangible assets
    
    
    515
    
    
    
    566
    
    
    
    1,030
    
    
    
    1,132Selling, general and administrative expenses
    
    
    176,384
    
    
    
    164,360
    
    
    
    365,297
    
    
    
    327,801Operating income (loss)
    
    
    14,662
    
    
    
    12,377
    
    
    
    (76,292
    )
    
    
    (126,680
    )Interest income
    
    
    2,313
    
    
    
    1,682
    
    
    
    4,564
    
    
    
    3,033Interest expense
    
    
    (8,978
    )
    
    
    (8,834
    )
    
    
    (17,944
    )
    
    
    (16,890
    )Insurance settlement
    
    
    
    
    
    
    
    
    
    
    38,000
    
    
    
    Other income (expense), net
    
    
    1,314
    
    
    
    (5,270
    )
    
    
    1,692
    
    
    
    (10,353
    )Income (loss) before taxes
    
    
    9,311
    
    
    
    (45
    )
    
    
    (49,980
    )
    
    
    (150,890
    )Income tax expense
    
    
    12,164
    
    
    
    4,841
    
    
    
    25,586
    
    
    
    86,554Net loss
    
    $
    (2,853
    )
    
    $
    (4,886
    )
    
    $
    (75,566
    )
    
    $
    (237,444
    )Loss per share  basic and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.36
    )
    
    $
    (1.18
    )Weighted average shares  basic and diluted
    
    
    211,899,862
    
    
    
    201,235,807
    
    
    
    211,802,616
    
    
    
    200,799,624
  1




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##### 



BEARINGPOINT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
 June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    223,194
    
    
    $
    255,340Restricted cash
    
    
    30,332
    
    
    
    121,247Accounts receivable, net of allowances of $5,888 at
June 30, 2006 and $9,326 at December 31, 2005
    
    
    403,210
    
    
    
    432,415Unbilled revenue
    
    
    431,571
    
    
    
    355,137Income tax receivable
    
    
    7,956
    
    
    
    10,867Deferred income taxes
    
    
    9,587
    
    
    
    18,991Prepaid expenses
    
    
    53,714
    
    
    
    35,875Other current assets
    
    
    68,617
    
    
    
    40,345Total current assets
    
    
    1,228,181
    
    
    
    1,270,217Property and equipment, net
    
    
    155,185
    
    
    
    170,133Goodwill
    
    
    452,495
    
    
    
    427,688Other intangible assets, net
    
    
    515
    
    
    
    1,545Deferred income taxes, less current portion
    
    
    26,095
    
    
    
    20,915Other assets
    
    
    81,231
    
    
    
    81,928Total assets
    
    $
    1,943,702
    
    
    $
    1,972,426LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current portion of notes payable
    
    $
    1,727
    
    
    $
    6,393Accounts payable
    
    
    259,500
    
    
    
    286,273Accrued payroll and employee benefits
    
    
    304,429
    
    
    
    309,510Deferred revenue
    
    
    134,481
    
    
    
    166,647Income tax payable
    
    
    44,619
    
    
    
    41,839Current portion of accrued lease and facilities charges
    
    
    12,366
    
    
    
    12,515Deferred income taxes
    
    
    14,896
    
    
    
    10,095Accrued legal settlements
    
    
    85,083
    
    
    
    38,601Other current liabilities
    
    
    145,371
    
    
    
    169,624Total current liabilities
    
    
    1,002,472
    
    
    
    1,041,497Notes payable, less current portion
    
    
    669,686
    
    
    
    668,367Accrued employee benefits
    
    
    105,521
    
    
    
    92,338Accrued lease and facilities charges, less current portion
    
    
    36,898
    
    
    
    38,082Deferred income taxes, less current portion
    
    
    12,360
    
    
    
    22,876Income tax reserve
    
    
    99,865
    
    
    
    89,530Other liabilities
    
    
    91,186
    
    
    
    65,308Total liabilities
    
    
    2,017,988
    
    
    
    2,017,998Commitments and contingencies (note 9)Stockholders deficit:Preferred stock, $.01 par value 10,000,000 shares authorized
    
    
    
    
    
    
    Common stock, $.01 par value 1,000,000,000 shares authorized,
205,350,249 shares issued and 201,537,999 shares outstanding
on June 30, 2006 and December 31, 2005
    
    
    2,044
    
    
    
    2,044Additional paid-in capital
    
    
    1,283,312
    
    
    
    1,261,797Accumulated deficit
    
    
    (1,559,765
    )
    
    
    (1,484,199
    )Notes receivable from stockholders
    
    
    (7,580
    )
    
    
    (7,578
    )Accumulated other comprehensive income
    
    
    243,430
    
    
    
    218,091Treasury stock, at cost (3,812,250 shares)
    
    
    (35,727
    )
    
    
    (35,727
    )Total stockholders deficit
    
    
    (74,286
    )
    
    
    (45,572
    )Total liabilities and stockholders deficit
    
    $
    1,943,702
    
    
    $
    1,972,426
  2




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##### 



BEARINGPOINT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months EndedJune 30,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (75,566
    )
    
    $
    (237,444
    )Adjustments to reconcile net loss to net cash
used in operating activities:Deferred income taxes
    
    
    4,101
    
    
    
    60,938(Benefit) provision for doubtful accounts
    
    
    (2,250
    )
    
    
    174Stock-based compensation
    
    
    21,515
    
    
    
    5,134Depreciation and amortization of property and equipment
    
    
    36,703
    
    
    
    35,808Amortization of purchased intangible assets
    
    
    1,030
    
    
    
    1,133Lease and facilities restructuring charges
    
    
    5,288
    
    
    
    19,605Amortization of debt issuance costs and debt accretion
    
    
    4,358
    
    
    
    8,604Other
    
    
    (37
    )
    
    
    8,895Changes in assets and liabilities:Accounts receivable
    
    
    39,530
    
    
    
    (26,919
    )Unbilled revenue
    
    
    (70,922
    )
    
    
    (61,546
    )Income tax receivable, prepaid expenses and other
current assets
    
    
    (41,670
    )
    
    
    14,112Other assets
    
    
    (639
    )
    
    
    (8,270
    )Accounts payable, accrued legal settlements and
other current liabilities
    
    
    (12,438
    )
    
    
    90,271Accrued payroll and employee benefits
    
    
    (12,663
    )
    
    
    896Deferred revenue
    
    
    (34,335
    )
    
    
    13,635Income tax reserve and other liabilities
    
    
    35,632
    
    
    
    (23,618
    )Net cash used in operating activities
    
    
    (102,363
    )
    
    
    (98,592
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (22,197
    )
    
    
    (18,411
    )Decrease (increase) in restricted cash
    
    
    90,915
    
    
    
    (92,838
    )Net cash provided by (used in) investing activities
    
    
    68,718
    
    
    
    (111,249
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    14,897Proceeds from issuance of notes payable
    
    
    
    
    
    
    244,253Repayments of notes payable
    
    
    (5,130
    )
    
    
    (5,765
    )Decrease in book overdrafts
    
    
    (756
    )
    
    
    (1,479
    )Net cash (used in) provided by financing activities
    
    
    (5,886
    )
    
    
    251,906Effect of exchange rate changes on cash and cash equivalents
    
    
    7,385
    
    
    
    (8,513
    )Net (decrease) increase in cash and cash equivalents
    
    
    (32,146
    )
    
    
    33,552Cash and cash equivalents  beginning of period
    
    
    255,340
    
    
    
    244,810Cash and cash equivalents  end of period
    
    $
    223,194
    
    
    $
    278,362
  3




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 Note 1. Basis of Presentation and Liquidity
 Basis of Presentation
    Liquidity
  
    
    The Company has experienced significant recurring net losses. At June 30, 2006, the
Company had an accumulated deficit of $1,559,765 and a total stockholders deficit of
$74,286.
    
    The Companys business has not generated positive cash from operating activities in
certain quarters during fiscal years 2006 and 2005.
    
    Due to the material weaknesses in its internal controls, the Company continues to
experience significant delays in completing its consolidated financial statements and
filing periodic reports with the SEC on a timely basis. Accordingly, the Company continues
to devote substantial additional internal and external resources, and experience higher
than expected fees for audit services.
 4




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 
    
    Through December 31, 2006, the Company incurred cumulative losses of $139,882 under a
significant contract and a final settlement in 2007 with Hawaiian Telcom Communications,
Inc. (HT), which consequently resulted in significantly less cash from operating
activities in 2006 and, management believes, 2007.
    
    The Company currently is a party to a number of disputes that
involve or may involve litigation or other legal or regulatory
proceedings. See Note 9, Commitments and
Contingencies.
   Note 2. Stock-Based Compensation and Employee Stock Purchase Plan
 Long-Term Incentive Plan
    5




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 Options OutstandingOptions/Shares
    
    
    
    
    
    Weighted AverageAvailable
    
    
    
    
    
    Exercisefor Grant
    
    Number
    
    Price per ShareBalance at December 31, 2005
    
    
    7,609,567
    
    
    
    45,676,141
    
    
    $
    11.33Additional shares authorized
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (400
    )
    
    
    400
    
    
    
    8.95Options exercised
    
    
    
    
    
    
    
    
    
    
    Options forfeited/canceled
    
    
    7,153,720
    
    
    
    (7,153,720
    )
    
    
    12.54Restricted stock awards, net of forfeitures
    
    
    (451,210
    )
    
    
    n/a
    
    
    
    9.29Balance at June 30, 2006
    
    
    14,311,677
    
    
    
    38,522,821
    
    
    $
    11.10
     6




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 Unrecognized
    
    
    Weighted-Compensation
    
    
    Average Life inCosts
    
    
    YearsStock options
    
    $
    20,083
    
    
    
    2.2Restricted stock and stock unit awards
    
    
    14,566
    
    
    
    4.0ESPP
    
    
    7,031
    
    
    
    1.5Total
    
    $
    41,680
    
    
    
    2.7
  Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net loss
    
    $
    (4,886
    )
    
    $
    (237,444
    )Add back:Total stock-based compensation expense recorded
under intrinsic value method for all stock
awards, net of tax effects
    
    
    3,414
    
    
    
    5,134Deduct:Total stock-based compensation expense recorded
under fair value method for all stock
awards, net of tax effects
    
    
    (26,029
    )
    
    
    (51,144
    )Pro forma net loss
    
    $
    (27,501
    )
    
    $
    (283,454
    )Loss per share:Basic and diluted  as reported
    
    $
    (0.02
    )
    
    $
    (1.18
    )Basic and diluted  pro forma
    
    $
    (0.14
    )
    
    $
    (1.41
    )
   7




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 WeightedWeighted
    
    AverageStock Price
    
    Risk-Free
    
    
    
    
    
    Expected
    
    Average
    
    Grant DateExpected
    
    Interest
    
    Expected
    
    Dividend
    
    Exercise
    
    FairVolatility
    
    Rate
    
    Life
    
    Yield
    
    Price
    
    ValueThree months ended June 30,
2006
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aThree months ended June 30,
2005
    
    
    50.70
    %
    
    
    3.93
    %
    
    
    6
    
    
    
    
    
    
    $
    7.46
    
    
    $
    3.94Six months ended June 30, 2006
    
    
    50.80
    %
    
    
    4.59
    %
    
    
    6
    
    
    
    
    
    
    $
    8.95
    
    
    $
    4.82Six months ended June 30, 2005
    
    
    51.27
    %
    
    
    3.96
    %
    
    
    6
    
    
    
    
    
    
    $
    7.77
    
    
    $
    4.73
  Stock Option Plans
  Outstanding Options(1)
    
    
    
    
    
    Options Exercisable(1)Weighted Average
    
    Weighted
    
    
    
    
    
    WeightedNumber
    
    Remaining
    
    Average
    
    Number
    
    AverageOutstanding
    
    Contractual
    
    Exercise
    
    Exercisable
    
    ExerciseRange of Exercise Price
    
    June 30, 2006
    
    Life (Years)
    
    Price
    
    June 30, 2006
    
    Price$ 0.00-$11.10
    
    
    26,835,305
    
    
    
    7.2
    
    
    $
    8.83
    
    
    
    18,387,306
    
    
    $
    9.21$11.11-$16.64
    
    
    5,471,094
    
    
    
    5.2
    
    
    $
    13.25
    
    
    
    5,383,881
    
    
    $
    13.25$16.65-$27.75
    
    
    6,054,806
    
    
    
    4.5
    
    
    $
    18.03
    
    
    
    6,054,806
    
    
    $
    18.03$49.95-$55.50
    
    
    161,616
    
    
    
    3.6
    
    
    $
    55.50
    
    
    
    161,616
    
    
    $
    55.5038,522,821
    
    
    
    6.5
    
    
    $
    11.10
    
    
    
    29,987,609
    
    
    $
    11.96Vested or Expected to vest at June 30, 2006 (1)
    
    
    37,242,539
    
    
    
    6.4
 
 (1)
    
    The aggregate intrinsic values for stock options
outstanding, exercisable and vested or expected to vest as of June 30, 2006 of
$6,922, $3,249 and $6,371, respectively, represent the total pre-tax instrinsic
values based upon our closing stock price of $8.37 as of June 30, 2006 which
would have been received by the option holders had all the in-the-money options
been exercised as of that date.     8




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
   Restricted Stock Units
  WeightedAverageGrantDate FairNumber of RSUs
    
    ValueOutstanding at December 31, 2005
    
    
    13,268,265
    
    
    $
    7.61Granted
    
    
    677,910
    
    
    
    8.76Settled
    
    
    
    
    
    
    Forfeited
    
    
    (235,778
    )
    
    
    7.79Outstanding at June 30, 2006
    
    
    13,710,397
    
    
    $
    7.66
  
    
    646,214 RSUs generally either (i) cliff vest and settle three years from the grant date
or (ii) vest and settle over two to four years from the grant date; and
    
    31,696 RSUs vest immediately on the grant date, and will
settle in April 2009.
   Employee Stock Purchase Plan
  9




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
   Note 3. Notes Payable
  June 30,
    
    
    December 31,2006
    
    
    2005Current portion:Yen-denominated term loan (January 31, 2003)
    
    $
    
    
    
    $
    2,803Yen-denominated term loan (June 30, 2003)
    
    
    
    
    
    
    1,402Other
    
    
    1,727
    
    
    
    2,188Total current portion
    
    
    1,727
    
    
    
    6,393Long-term portion:Series A and Series B Convertible Debentures
    
    
    450,000
    
    
    
    450,000April 2005 Convertible Debentures
    
    
    200,000
    
    
    
    200,000July 2005 Convertible Debentures (net of discount of
$20,314 and $21,946, respectively)
    
    
    19,686
    
    
    
    18,054Other
    
    
    
    
    
    
    313Total long-term portion
    
    
    669,686
    
    
    
    668,367Total notes payable
    
    $
    671,413
    
    
    $
    674,760
 2007 Credit Facility
   10




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
   
    
    The affirmative covenantsinclude, among other things: the delivery of unaudited
quarterly and audited annual financial statements, all in accordance with generally
accepted accounting principles, certain monthly operating metrics and budgets; compliance
with applicable laws and regulations (excluding, prior to October 31, 2008, compliance with
certain filing requirements under the securities laws); maintenance of existence and
insurance; after October 31, 2008, as requested by the Administrative Agent, maintenance of
credit ratings; and maintenance of books and records (subject to the material weaknesses
previously disclosed in the Companys 2005 Form 10-K).
    
    The negative covenants, which (subject to exceptions) restrict certain of the Companys
corporate activities, include, among other things, limitations on: disposition of assets;
mergers and acquisitions; payment of dividends; stock repurchases and redemptions;
incurrence of additional indebtedness; making of loans and investments; creation of liens;
prepayment of other indebtedness; and engaging in certain transactions with affiliates.
    Discontinued 2005 Credit Facility
   11




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
    
    
    The financial covenants included: (i) a minimum U.S. cash collections requirement, (ii)
a minimum trailing twelve-month EBITDA covenant, (iii) a maximum leverage ratio and (iv) a
maximum trailing twelve-month capital expenditures covenant.
  
    
    The affirmative covenants included the Company becoming
current in its SEC periodic filings in
accordance to a predetermined schedule, repatriation of a $65,000 of cash from foreign
subsidiaries and the submission to its lender certain weekly and monthly reports providing
various financial information.
    
    The negative covenants significantly restricted the Companys corporate activities and
ability to dispose of assets without the lenders consent.
    
    Standard events of default for a senior secured facility were included, as well as
default for payments in respect of judgments against the Company in excess of $18,000;
termination of trading of Company stock; and certain indictments, convictions or the
commencement of criminal proceedings of or against the Company or any subsidiary.
    12




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
  Note 4. Earnings (Loss) Per Share
  Note 5. Comprehensive Loss
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net loss
    
    $
    (2,853
    )
    
    $
    (4,886
    )
    
    $
    (75,566
    )
    
    $
    (237,444
    )Foreign currency translation adjustment, net of tax (a)
    
    
    15,273
    
    
    
    (26,392
    )
    
    
    20,009
    
    
    
    (47,073
    )Minimum pension liability
    
    
    
    
    
    
    
    
    
    
    5,329
    
    
    
    Comprehensive income (loss)
    
    $
    12,420
    
    
    $
    (31,278
    )
    
    $
    (50,228
    )
    
    $
    (284,517
    )
 
 (a)
    
    Movement in the foreign currency translation adjustment is primarily due to
exchange-rate fluctuations of the Euro and Japanese Yen against the U.S. dollar. Note 6. Segment Reporting
  13




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 Three Months EndedJune 30,2006
    
    
    2005Operating
    
    
    
    
    
    
    OperatingRevenue
    
    
    Income (Loss)
    
    
    Revenue
    
    
    Income (Loss)Public Services
    
    $
    341,081
    
    
    $
    70,652
    
    
    $
    346,337
    
    
    $
    70,327Commercial Services
    
    
    159,323
    
    
    
    40,380
    
    
    
    177,177
    
    
    
    23,878Financial Services
    
    
    112,170
    
    
    
    32,984
    
    
    
    87,818
    
    
    
    21,459EMEA
    
    
    170,427
    
    
    
    26,687
    
    
    
    181,031
    
    
    
    26,596Asia Pacific
    
    
    89,627
    
    
    
    18,858
    
    
    
    80,264
    
    
    
    12,693Latin America
    
    
    18,660
    
    
    
    1,070
    
    
    
    22,145
    
    
    
    3,273Corporate/Other
    
    
    1,392
    
    
    
    (175,969
    )
    
    
    473
    
    
    
    (145,849
    )Total
    
    $
    892,680
    
    
    $
    14,662
    
    
    $
    895,245
    
    
    $
    12,377
 Six Months EndedJune 30,2006
    
    
    2005Operating
    
    
    
    
    
    
    OperatingRevenue
    
    
    Income (Loss)
    
    
    Revenue
    
    
    Income (Loss)Public Services
    
    $
    672,197
    
    
    $
    122,805
    
    
    $
    678,438
    
    
    $
    139,095Commercial Services
    
    
    276,430
    
    
    
    11,861
    
    
    
    349,964
    
    
    
    (64,619
    )Financial Services
    
    
    222,672
    
    
    
    69,735
    
    
    
    178,517
    
    
    
    41,779EMEA
    
    
    334,607
    
    
    
    52,334
    
    
    
    352,571
    
    
    
    47,291Asia Pacific
    
    
    180,062
    
    
    
    36,213
    
    
    
    163,975
    
    
    
    24,923Latin America
    
    
    37,881
    
    
    
    2,109
    
    
    
    42,178
    
    
    
    7,085Corporate/Other
    
    
    2,575
    
    
    
    (371,349
    )
    
    
    935
    
    
    
    (322,234
    )Total
    
    $
    1,726,424
    
    
    $
    (76,292
    )
    
    $
    1,766,578
    
    
    $
    (126,680
    )
 Note 7. Goodwill and Other Intangible Assets
  ForeignBalance
    
    
    
    
    
    Currency
    
    
    BalanceDecember 31,
    
    
    Impairment
    
    
    Translation
    
    
    June 30,2005
    
    
    Charge
    
    
    Adjustment
    
    
    2006Public Services
    
    $
    23,581
    
    
    $
    
    
    
    $
    
    
    
    $
    23,581Financial Services
    
    
    9,210
    
    
    
    
    
    
    
    
    
    
    
    9,210EMEA
    
    
    325,262
    
    
    
    
    
    
    
    23,796
    
    
    
    349,058Asia Pacific
    
    
    68,562
    
    
    
    
    
    
    
    974
    
    
    
    69,536Latin America
    
    
    871
    
    
    
    
    
    
    
    37
    
    
    
    908Corporate/Other
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    202Total
    
    $
    427,688
    
    
    $
    
    
    
    $
    24,807
    
    
    $
    452,495
 14




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
   June 30,
    
    
    December 31,2006
    
    
    2005Other intangible assets:Backlog, customer contracts and related customer relationships
    
    $
    1,309
    
    
    $
    1,309Market rights
    
    
    10,297
    
    
    
    10,297Total other intangibles
    
    
    11,606
    
    
    
    11,606Accumulated amortization:Backlog, customer contracts and related customer relationships
    
    
    (1,309
    )
    
    
    (1,309
    )Market rights
    
    
    (9,782
    )
    
    
    (8,752
    )Total accumulated amortization
    
    
    (11,091
    )
    
    
    (10,061
    )Other intangible assets, net
    
    $
    515
    
    
    $
    1,545
  Note 8. Restructuring Activities
   TotalBalance at December 31, 2005
    
    $
    50,597Charges to operations
    
    
    5,288Payments
    
    
    (7,303
    )Other (a)
    
    
    682Balance at June 30, 2006
    
    $
    49,264
 
 (a)
    
    Other changes in the restructuring accrual consist primarily of foreign currency
translation adjustments. 15




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 Note 9. Commitments and Contingencies
  
    
    Claims and investigations arising from its continuing inability to timely file periodic
reports under the Exchange Act (the Exchange Act), and the restatement of its financial
statements for certain prior periods to correct accounting errors and departures from
generally accepted accounting principles for those years (SEC Reporting Matters);
    
    Claims and investigations being conducted by agencies or officers of the U.S. Federal
government and arising in connection with its provision of services under contracts with
agencies of the U.S. Federal government (Government Contracting Matters); and
    
    Claims made in the ordinary course of business by clients seeking damages for alleged
breaches of contract or failure of performance, by current or former employees seeking
damages for alleged acts of wrongful termination or discrimination, and by creditors or
other vendors alleging defaults in payment or performance (Other Matters).
  SEC Reporting Matters
 2005 Class Action Suits
 Makor Issues & Rights, Ltd v. Tellabs, Tellabs
 2005 Shareholders Derivative Demand
  16




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
  Series B Debenture Suit
      SEC Investigation
   Government Contracting Matters
 Government Contracts
 17




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
  California Subpoena
  Travel Rebate Investigation
  Department of Interior
  United States Agency for International Development Contract
 United States Agency for International
Development
 18




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
  Core Financial Logistics System
  General Services Administration Audit
   Other Matters
 Peregrine Litigation
  In re Peregrine Systems, Inc. Securities Litigation
  19




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 Hawaiian Telcom Communications, Inc.
  Telecommunications Company
  Michael Donahue
  Canon Australia
  Transition Services Provided By KPMG LLP
  20




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
   Other Commitments
   Note 10. Pension and Postretirement Benefits
  21




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Components of net periodic pension cost:Service cost
    
    $
    1,792
    
    
    $
    1,591
    
    
    $
    3,584
    
    
    $
    3,182Interest cost
    
    
    1,107
    
    
    
    1,042
    
    
    
    2,214
    
    
    
    2,084Expected return on plan assets
    
    
    (269
    )
    
    
    (293
    )
    
    
    (538
    )
    
    
    (586
    )Amortization of loss
    
    
    256
    
    
    
    4
    
    
    
    512
    
    
    
    8Amortization of prior service cost
    
    
    159
    
    
    
    194
    
    
    
    318
    
    
    
    388Curtailment
    
    
    30
    
    
    
    (208
    )
    
    
    60
    
    
    
    (416
    )Settlement
    
    
    (91
    )
    
    
    (58
    )
    
    
    (182
    )
    
    
    (116
    )Net periodic pension cost
    
    $
    2,984
    
    
    $
    2,272
    
    
    $
    5,968
    
    
    $
    4,544Components of net periodic postretirement medical cost:Service cost
    
    $
    480
    
    
    $
    314
    
    
    $
    960
    
    
    $
    628Interest cost
    
    
    184
    
    
    
    143
    
    
    
    368
    
    
    
    286Amortization of losses
    
    
    39
    
    
    
    18
    
    
    
    78
    
    
    
    36Amortization of prior service cost
    
    
    120
    
    
    
    120
    
    
    
    240
    
    
    
    240Net periodic postretirement medical cost
    
    $
    823
    
    
    $
    595
    
    
    $
    1,646
    
    
    $
    1,190
 Note 11. Income Taxes
   Note 12. Recently Issued Accounting Pronouncements
   22




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 
(Continued)
      23




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##### 



PART I, ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the interim Consolidated Condensed Financial
Statements and the Notes to the Consolidated Condensed Financial Statements included elsewhere in
this Quarterly Report on Form 10-Q .
 Disclosure Regarding Forward-Looking Statements
  
    
    Our continuing failure to timely file certain periodic reports with the SEC poses
significant risks to our business, each of which could materially and adversely affect our
financial condition and results of operations.
    
    In 2004, we identified material weaknesses in our internal control over financial
reporting, the remediation of which has materially and adversely affected our business and
financial condition, and as of December 31, 2006, these material weaknesses remain.
    
    We face risks related to securities litigation and regulatory actions that could
adversely affect our financial condition and business.
    
    Our business may be adversely impacted as a result of changes in demand, both globally
and in individual market segments, for our consulting and systems integration services.
    
    Our operating results will suffer if we are not able to maintain our billing and
utilization rates or control our costs.
    
    We continue to incur selling, general and administrative (SG&A) expenses at levels
significantly higher than those of our competitors. If we are unable to significantly
reduce SG&A expenses over the near term, our ability to achieve, and make significant
improvements in, net income and profitability will remain in jeopardy.
    
    The systems integration consulting markets are highly competitive, and we may not be
able to compete effectively if we are not able to maintain our billing rates or control our
costs related to these engagements.
    
    Contracting with the Federal government is inherently risky and exposes us to risks that
may materially and adversely affect our business.
    
    Our ability to attract, retain and motivate our managing directors and other key
employees is critical to the success of our business. We continue to experience sustained,
higher-than-industry average levels of voluntary turnover among our workforce, which has
impacted our ability to grow our business.
    
    Our contracts can be terminated by our clients with short notice, or our clients may
cancel or delay projects.
    
    If we are not able to keep up with rapid changes in technology or maintain strong
relationships with software providers, our business could suffer.
    
    Loss of our joint marketing relationships could reduce our revenue and growth prospects.
    
    We are not likely to be able to significantly grow our business through mergers and acquisitions in the near term.
    
    There will not be a consistent pattern in our financial results from quarter to quarter,
which may result in increased volatility of our stock price.
    
    Our profitability may decline due to financial, regulatory and operational risks
inherent in worldwide operations.
    
    We may bear the risk of cost overruns relating to our services, thereby adversely affecting our profitability.
    
    We may face legal liabilities and damage to our professional reputation from claims made against our work.
    
    Our services may infringe upon the intellectual property rights of others.
 24




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##### 




    
    We have only a limited ability to protect our intellectual property rights, which are important to our success.
    
    Our current cash resources might not be sufficient to meet our expected cash needs over time.
    
    We have been unable to issue shares of our common stock under our ESPP since February 1,
2005. The longer we are unable to issue shares of our common stock, the more likely our
ESPP participants may elect to withdraw their accumulated cash contributions from the ESPP
at rates higher than those we have historically experienced.
    
    Our 2007 Credit Facility imposes a number of restrictions on the way in which we operate
our business and may negatively affect our ability to finance future needs, or do so on
favorable terms. If we violate these restrictions, we will be in default under the 2007
Credit Facility, which may cross-default to our other indebtedness.
    
    If we cannot generate positive cash flow from our operations, we eventually may not be
able to service our indebtedness.
    
    We may be unable to obtain new surety bonds, letters of credit or bank guarantees in
support of client engagements on acceptable terms.
    
    Downgrades of our credit ratings may increase our borrowing costs and materially and
adversely affect our financial condition.
    
    Our leverage may adversely affect our business and financial performance and may
restrict our operating flexibility.
    
    The holders of our debentures have the right, at their option, to require us to purchase
some or all of their debentures upon certain dates or upon the occurrence of certain
designated events, which could have a material adverse effect on our liquidity.
    
    The price of our common stock may decline due to the number of shares that may be
available for sale in the future.
    
    There are significant limitations on the ability of any person or company to acquire the
Company without the approval of our Board of Directors.
  Explanatory Note
   Overview
   Economic and Industry Factors
  25




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##### 



Revenue and Income Drivers
     Key Performance Indicators
  
    
    Bookings.We believe that information regarding our new contract bookings provides
useful trend information regarding how the volume of our new business changes over time.
Comparing the amount of new contract bookings and revenue provides us with an additional
measure of the short-term sustainability of revenue growth. Information regarding our new
bookings should not be compared to, or substituted for, an analysis of our revenue over
time. There are no third-party standards or requirements governing the calculation of
bookings. New contract bookings are recorded using then existing currency exchange rates
and are not subsequently adjusted for currency fluctuations. These amounts represent our
estimate at contract signing of the net revenue expected over the term of that contract and
involve estimates and judgments regarding new contracts as well as renewals, extensions and
additions to existing contracts. Subsequent cancellations, extensions and other matters may
affect the amount of bookings previously reported. Bookings do not include potential
revenue that could be earned from a client relationship as a result of future expansion of
service offerings to that client, nor does it reflect option years under
contracts that are subject to client discretion.
 26




---



##### 



In addition, government contracts or work orders are not included in bookings until related
appropriations spending has been properly approved and, then, only to the extent of the amount of
spending approved. Consequently, there can be significant differences between the times of contract
signing and new contract booking recognition. Although our level of
bookings provides an indication of how our business is performing, we
do not characterize our bookings, or our engagement contracts
associated with new bookings, as backlog because our engagements
generally can be cancelled or terminated on short notice or without
notice.
 
    
    Revenue Growth.Unlike bookings, which provide only a general sense of future
expectations, period-over-period comparisons of revenue provide a meaningful depiction of
how successful we have been in growing our business over time.
    
    Gross Margin (gross profit as a percentage of revenue).Gross margin is a meaningful
tool for monitoring our ability to control our costs of services. Analysis of the various
cost elements, including professional compensation expense, effects of foreign exchange
rate changes and the use of subcontractors, as a percentage of revenue over time can
provide additional information as to the key challenges we are facing in our business. The
cost of subcontractors is generally more expensive than the cost of our own workforce and
can negatively impact our gross profit. While the use of subcontractors can help us to win
larger, more complex deals, and also may be mandated by our clients, we focus on limiting
the use of subcontractors whenever possible in order to minimize our costs. We also
utilize certain adjusted gross margin metrics in connection with the vesting and settlement
of certain employee incentive awards. For a discussion of these
metrics, see Item 11,
Executive CompensationCompensation
Discussion and Analysis included in our 2006 Form 10-K.
    
    Utilization.Utilization represents the percentage of time our consultants are
performing work, and is defined as total hours charged to client engagement or to
non-chargeable client-relationship projects, divided by total available hours for any
specific time period, net of holiday and paid vacation hours. In 2006, we changed how we
define utilization to make this metric more consistent with how we believe our industry
peer group measures this metric. Utilization percentages for fiscal 2005 set forth herein
have been adjusted to conform to this new definition.
    
    Days Sales Outstanding (DSO).DSO is an operational metric that approximates the
amount of earned revenue that remains unpaid by clients at a given time. DSOs are derived
by dividing the sum of our outstanding accounts receivable and unbilled revenue, less
deferred revenue, by our average net revenue per day. Average net revenue per day is
determined by dividing total net revenue for the most recently ended trailing twelve-month
period by 365.
    
    Free Cash Flow.Free cash flow is calculated by subtracting purchases of property and
equipment from cash provided by operating activities. We believe free cash flow is a useful
measure because it allows better understanding and assessment of our ability to meet debt
service requirements and the amount of recurring cash generated from operations after
expenditures for fixed assets. Free cash flow does not represent our residual
cash flow available for discretionary expenditures as it excludes certain mandatory
expenditures such as repayment of maturing debt. We use free cash flow as a measure of
recurring operating cash flow. Free cash flow is a non-GAAP financial measure. The most
directly comparable financial measure calculated in accordance with
generally accepted accounting principles in the United States of
America (GAAP) is net cash
provided by operating activities.
    
    Attrition.Attrition, or voluntary total employee turnover, is calculated by dividing
the number of our employees who have chosen to leave the Company within a certain period by
the total average number of all employees during that same period. Our attrition statistic
covers all of our employees, which we believe provides metrics that are more compatible
with, and comparable to, those of our competitors.
  Three and Six Months Ended June 30, 2006 Highlights
  27




---



##### 




    
    New contract bookings for the three months ended June 30, 2006 were $813.2 million, a
decrease of $149.9 million, or 15.6%, from new contract bookings of $963.1 million for the
three months ended June 30, 2005. New contract bookings for the six months ended June 30,
2006 were $1,617.7 million, a decrease of $39.6 million, or 2.4%, from new contract
bookings of $1,657.3 million for the six months ended June 30, 2005. For the three months
ended June 30, 2006, new contract bookings decreased in all
industry groups and regions,
with the exception of Latin America. For the six months ended June 30, 2006, new contract
bookings decreased as bookings decreased in our Commercial Services and Financial Services
industry groups, while bookings in our EMEA, Asia Pacific and Latin America regions
increased significantly. For the three and six months ended June 30, 2006, Commercial
Services experienced a decrease in bookings from 2005.
    
    Our revenue for the three months ended June 30, 2006 was $892.7 million, a decrease of
$2.6 million, or 0.3%, from revenue for the three months ended June 30, 2005 of $895.2
million. Our revenue for the six months ended June 30, 2006 was $1,726.4 million, a
decrease of $40.2 million, or 2.3%, from revenue for the six months ended June 30, 2005 of
$1,766.6 million. The revenue decreases in both periods were due to revenue declines in
our Commercial Services and EMEA industry groups, partially offset by revenue growth in our
Financial Services industry group.
    
    Our gross profit for the three months ended June 30, 2006 was $191.6 million, compared
with $177.3 million for the three months ended June 30, 2005. Gross profit as a percentage
of revenue increased to 21.5% during the three months ended June 30, 2006 from 19.8% during
the three months ended June 30, 2005. The increase was primarily due to significant
reductions in other direct contract expenses, despite the decline in revenue. Our gross
profit for the six months ended June 30, 2006 was $290.0 million, compared with $202.3
million for the six months ended June 30, 2005. Gross profit as a percentage of revenue
increased to 16.8% during the six months ended June 30, 2006 from 11.4% during the six
months ended June 30, 2005. The increase was primarily due to significant reductions in
professional compensation expense and other direct contract expenses.
    
    We incurred SG&A expenses of $176.4 million in
the second quarter of 2006, representing an increase of $12.0 million, or 7.3%, over SG&A
expenses of $164.4 million in the second quarter of 2005. We incurred SG&A expenses of
$365.3 million in the six months ended June 30, 2006, representing an increase of $37.5
million, or 11.4%, over SG&A expenses of $327.8 million in the six months ended June 30,
2005. The increases in SG&A expenses for both periods were related to increases in our
finance and accounting costs, primarily for sub-contracted labor and other costs related to
the closing of our 2005 financial statements.
    
    During the second quarter of 2006, we realized a net loss of $2.9 million, or a loss of
$0.01 per share, compared to a net loss of $4.9 million, or a loss of $0.02 per share,
during the second quarter of 2005.
    
    During the six months ended June 30, 2006, we realized a net loss of $75.6 million, or a
loss of $0.36 per share, compared to a net loss of $237.4 million, or a loss of $1.18 per
share, during the six months ended June 30, 2005. The decline in net loss for the six-month
period was attributable to several factors, including:
 
    
    Gross profit for the six months ended June 30, 2006 improved company wide
compared to our gross profit for the six months ended June 30, 2005,
representing an increase of $87.8 million;
    
    We recorded $38.0 million in the six months ended June 30, 2006 for an
insurance settlement in connection with our settlement with Hawaiian Telcom
Communications, Inc. (the HT Contract); and
    
    Our income tax provision for the six months ended June 30, 2006 was lower
than our income tax provision for the six months ended June 30, 2005, as the
2005 amount included a $57.3 million increase to valuation allowance,
primarily against our U.S. deferred tax assets.
 Contributing to the net loss for the six months ended June 30, 2006 were $38.0 million of losses
related to the previously mentioned settlements with
telecommunication clients, $26.7 million
accrued for bonuses payable to our employees, $21.5 million of
stock-based compensation expense and
$5.3 million of lease and facilities restructuring charges.
 28




---



##### 




    
    Utilization for the three months ended June 30, 2006 was 76.8%, an increase of 90 basis
points over the three months ended June 30, 2005. Utilization for the six months ended June
30, 2006 was 75.0%, a decrease of 130 basis points from the six months ended June 30, 2005.
Utilization for the three months ended March 31, 2007 was 76.6%.
    
    Free cash flow for the six months ended June 30, 2006 and 2005 was ($124.6) million and
($117.0) million, respectively. Net cash used in operating activities in the six months
ended June 30, 2006 and 2005 was ($102.4) million and ($98.6) million, respectively.
Purchases of property and equipment in the six months ended June 30, 2006 and 2005 were
$22.2 million and $18.4 million, respectively. The change in free cash flow for the
six-month period resulted primarily from:
 
    
    We experienced greater cash outflows in 2006 due to payments made for
professional services and related expenses accrued under the HT Contract and
other liabilities during 2005;
    
    We lowered our DSOs in 2006 through enhancements in our cash collections
efforts. At June 30, 2006, our DSOs stood at 104 days, representing a
decrease of 7 days, or 6%, from our DSOs at June 30, 2005. Our continued
focus on this metric during 2006 improved our free cash flow by
$66.4 million during
the six months ended June 30, 2006 as compared to the six months ended June
30, 2005.
    
    We experienced higher operating profitability in our business, as
evidenced by the sharp decline in operating loss for 2006 as compared to
2005.
 
    
    As of June 30, 2006, we had approximately 17,300 full-time employees, including
approximately 15,200 consulting professionals. This represented an increase in billable
headcount of approximately 0.7% from our headcount as of June 30, 2005, which consisted of
17,200 full-time employees and 15,100 consulting professionals, respectively. As of March
31, 2007, we had approximately 17,500 full-time employees, including approximately 15,200
consulting professionals.
    
    Our voluntary, annualized attrition rate for second quarter of 2006 was 28.6%, compared
to 27.0% for the second quarter of 2005. The highly competitive industry in which we
operate, and our continuing issues related to our North American financial reporting
systems and internal controls, have made it particularly critical and challenging for us to
attract and retain experienced personnel. Our voluntary, annualized attrition rate for
the three months ended March 31, 2007 was 23.9%.
 Principal Business Priorities for 2007 and Beyond
  Segments
   Three Months ended June 30, 2006 Compared to Three Months ended June 30, 2005
 Revenue.
 29




---



##### 



Three Months EndedJune 30,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeRevenuePublic Services
    
    $
    341,081
    
    
    $
    346,337
    
    
    $
    (5,256
    )
    
    
    (1.5
    %)Commercial Services
    
    
    159,323
    
    
    
    177,177
    
    
    
    (17,854
    )
    
    
    (10.1
    %)Financial Services
    
    
    112,170
    
    
    
    87,818
    
    
    
    24,352
    
    
    
    27.7
    %EMEA
    
    
    170,427
    
    
    
    181,031
    
    
    
    (10,604
    )
    
    
    (5.9
    %)Asia Pacific
    
    
    89,627
    
    
    
    80,264
    
    
    
    9,363
    
    
    
    11.7
    %Latin America
    
    
    18,660
    
    
    
    22,145
    
    
    
    (3,485
    )
    
    
    (15.7
    %)Corporate/Other
    
    
    1,392
    
    
    
    473
    
    
    
    919
    
    
    
    n/mTotal
    
    $
    892,680
    
    
    $
    895,245
    
    
    $
    (2,565
    )
    
    
    (0.3
    %)
 Impact of
    
    Revenue growthcurrency
    
    (decline), net offluctuations
    
    currency impact
    
    TotalRevenuePublic Services
    
    
    0.0
    %
    
    
    (1.5
    %)
    
    
    (1.5
    %)Commercial Services
    
    
    0.0
    %
    
    
    (10.1
    %)
    
    
    (10.1
    %)Financial Services
    
    
    0.0
    %
    
    
    27.7
    %
    
    
    27.7
    %EMEA
    
    
    (0.3
    %)
    
    
    (5.6
    %)
    
    
    (5.9
    %)Asia Pacific
    
    
    (4.4
    %)
    
    
    16.1
    %
    
    
    11.7
    %Latin America
    
    
    8.1
    %
    
    
    (23.8
    %)
    
    
    (15.7
    %)Corporate/Other
    
    
    n/m
    
    
    
    n/m
    
    
    
    n/mTotal
    
    
    (0.3
    %)
    
    
    0.0
    %
    
    
    (0.3
    %)
 
 n/m = not meaningful 
    
    Public Servicesrevenue decreased during the second quarter of 2006, primarily
due to a revenue decline in our Civilian business sector, which significantly offset
revenue growth in certain other sectors.
    
    Commercial Servicesrevenue decreased during the second quarter of 2006, primarily due
to reduced customer demand for our services, particularly within the telecommunications
industry.
    
    Financial Servicesrevenue increased during the second quarter of 2006, primarily due
to strong revenue growth in our Banking and Insurance sectors. Increased revenue in our
Banking sector was attributable to existing client engagements and the introduction of
some new clients into our traditional client base. Insurance sector revenue increased in
response to industry-wide demand for major technology updates and upgrades to operational
systems.
    
    EMEArevenue decreased during the second quarter of 2006, primarily as a result of a
significant revenue decline in Germany, partially offset by revenue growth in France.
Revenue in Germany decreased due to a combination of the impact of reductions in billable
headcount precipitated by the restructuring of our German
 30




---



##### 



practice, increased pressure on
pricing and a reduction in the spending levels of German public sector clients.
Revenue growth in France was driven by an expanding systems integration practice and
additional penetration into the French public sector market in 2006.
 
    
    Asia Pacificrevenue increased during the second quarter of 2006, primarily due to
significant revenue growth in Japan and Australia. Japanese revenue increased due to
revenue growth from system implementation contracts and projects involving compliance
with Japans Financial Instruments and Exchange Law, though a substantial portion of this
revenue growth was derived from the use of subcontractors. Australian revenue increased
primarily due to a significant new client engagement in the telecommunications industry.
Asia Pacific revenue was negatively affected in 2006 by the weakening of foreign
currencies against the U.S. dollar (primarily the Japanese Yen).
    
    Latin Americarevenue decreased during the second quarter of 2006, due to decline in
local revenue growth in Mexico and Brazil, partially offset by the strengthening of
foreign currencies in Latin America against the U.S. Dollar (particularly the Brazilian
Real). Revenue in Mexico declined as they continue to restructure the business to
position itself for future growth, while revenue in Brazil declined due to the
significantly reduced activity on a large client engagement.
    
    Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue.
 Gross Profit .
 
    
    Professional compensation expense increased as a percentage of revenue to 47.5%
for the second quarter of 2006, compared to 45.4% for the second quarter of 2005. We
experienced a net increase in professional compensation expense of $17.3 million, or 4.3%,
to $423.7 million for the second quarter of 2006 from $406.3 million for the second
quarter of 2005. The increase in professional compensation expense is primarily the
result of hiring additional billable employees in response to increased demand for our
services.
    
    Other direct contract expenses decreased as a percentage of revenue to 24.0% for
the second quarter of 2006, compared to 27.6% for the second quarter of 2005. We
experienced a net decrease in other direct contract expenses of $33.1 million, or 13.4%,
to $214.0 million for the second quarter of 2006 from $247.1 million for the second
quarter of 2005. The change was driven primarily by reduced subcontractor expenses as a
result of the increased use of internal resources.
    
    Other costs of service as a percentage of revenue decreased to 6.8% for the second
quarter of 2006 from 7.2% for the second quarter of 2005. We experienced a net decrease
in other costs of service of $3.5 million, or 5.5%, to $60.9 million for the second
quarter of 2006 from $64.5 million for the second quarter of 2005. The decrease was
primarily attributable to cost savings realized directly or indirectly from office space
reduction efforts taken to date.
    
    During the second quarter of 2006, we recorded within the Corporate/Other operating
segment, a charge of $2.5 million related to lease, facilities and other exit activities.
These charges related primarily to the fair value of future lease obligations associated
with office space, primarily within the EMEA and North America regions, which we will no
longer be using.
 Gross Profit by Segment.
 31




---



##### 



Three Months EndedJune 30,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeGross ProfitPublic Services
    
    $
    78,415
    
    
    $
    79,816
    
    
    $
    (1,401
    )
    
    
    (1.8
    %)Commercial Services
    
    
    46,600
    
    
    
    34,764
    
    
    
    11,836
    
    
    
    34.0
    %Financial Services
    
    
    39,458
    
    
    
    27,097
    
    
    
    12,361
    
    
    
    45.6
    %EMEA
    
    
    35,200
    
    
    
    34,585
    
    
    
    615
    
    
    
    1.8
    %Asia Pacific
    
    
    21,974
    
    
    
    15,721
    
    
    
    6,253
    
    
    
    39.8
    %Latin America
    
    
    2,235
    
    
    
    4,508
    
    
    
    (2,273
    )
    
    
    (50.4
    %)Corporate/Other
    
    
    (32,321
    )
    
    
    (19,188
    )
    
    
    (13,133
    )
    
    
    n/mTotal
    
    $
    191,561
    
    
    $
    177,303
    
    
    $
    14,258
    
    
    
    8.0
    %
 Three Months EndedJune 30,2006
    
    2005Gross Profit as a % of revenuePublic Services
    
    
    23.0
    %
    
    
    23.0
    %Commercial Services
    
    
    29.2
    %
    
    
    19.6
    %Financial Services
    
    
    35.2
    %
    
    
    30.9
    %EMEA
    
    
    20.7
    %
    
    
    19.1
    %Asia Pacific
    
    
    24.5
    %
    
    
    19.6
    %Latin America
    
    
    12.0
    %
    
    
    20.4
    %Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    21.5
    %
    
    
    19.8
    %
 
 n/m = not meaningful  
    
    Public Servicesgross profit slightly decreased in the second quarter of 2006, as
lower revenue and higher professional compensation expense more than offset savings in
other direct contract expenses from a decrease in subcontractor usage. Increases in
professional compensation expense related to hiring needs related to demand for our
services.
    
    Commercial Servicesgross profit increased in the second quarter of 2006 despite lower
revenue, primarily due to cost savings realized in 2006 from 2005 workforce realignments
and reduced subcontractor expenses as a result of the increased use of internal
resources.
    
    Financial Servicesgross profit increased in the second quarter of 2006, as higher
revenue more than offset increases in compensation expense related to a substantial
increase in billable headcount. Also reducing gross profit was an increase in other
direct contract expenses due to additional subcontractor usage driven by higher revenue.
    
    EMEAgross profit slightly increased in the second quarter of 2006 despite lower
revenue, primarily due to a decrease in subcontractor usage as a result of the increased
use of internal resources.
    
    Asia Pacificgross profit increased in the second quarter of 2006, primarily due to
significant improvements in profitability and staff utilization in the Companys
businesses in Japan, China and Australia. Due to the high demand for resources in the
Japanese market and limited availability of qualified personnel, increases in
subcontractor expenses served to depress the growth of gross profit in the Companys
business in Japan.
 32




---



##### 




    
    Latin Americagross profit decreased in the second quarter of 2006, as lower revenue
more than offset savings in other direct contact expenses, primarily resulting from a
reduction in subcontractor usage.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related
charges, which increased in the second quarter of 2006 primarily due to the lease and
facilities restructuring charges discussed above.
 Amortization of Purchased Intangible Assets .
 Selling, General and Administrative Expenses .
 Interest Income.
 Interest Expense.
 Other Income (Expense), net.
 Income Tax Expense .
 Net Loss.
 Six Months ended June 30, 2006 Compared to Six Months ended June 30, 2005
 Revenue.
 33




---



##### 



Six Months EndedJune 30,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeRevenuePublic Services
    
    $
    672,197
    
    
    $
    678,438
    
    
    $
    (6,241
    )
    
    
    (0.9
    %)Commercial Services
    
    
    276,430
    
    
    
    349,964
    
    
    
    (73,534
    )
    
    
    (21.0
    %)Financial Services
    
    
    222,672
    
    
    
    178,517
    
    
    
    44,155
    
    
    
    24.7
    %EMEA
    
    
    334,607
    
    
    
    352,571
    
    
    
    (17,964
    )
    
    
    (5.1
    %)Asia Pacific
    
    
    180,062
    
    
    
    163,975
    
    
    
    16,087
    
    
    
    9.8
    %Latin America
    
    
    37,881
    
    
    
    42,178
    
    
    
    (4,297
    )
    
    
    (10.2
    %)Corporate/Other
    
    
    2,575
    
    
    
    935
    
    
    
    1,640
    
    
    
    n/mTotal
    
    $
    1,726,424
    
    
    $
    1,766,578
    
    
    $
    (40,154
    )
    
    
    (2.3
    %)
 Impact of
    
    Revenue growthcurrency
    
    (decline), net offluctuations
    
    currency impact
    
    TotalRevenuePublic Services
    
    
    0.0
    %
    
    
    (0.9
    %)
    
    
    (0.9
    %)Commercial Services
    
    
    0.0
    %
    
    
    (21.0
    %)
    
    
    (21.0
    %)Financial Services
    
    
    0.0
    %
    
    
    24.7
    %
    
    
    24.7
    %EMEA
    
    
    (4.4
    %)
    
    
    (0.7
    %)
    
    
    (5.1
    %)Asia Pacific
    
    
    (5.8
    %)
    
    
    15.6
    %
    
    
    9.8
    %Latin America
    
    
    11.2
    %
    
    
    (21.4
    %)
    
    
    (10.2
    %)Corporate/Other
    
    
    n/m
    
    
    
    n/m
    
    
    
    n/mTotal
    
    
    (1.1
    %)
    
    
    (1.2
    %)
    
    
    (2.3
    %)
 
 n/m = not meaningful 
    
    Public Servicesrevenue decreased during the six months ended June 30, 2006,
primarily due to a revenue decline in our Civilian business sector, which significantly
offset revenue growth in our Defense and State, Local and Education (SLED) sectors.
    
    Commercial Servicesrevenue decreased during the six months ended June 30, 2006,
primarily due to a $39.7 million year-over-year decrease in revenue associated with the HT Contract and a reduction of $20.0 million in revenue related to the
resolution of a billings dispute with another large telecommunications client regarding
an engagement completed in 2003. Reduced customer demand for our services, particularly
within the telecommunications industry, also affected revenue. These decreases were
partially offset by the recognition in the first quarter of 2006 of approximately $11.0
million in previously deferred revenue.
    
    Financial Servicesrevenue increased during the six months ended June 30, 2006, due to
revenue growth in all sectors, with especially strong growth in the Banking and Insurance
sectors. The revenue increase in our Banking Sector was attributable to existing client
engagements and the introduction of some new clients into our traditional client base.
The revenue increase in our Insurance sector resulted in response to
industry-wide demand
for major technology updates and upgrades to operational systems.
    
    EMEArevenue decreased during the six months ended June 30, 2006, primarily as a
result of the unfavorable impact of the weakening of foreign currencies (primarily the
Euro) against the U.S. dollar. Significant revenue declines in Germany were partially
offset by revenue growth in France. Revenue in Germany decreased due to a combination of
the impact of reductions in billable headcount precipitated by the restructuring of our
business in Germany, increased pressure on pricing and a reduction in the spending levels
of German public sector
 34




---



##### 



clients.
    
    Revenue growth in France was driven by an expanding
systems integration practice and additional penetration into the French public sector
market in 2006.
 
    
    Asia Pacificrevenue increased during the six months ended June 30, 2006, primarily
due to significant revenue growth in Australia from a significant new client engagement
in the telecommunications industry. Asia Pacific revenue was negatively affected in the
six months ended June 30, 2006 by the weakening of foreign currencies against the U.S.
dollar (primarily the Japanese Yen).
    
    Latin Americarevenue decreased during the six months ended June 30, 2006, due to a
decline in local revenue growth in Mexico, partially offset by the strengthening of
foreign currencies in Latin America against the U.S. Dollar (particularly the Brazilian
Real). Revenue in Mexico declined as the practice continues to restructure the business
to position itself for future growth.
    
    Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue.
 Gross Profit .
 
    
    Professional compensation expense decreased as a percentage of revenue to 49.4%
for the six months ended June 30, 2006, compared to 50.0% for the six months ended June
30, 2005. We experienced a net decrease in professional compensation expense of $30.0
million, or 3.4%, to $852.9 million for the six months ended June 30, 2006 from $882.9
million for the six months ended June 30, 2005. The decrease in expense from the six
months ended June 30, 2005 is primarily due to higher professional compensation expense
recorded in the six months ended June 30, 2005 (as compared to the six months ended June
30, 2006) related to the loss accrual for the HT Contract. This decrease was slightly
offset by additional headcount in the six months ended June 30, 2006 in response to
increased demand for our services.
    
    Other direct contract expenses decreased as a percentage of revenue to 26.4% for
the six months ended June 30, 2006 compared to 30.1% for the six months ended June 30,
2005. We experienced a net decrease in other direct contract expenses of $74.6 million, or
14.0%, to $456.4 million for the six months ended June 30, 2006 from $531.0 million for
the six months ended June 30, 2005. The decrease was primarily due to higher other direct
contract expenses recorded in the six months ended June 30, 2005 related to the loss
accrual for the HT Contract. In addition, the decline was driven by reduced subcontractor
expenses as a result of the increased use of internal resources, and decrease of resales
of procured materials.
    
    Other costs of service as a percentage of revenue decreased to 7.1% for the six months
ended June 30, 2006 from 7.4% for the six months ended June 30, 2005. We experienced a
net decrease in other costs of service of $9.1 million, or 6.9%, to $121.8 million for the
six months ended June 30, 2006 from $130.8 million for the six months ended June 30, 2005.
The decrease was primarily attributable to cost savings realized directly or indirectly
from office space reduction efforts taken to date.
    
    During the six months ended June 30, 2006 we recorded, within the Corporate/Other
operating segment, a charge of $5.3 million related to lease, facilities and other exit
activities, compared to a $19.6 million charge related to lease, facilities and other exit
activities during the six months ended June 30, 2005. These charges related primarily to
the fair value of future lease obligations associated with office space, primarily within
the EMEA and North America regions, which we will no longer be using.
 Gross Profit by Segment.
 35




---



##### 



Six Months EndedJune 30,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeGross ProfitPublic Services
    
    $
    137,795
    
    
    $
    157,514
    
    
    $
    (19,719
    )
    
    
    (12.5
    %)Commercial Services
    
    
    23,434
    
    
    
    (44,531
    )
    
    
    67,965
    
    
    
    152.6
    %Financial Services
    
    
    81,394
    
    
    
    53,186
    
    
    
    28,208
    
    
    
    53.0
    %EMEA
    
    
    68,109
    
    
    
    62,387
    
    
    
    5,722
    
    
    
    9.2
    %Asia Pacific
    
    
    42,815
    
    
    
    31,821
    
    
    
    10,994
    
    
    
    34.5
    %Latin America
    
    
    4,196
    
    
    
    9,205
    
    
    
    (5,009
    )
    
    
    (54.4
    %)Corporate/Other
    
    
    (67,708
    )
    
    
    (67,329
    )
    
    
    (379
    )
    
    
    n/mTotal
    
    $
    290,035
    
    
    $
    202,253
    
    
    $
    87,782
    
    
    
    43.4
    %
 Six Months EndedJune 30,2006
    
    2005Gross Profit as a % of revenuePublic Services
    
    
    20.5
    %
    
    
    23.2
    %Commercial Services
    
    
    8.5
    %
    
    
    (12.7
    %)Financial Services
    
    
    36.6
    %
    
    
    29.8
    %EMEA
    
    
    20.4
    %
    
    
    17.7
    %Asia Pacific
    
    
    23.8
    %
    
    
    19.4
    %Latin America
    
    
    11.1
    %
    
    
    21.8
    %Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    16.8
    %
    
    
    11.4
    %
 
 n/m = not meaningful  
    
    Public Servicesgross profit decreased in the six months ended June 30, 2006, in large
measure due to a $31.6 million increase in compensation expense related to hiring needs
related to demand for our services. Significant declines in subcontractor usage improved
gross profit in the six months ended June 30, 2006.
    
    Commercial Servicesgross profit increased in the six months ended June 30, 2006
despite significantly lower revenue, primarily due to a $54.2 million year-over-year
reduction in losses from the HT Contract. Other factors contributing to the increase in
gross profit were the cost savings realized in 2006 from 2005 workforce realignments and
reduced subcontractor expenses as a result of the increased use of internal resources.
    
    Financial Servicesgross profit increased in the six months ended June 30, 2006, as
higher revenue across all sectors more than offset increases in compensation expense
related to a substantial increase in billable headcount. Also reducing gross profit was
an increase in other direct contract expenses due to additional subcontractor usage
driven by higher revenue.
    
    EMEAgross profit increased in the six months ended June 30, 2006, due primarily to
improved profitability in France, Ireland and Spain as a result of higher utilization and
lower costs. Declines in compensation expense and other direct contract expenses also
contributed to the increase in gross profit, though compensation expense for 2006
continued to be affected by severance and other costs related to the internal
restructuring of the Companys business in Germany.
 36




---



##### 




    
    Asia Pacificgross profit increased in the six months ended June 30, 2006 due to
significant improvements in profitability and staff utilization in the Companys
businesses in Australia and China. Due to the high demand for resources in the Japanese
market and limited availability of qualified personnel, increases in subcontractor
expenses served to depress the growth of gross profit in the Companys business in Japan.
Significant regional improvements in compensation expense in 2006 derived from the 2005
workforce reductions in Japan and China were substantially offset by additional
compensation expenses associated with the use of the Companys personnel from outside the
region in connection with a significant new telecommunications industry engagement in
Australia.
    
    Latin Americagross profit decreased in the six months ended June 30, 2006, primarily
due to declines in revenue in the region, combined with a slight increase in compensation
expense that was driven by higher billable headcount to meet the expected growth of our
business in the region, primarily Brazil.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related
charges, which increased in the six months ended June 30, 2006 primarily due to the lease
and facilities restructuring charges discussed above.
 Amortization of Purchased Intangible Assets .
 Selling, General and Administrative Expenses .
 Interest Income.
 Interest Expense.
 Insurance Settlement.
 Other Income (Expense), net.
 Income Tax Expense .
 Net Loss .
  37




---



##### 



Liquidity and Capital Resources
  Six Months EndedJune 30,2006 to 20052006
    
    
    2005
    
    
    ChangeNet cash provided by (used in):Operating activities
    
    $
    (102,363
    )
    
    $
    (98,592
    )
    
    $
    (3,771
    )Investing activities
    
    
    68,718
    
    
    
    (111,249
    )
    
    
    179,967Financing activities
    
    
    (5,886
    )
    
    
    251,906
    
    
    
    (257,792
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    7,385
    
    
    
    (8,513
    )
    
    
    15,898Net (decrease) increase in cash and cash equivalents
    
    $
    (32,146
    )
    
    $
    33,552
    
    
    $
    (65,698
    )
 Operating Activities.
 Investing Activities .
 Financing Activities .
    Debt Ratings
  38




---



##### 



Recently Issued Accounting Pronouncements
       PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  PART I, ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
     Changes in Internal Control over Financial Reporting
  39




---



##### 



PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM
1A. RISK FACTORS
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Sales of Securities Not Registered Under the Securities Act
  Issuer Purchases of Equity Securities
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5. OTHER INFORMATION
 a)
    
    None.b)
    
    None.
 ITEM 6. EXHIBITS
  ExhibitNo.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, dated as of February 7, 2001,
which is incorporated herein by reference to Exhibit 3.1 from the Companys Form
10-Q for the quarter ending March 31, 2001.3.2
    
    Amended and Restated Bylaws, amended and restated as of May 5, 2004, which is
incorporated herein by reference to Exhibit 3.1 from the Companys Form 10-Q for
the quarter ending March 31, 2004.3.3
    
    Certificate of Ownership and Merger merging Bones Holding into the Company,
dated October 2, 2002, which is incorporated herein by reference to Exhibit 3.3
from the Companys Form 10-Q for the quarter ended September 30, 2002.4.1
    
    Rights Agreement, dated as of October 2, 2001, between the Company and EquiServe
Trust Company, N.A., which is incorporated herein by reference to Exhibit 1.1
from the Companys Registration Statement on Form 8-A dated October 3, 2001.4.2
    
    Certificate of Designation of Series A Junior Participating Preferred Stock,
which is incorporated herein by reference to Exhibit 1.2 from the Companys
Registration Statement on Form 8-A dated October 3, 2001.4.3
    
    Amendment No. 1 to the Rights Agreement between the Company and EquiServe Trust
Company, N.A., which is incorporated herein by reference to Exhibit 99.1 from
the Companys Form 8-K filed on September 6, 2002.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to Section 1350.32.2
    
    Certification of Chief Financial Officer pursuant to Section 1350.99.1
    
    Legal Proceedings section of the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2006.  40




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SIGNATURES
  BearingPoint, Inc.DATE: June 28, 2007
    
    By:
    
    /s/  Judy A. EthellJudy A. EthellChief Financial Officer
 41