UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 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, 2008.
 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
    
    (IRS Employerincorporation or organization)
    
    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)
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



BEARINGPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2008
 TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1: Financial Statements (unaudited)
    
    
    3Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2008 and 2007
    
    
    3Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 4: Controls and Procedures
    
    
    38PART IIOTHER INFORMATION
    
    
    39Item 1: Legal Proceedings
    
    
    39Item 1A: Risk Factors
    
    
    40Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3: Defaults Upon Senior Securities
    
    
    43Item 4: Submission of Matters to a Vote of Security Holders
    
    
    43Item 5: Other Information
    
    
    43Item 6: Exhibits
    
    
    44
  2




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##### 



PART I, ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 BEARINGPOINT, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    886,724
    
    
    $
    875,346
    
    
    $
    1,716,744
    
    
    $
    1,741,598Costs of service:Professional compensation
    
    
    414,733
    
    
    
    471,299
    
    
    
    868,430
    
    
    
    945,908Other direct contract expenses
    
    
    192,773
    
    
    
    189,572
    
    
    
    351,050
    
    
    
    385,449Lease and facilities restructuring (credits) charges
    
    
    (1,627
    )
    
    
    1,329
    
    
    
    (7,679
    )
    
    
    (3,558
    )Other costs of service
    
    
    71,384
    
    
    
    70,615
    
    
    
    142,743
    
    
    
    139,208Total costs of service
    
    
    677,263
    
    
    
    732,815
    
    
    
    1,354,544
    
    
    
    1,467,007Gross profit
    
    
    209,461
    
    
    
    142,531
    
    
    
    362,200
    
    
    
    274,591Selling, general and administrative expenses
    
    
    140,850
    
    
    
    174,707
    
    
    
    283,599
    
    
    
    351,951Operating income (loss)
    
    
    68,611
    
    
    
    (32,176
    )
    
    
    78,601
    
    
    
    (77,360
    )Interest income
    
    
    1,970
    
    
    
    2,636
    
    
    
    4,483
    
    
    
    4,388Interest expense
    
    
    (15,886
    )
    
    
    (15,797
    )
    
    
    (31,955
    )
    
    
    (26,666
    )Other income (expense), net
    
    
    5,458
    
    
    
    (465
    )
    
    
    3,127
    
    
    
    (370
    )Income (loss) before taxes
    
    
    60,153
    
    
    
    (45,802
    )
    
    
    54,256
    
    
    
    (100,008
    )Income tax expense
    
    
    41,693
    
    
    
    18,225
    
    
    
    58,985
    
    
    
    25,725Net income (loss)
    
    $
    18,460
    
    
    $
    (64,027
    )
    
    $
    (4,729
    )
    
    $
    (125,733
    )Income (loss) per share  basic and diluted:
    
    $
    0.08
    
    
    $
    (0.30
    )
    
    $
    (0.02
    )
    
    $
    (0.59
    )Weighted average shares  basic
    
    
    222,425,491
    
    
    
    214,653,553
    
    
    
    222,337,006
    
    
    
    214,601,330Weighted average shares  diluted
    
    
    224,181,820
    
    
    
    214,653,553
    
    
    
    222,337,006
    
    
    
    214,601,330
  3




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##### 



BEARINGPOINT,
INC.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 June 30,2008
    
    
    December 31,(unaudited)
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    347,146
    
    
    $
    466,815Restricted cash
    
    
    3,744
    
    
    
    1,703Accounts receivable, net of allowances of $4,614 at June
30, 2008 and $5,980 at December 31, 2007
    
    
    356,670
    
    
    
    356,178Unbilled revenue
    
    
    357,721
    
    
    
    319,132Income tax receivable
    
    
    7,503
    
    
    
    8,869Deferred income taxes
    
    
    12,483
    
    
    
    11,521Prepaid expenses
    
    
    54,608
    
    
    
    36,500Other current assets
    
    
    39,386
    
    
    
    38,122Total current assets
    
    
    1,179,261
    
    
    
    1,238,840Property and equipment, net
    
    
    109,910
    
    
    
    113,771Goodwill
    
    
    530,450
    
    
    
    494,656Deferred income taxes, less current portion
    
    
    17,065
    
    
    
    25,179Other assets
    
    
    118,897
    
    
    
    108,958Total assets
    
    $
    1,955,583
    
    
    $
    1,981,404LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current portion of notes payable
    
    $
    205,480
    
    
    $
    3,700Accounts payable
    
    
    188,937
    
    
    
    215,999Accrued payroll and employee benefits
    
    
    356,154
    
    
    
    368,208Deferred revenue
    
    
    82,748
    
    
    
    115,961Income tax payable
    
    
    43,491
    
    
    
    58,304Current portion of accrued lease and facilities charges
    
    
    15,681
    
    
    
    17,618Deferred income taxes
    
    
    13,991
    
    
    
    15,022Accrued legal settlements
    
    
    16,117
    
    
    
    8,716Other current liabilities
    
    
    95,341
    
    
    
    108,364Total current liabilities
    
    
    1,017,940
    
    
    
    911,892Notes payable, less current portion
    
    
    772,591
    
    
    
    970,943Accrued employee benefits
    
    
    131,312
    
    
    
    118,235Accrued lease and facilities charges, less current portion
    
    
    31,797
    
    
    
    48,066Deferred income taxes, less current portion
    
    
    9,659
    
    
    
    9,581Income tax reserve
    
    
    271,781
    
    
    
    242,308Other liabilities
    
    
    143,867
    
    
    
    149,668Total liabilities
    
    
    2,378,947
    
    
    
    2,450,693Commitments 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, 222,731,774 shares issued and 217,925,100
shares outstanding on June 30, 2008 and 219,890,126 shares
issued and 215,156,077 shares outstanding on December 31,
2007
    
    
    2,215
    
    
    
    2,186Additional paid-in capital
    
    
    1,459,405
    
    
    
    1,438,369Accumulated deficit
    
    
    (2,185,307
    )
    
    
    (2,180,578
    )Accumulated other comprehensive income
    
    
    338,573
    
    
    
    308,857Treasury stock, at cost (4,806,674 shares on June 30, 2008
and 4,734,049 shares on December 31, 2007)
    
    
    (38,250
    )
    
    
    (38,123
    )Total stockholders deficit
    
    
    (423,364
    )
    
    
    (469,289
    )Total liabilities and stockholders deficit
    
    $
    1,955,583
    
    
    $
    1,981,404
  4




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##### 



BEARINGPOINT, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months EndedJune 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (4,729
    )
    
    $
    (125,733
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for deferred income taxes
    
    
    6,431
    
    
    
    9,023(Benefit) provision for doubtful accounts
    
    
    (859
    )
    
    
    1,648Stock-based compensation
    
    
    21,065
    
    
    
    47,100Depreciation and amortization of property and equipment
    
    
    24,790
    
    
    
    33,300Lease and facilities restructuring credits
    
    
    (7,679
    )
    
    
    (3,558
    )Loss on disposal and impairment of assets
    
    
    1,563
    
    
    
    118Amortization of debt issuance costs and debt accretion
    
    
    6,110
    
    
    
    8,112Reversal of global tax equalization accruals
    
    
    (22,899
    )
    
    
    Other
    
    
    (3,446
    )
    
    
    (2,771
    )Changes in assets and liabilities:Accounts receivable
    
    
    12,065
    
    
    
    (18,545
    )Unbilled revenue
    
    
    (35,442
    )
    
    
    (79,501
    )Income tax receivable, prepaid expenses and other current assets
    
    
    (15,742
    )
    
    
    6,851Other assets
    
    
    (11,993
    )
    
    
    (15,351
    )Accounts payable
    
    
    (30,129
    )
    
    
    (102,287
    )Income tax payable, accrued legal settlements and other current
liabilities
    
    
    (34,315
    )
    
    
    (65,332
    )Accrued payroll and employee benefits
    
    
    (273
    )
    
    
    10,529Deferred revenue
    
    
    (35,368
    )
    
    
    (10,685
    )Income tax reserve and other liabilities
    
    
    18,866
    
    
    
    8,647Net cash used in operating activities
    
    
    (111,984
    )
    
    
    (298,435
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (20,820
    )
    
    
    (22,590
    )Increase in restricted cash
    
    
    (2,041
    )
    
    
    (943
    )Net cash used in investing activities
    
    
    (22,861
    )
    
    
    (23,533
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    1
    
    
    
    Treasury stock through net share delivery
    
    
    (92
    )
    
    
    Net proceeds from issuance of notes payable
    
    
    2,141
    
    
    
    281,199Repayments of notes payable
    
    
    (2,064
    )
    
    
    (1,110
    )Increase in book overdrafts
    
    
    4,150
    
    
    
    Net cash provided by financing activities
    
    
    4,136
    
    
    
    280,089Effect of exchange rate changes on cash and cash equivalents
    
    
    11,040
    
    
    
    1,126Net decrease in cash and cash equivalents
    
    
    (119,669
    )
    
    
    (40,753
    )Cash and cash equivalents  beginning of period
    
    
    466,815
    
    
    
    389,571Cash and cash equivalents  end of period
    
    $
    347,146
    
    
    $
    348,818
  5




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##### 



BEARINGPOINT, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Basis of Presentation
   Note 2. Recently Issued Accounting Pronouncements
   6




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Note 3. Stock-Based Compensation
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Stock options
    
    $
    305
    
    
    $
    2,215
    
    
    $
    593
    
    
    $
    4,633RSUs
    
    
    3,827
    
    
    
    5,550
    
    
    
    7,956
    
    
    
    10,966PSUs
    
    
    (4,567
    )
    
    
    21,584
    
    
    
    12,073
    
    
    
    28,803ESPP and BE an Owner
    
    
    191
    
    
    
    1,178
    
    
    
    319
    
    
    
    2,355Restricted stock awards
    
    
    
    
    
    
    343
    
    
    
    124
    
    
    
    343Total
    
    $
    (244
    )
    
    $
    30,870
    
    
    $
    21,065
    
    
    $
    47,100
  Stock Options
  Restricted Stock Units and Performance Share Units
  RSUs(1)
    
    
    PSUs(2)Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageGrant
    
    
    
    
    
    
    GrantDate Fair
    
    
    
    
    
    
    Date FairUnits
    
    
    Value
    
    
    Units
    
    
    ValueNonvested at December 31, 2007
    
    
    6,428,764
    
    
    $
    8.14
    
    
    
    18,104,846
    
    
    $
    12.53Granted
    
    
    1,917,612
    
    
    $
    2.36
    
    
    
    Vested
    
    
    (1,610,483
    )
    
    $
    8.37
    
    
    
    Forfeited
    
    
    (1,157,051
    )
    
    $
    5.45
    
    
    
    (2,535,485
    )
    
    $
    12.51Nonvested at June 30, 2008
    
    
    5,578,842
    
    
    $
    6.64
    
    
    
    15,569,361
    
    
    $
    12.54Vested at June 30, 2008
    
    
    4,518,439
    
    
    
    
    
    
    
    Outstanding at June 30, 2008
    
    
    10,097,281
    
    
    
    
    
    
    
    15,569,361
 
 (1)
    
    Approximately 41,883 RSUs (net of forfeitures) and 45,563 RSUs (net of forfeitures) have been
excluded from the December 31, 2007 and June 30, 2008 nonvested balances, respectively,
because they were awarded to recipients in countries where local laws require a cash
settlement. Similarly, approximately 27,537 RSUs (net of forfeitures) and 73,100 RSUs (net of
forfeitures) have been excluded from the June 30, 2008 vested and outstanding balances,
respectively. 7




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 (2)
    
    Approximately 54,348 PSUs (net of forfeitures) have been excluded from the December 31, 2007
and June 30, 2008 nonvested balances because they were awarded to recipients in countries
where local laws require a cash settlement. Similarly, approximately 54,348 PSUs (net of
forfeitures) have been excluded from the June 30, 2008 outstanding balance. Note 4. Income (Loss) per Share
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    18,460
    
    
    $
    (64,027
    )
    
    $
    (4,729
    )
    
    $
    (125,733
    )Common shares outstanding
    
    
    217,914,313
    
    
    
    201,323,721
    
    
    
    216,960,677
    
    
    
    201,310,345Vested RSUs
    
    
    4,511,178
    
    
    
    13,329,832
    
    
    
    5,376,329
    
    
    
    13,290,985Weighted average shares outstanding  basic
    
    
    222,425,491
    
    
    
    214,653,553
    
    
    
    222,337,006
    
    
    
    214,601,330Assumed exercise of ESPP
    
    
    1,756,329
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    224,181,820
    
    
    
    214,653,553
    
    
    
    222,337,006
    
    
    
    214,601,330Earnings per share  basic and diluted
    
    $
    0.08
    
    
    $
    (0.30
    )
    
    $
    (0.02
    )
    
    $
    (0.59
    )
 8




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Employee stock options
    
    
    28,465,019
    
    
    
    34,328,792
    
    
    
    29,679,269
    
    
    
    34,866,451Employee stock purchase plan
    
    
    1,697,179
    
    
    
    3,648,211
    
    
    
    2,865,273
    
    
    
    3,648,211Unvested restricted stock units
    
    
    5,789,052
    
    
    
    8,549,298
    
    
    
    5,935,765
    
    
    
    8,471,590Performance share units(1)
    
    
    40,443,748
    
    
    
    55,311,247
    
    
    
    41,881,180
    
    
    
    37,143,098$250,000 2.50% Series A
Convertible Subordinated
Debentures due 2024


    23,810,200
    
    
    
    23,810,200
    
    
    
    23,810,200
    
    
    
    23,810,200$200,000 2.75% Series B
Convertible Subordinated
Debentures due 2024


    19,048,160
    
    
    
    19,048,160
    
    
    
    19,048,160
    
    
    
    19,048,160$200,000 5.00% Convertible
Senior Subordinated Debentures
due 2025


    30,303,020
    
    
    
    30,303,020
    
    
    
    30,303,020
    
    
    
    30,303,020$40,000 0.50% Convertible
Senior Subordinated Debentures
due 2025
    
    
    5,925,926
    
    
    
    5,925,926
    
    
    
    5,925,926
    
    
    
    5,925,926Warrants issued in connection
with the July 2005 Convertible
Debentures


    3,500,000
    
    
    
    3,500,000
    
    
    
    3,500,000
    
    
    
    3,500,000Softline acquisition obligation
    
    
    
    
    
    
    561,515
    
    
    
    
    
    
    
    561,515158,982,304
    
    
    
    184,986,369
    
    
    
    162,948,793
    
    
    
    167,278,171
 
 (1)
    
    As of the end of the reporting period, the performance conditions described further in Note
13, Stock-Based Compensation, included in the 2007 Form 10-K, have not been met; however,
the above shares represent the maximum settlement of shares under this program. Note 5. Comprehensive Income (Loss)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss)
    
    $
    18,460
    
    
    $
    (64,027
    )
    
    $
    (4,729
    )
    
    $
    (125,733
    )Pension prior service cost, net of tax
of $23 and $45
    
    
    294
    
    
    
    
    
    
    
    591
    
    
    
    Pension net actuarial gain, net of tax
of $2 and $4
    
    
    (8
    )
    
    
    
    
    
    
    (15
    )
    
    
    Foreign currency translation adjustment
    
    
    (10,047
    )
    
    
    6,026
    
    
    
    29,140
    
    
    
    10,774Comprehensive income (loss)
    
    $
    8,699
    
    
    $
    (58,001
    )
    
    $
    24,987
    
    
    $
    (114,959
    )
 9




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Note 6. Goodwill
  ForeignBalance
    
    
    
    
    
    
    Currency
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Translation
    
    
    June 30,2007
    
    
    Reductions
    
    
    Adjustment
    
    
    2008Public Services
    
    $
    23,581
    
    
    $
    
    
    
    $
    
    
    
    $
    23,581Financial Services
    
    
    9,210
    
    
    
    
    
    
    
    
    
    
    
    9,210EMEA
    
    
    385,650
    
    
    
    
    
    
    
    32,433
    
    
    
    418,083Asia Pacific
    
    
    75,003
    
    
    
    (1,003
    )(1)
    
    
    4,308
    
    
    
    78,308Latin America
    
    
    1,010
    
    
    
    
    
    
    
    56
    
    
    
    1,066Corporate/Other
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    202Total
    
    $
    494,656
    
    
    $
    (1,003
    )
    
    $
    36,797
    
    
    $
    530,450
 
 (1)
    
    Amount represents the tax benefit of amortizing goodwill in Japan.  10




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Note 7. Notes Payable
  June 30,
    
    
    December 31,2008
    
    
    2007Current portion:Term Loans under the 2007 Credit Facility
    
    $
    3,000
    
    
    $
    3,000$200,000 5.00% Convertible Senior Subordinated Debentures due 2025
    
    
    200,000
    
    
    
    Other
    
    
    2,480
    
    
    
    700Total current portion
    
    
    205,480
    
    
    
    3,700Long-term portion:$250,000 2.50% Series A Convertible Subordinated Debentures due
2024 and $200,000 2.75% Series B Convertible Subordinated
Debentures due 2024
    
    
    450,000
    
    
    
    450,000$200,000 5.00% Convertible Senior Subordinated Debentures due 2025
    
    
    
    
    
    
    200,000$40,000 0.50% Convertible Senior Subordinated Debentures due 2025
(net of discount of $12,042 and $14,389, respectively)
    
    
    27,958
    
    
    
    25,611Term Loans under the 2007 Credit Facility
    
    
    293,250
    
    
    
    294,750Other
    
    
    1,383
    
    
    
    582Total long-term portion
    
    
    772,591
    
    
    
    970,943Total notes payable
    
    $
    978,071
    
    
    $
    974,643
  Note 8. Lease and Facilities Restructuring Activities
   11




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  TotalBalance at December 31, 2007
    
    $
    65,684New charges
    
    
    Adjustment to the provision
    
    
    (7,679
    )Payments and other utilization
    
    
    (11,641
    )Other(1)
    
    
    1,114Balance at June 30, 2008
    
    $
    47,478
 
 (1)
    
    Other changes in the restructuring accrual consist primarily of foreign currency translation
adjustments. Note 9. Commitments and Contingencies
  
    
    Claims and investigations arising from its inability to timely file periodic reports
under the Securities Exchange Act of 1934, as amended (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,
 12




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Tellabs Tellabs
 2005 Shareholders Derivative Demand
  SEC Investigation
   13




---



##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Government Contracting Matters
  Other Commitments
    14




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
   Note 10. Pension and Postretirement Benefits
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Components of net periodic pension cost:Service cost
    
    $
    1,656
    
    
    $
    1,589
    
    
    $
    3,246
    
    
    $
    3,178Interest cost
    
    
    1,567
    
    
    
    1,165
    
    
    
    3,069
    
    
    
    2,330Expected return on plan assets
    
    
    (352
    )
    
    
    (243
    )
    
    
    (691
    )
    
    
    (486
    )Amortization of (gain) loss
    
    
    (5
    )
    
    
    95
    
    
    
    (10
    )
    
    
    190Amortization of prior service cost
    
    
    197
    
    
    
    163
    
    
    
    397
    
    
    
    326Net periodic pension cost
    
    $
    3,063
    
    
    $
    2,769
    
    
    $
    6,011
    
    
    $
    5,538Components of net periodic postretirement medical cost:Service cost
    
    $
    631
    
    
    $
    618
    
    
    $
    1,262
    
    
    $
    1,236Interest cost
    
    
    235
    
    
    
    217
    
    
    
    470
    
    
    
    434Amortization of losses
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    26Amortization of prior service cost
    
    
    119
    
    
    
    119
    
    
    
    238
    
    
    
    238Net periodic postretirement medical cost
    
    $
    985
    
    
    $
    967
    
    
    $
    1,970
    
    
    $
    1,934
 Note 11. Income Taxes
    15




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Note 12. Fair Value Measurements
     16




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
 Fair Value Measurements at Reporting Date UsingQuoted Prices in
    
    
    SignificantActive Markets
    
    
    Other
    
    
    SignificantTotal Fair Value
    
    
    for Identical
    
    
    Observable
    
    
    Unobservableof Asset or
    
    
    Assets
    
    
    Input
    
    
    InputsLiability
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Cash and Cash Equivalents
    
    $
    76,735
    
    
    $
    76,735
    
    
    $
    
    
    
    $
    Other Current Assets(1)
    
    
    5,974
    
    
    
    5,974
    
    
    
    
    
    
    
    Other Assets
    
    
    355
    
    
    
    
    
    
    
    
    
    
    
    355
    (2)Total Assets
    
    $
    83,064
    
    
    $
    82,709
    
    
    $
    
    
    
    $
    355Other Current Liabilities(1)
    
    $
    5,974
    
    
    $
    5,974Total Liabilities
    
    $
    5,974
    
    
    $
    5,974
 
 (1)
    
    The Company has assets held in a Rabbi Trust, which generally include actively traded mutual
funds and money market accounts.(2)
    
    The Company carries cost-basis investments in privately-held companies. There has been no
change in valuation for these investments during the period. 17




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##### 



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)
 Note 13. Segment Reporting
  Three Months EndedJune 30,2008
    
    
    2007Operating
    
    
    
    
    
    
    OperatingRevenue
    
    
    Income (Loss)
    
    
    Revenue
    
    
    Income (Loss)Public Services
    
    $
    381,177
    
    
    $
    94,567
    
    
    $
    359,494
    
    
    $
    67,782Commercial Services
    
    
    106,423
    
    
    
    19,510
    
    
    
    133,973
    
    
    
    19,187Financial Services
    
    
    46,869
    
    
    
    11,153
    
    
    
    70,761
    
    
    
    6,536EMEA
    
    
    236,780
    
    
    
    48,451
    
    
    
    196,988
    
    
    
    32,691Asia Pacific
    
    
    86,679
    
    
    
    15,833
    
    
    
    89,925
    
    
    
    19,761Latin America
    
    
    28,860
    
    
    
    4,066
    
    
    
    23,281
    
    
    
    (1,021
    )Corporate/Other
    
    
    (64
    )
    
    
    (124,969
    )
    
    
    924
    
    
    
    (177,112
    )Total
    
    $
    886,724
    
    
    $
    68,611
    
    
    $
    875,346
    
    
    $
    (32,176
    )
 Six Months EndedJune 30,2008
    
    
    2007Operating
    
    
    
    
    
    
    OperatingRevenue
    
    
    Income (Loss)
    
    
    Revenue
    
    
    Income (Loss)Public Services
    
    $
    721,275
    
    
    $
    162,523
    
    
    $
    721,187
    
    
    $
    132,742Commercial Services
    
    
    218,854
    
    
    
    33,587
    
    
    
    270,255
    
    
    
    40,014Financial Services
    
    
    96,253
    
    
    
    12,376
    
    
    
    142,966
    
    
    
    10,434EMEA
    
    
    447,414
    
    
    
    83,168
    
    
    
    385,793
    
    
    
    68,720Asia Pacific
    
    
    175,945
    
    
    
    37,664
    
    
    
    173,080
    
    
    
    31,302Latin America
    
    
    56,552
    
    
    
    7,774
    
    
    
    45,547
    
    
    
    (5,276
    )Corporate/Other
    
    
    451
    
    
    
    (258,491
    )
    
    
    2,770
    
    
    
    (355,296
    )Total
    
    $
    1,716,744
    
    
    $
    78,601
    
    
    $
    1,741,598
    
    
    $
    (77,360
    )
 18




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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 Financial
Statements and the Notes to the Consolidated Financial Statements included elsewhere in this
Quarterly Report.
 Disclosure Regarding Forward-Looking Statements
  
    
    Our ability to sign new business and recruit and retain employees may be materially and
adversely affected while our Board of Directors evaluates strategic alternatives.
    
    If we are unable to timely and properly implement our new North American financial
reporting system, we may be unable to timely file our SEC periodic reports, conclude that
our internal control over financial reporting is effective, or reduce certain selling,
general and administrative (SG&A) expenses as a percentage of revenue as rapidly as we
had previously planned.
    
    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 SG&A expenses as a percentage of revenue at levels significantly
higher than those of our competitors.
    
    The systems integration consulting markets are highly competitive. We may not be able to
compete effectively in these markets if we are unable to continue to manage and reduce our
costs related to these engagements.
    
    Contracting with the U.S. 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.
 19




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##### 




    
    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 performance may be negatively affected 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 performance.
    
    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.
    
    We have only a limited ability to protect our intellectual property rights, which are
important to our success.
    
    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.
    
    Our cash resources might not be sufficient to meet our expected cash needs over time.
Beginning in early 2009, we will begin to become subject to significant scheduled payments
under our 2007 Credit Facility and the 5.00% Senior Convertible Debentures.
    
    The holders of our debentures have the right, at their option, to require us to purchase
some or all of our debentures upon certain dates or upon the occurrence of certain
designated events, which could have a material adverse effect on our liquidity.
    
    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 business, financial condition or results of operation.
    
    Our leverage may adversely affect our business and financial performance and may restrict
our operating flexibility.
    
    In 2004, we identified material weaknesses in our internal control over financial
reporting, the remediation of which continues to place significant demands on our time and
resources. As of December 31, 2007, certain material weaknesses remained. These remaining
material weaknesses continue to cause us to rely on additional procedures and other measures
as needed to assist us with meeting the objectives otherwise fulfilled by an effective
control environment.
    
    If the price per share of our common stock remains below $1.00 for an extended period of
time or shares of our common stock are otherwise delisted from the New York Stock Exchange
(the NYSE), there could be a negative effect on our business. If we are delisted by the
NYSE before we are able to be listed on another national stock exchange, payment of
substantially all of our outstanding debentures would be accelerated and, by implication,
an event of default would exist under our 2007 Credit Facility that could require repayment
of all amounts outstanding under that facility. If this were to occur, there would be
material adverse effects on our business, financial condition and results of operations.
    
    There are significant limitations on the ability of any person or company to acquire
the Company without the approval of our Board of Directors.
  20




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##### 



Overview
  Economic and Industry Factors
    Revenue and Income Drivers
    21




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##### 



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; however, we do not revise previously
reported bookings. 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. We do
not record unfunded U.S. Federal contracts as new contract bookings while appropriation
approvals remain pending as there can be no assurances that these approvals will be
forthcoming in the near future, if at all. Consequently, there can be significant
differences between the time of contract signing and new contract booking recognition. Our
level of bookings provides an indication of how our business is performing: a positive
variance between bookings and revenue is indicative of business momentum, a negative
variance is indicative of a business downturn. (Sometimes we refer to the ratio of new
bookings for a period to the difference of revenues less other direct costs and expenses for
the same period as our book to bill ratio.) Nonetheless, 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.We believe that it is also useful to monitor net revenue, as well as revenue growth. Net
revenue represents the actual amount paid by our clients for the services we provide, as
opposed to services provided by others and ancillary costs and expenses. Net revenue is a
non-GAAP financial measure. The most directly comparable financial measure in accordance with
GAAP is revenue. Net revenue is derived by reducing the components of revenue that consist of
other direct contract expenses, which are costs that are directly attributable to client
engagements. These costs include items such as computer hardware and software, travel expenses
for professional personnel and costs associated with subcontractors.
    
    Gross Margin (gross profit as a percentage of revenue).Gross margin is a meaningful tool
for monitoring our ability to control our costs of service. 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 2007 Form
10-K.We also monitor contribution margin to better review the profitability of our respective
operating segments. Contribution margin is a non-GAAP financial measure. The most directly
comparable financial measure in accordance with GAAP is gross margin. Contribution margin is
calculated by subtracting, from net revenue, professional compensation, other costs of
service, SG&A and certain other allocations, and then dividing by net revenue.
 22




---



##### 




    
    Utilization.Utilization represents the percentage of time our consultants are performing
work, and is defined as total hours charged to client engagements or to non-chargeable
client-relationship projects divided by total available hours for any specific time period,
net of holiday and paid vacation hours.
    
    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 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, 2008 Highlights
  
    
    New contract bookings for the three months ended June 30, 2008 were $675.3 million, a
decrease of $71.5 million, or 9.6%, from new contract bookings of $746.8 million for the
three months ended June 30, 2007. New contract bookings for the six months ended June 30,
2008 were $1,420.7 million, a decrease of $35.6 million, or 2.4%, from new contract bookings
of $1,456.3 million for the six months ended June 30, 2007. For the three months ended June
30, 2008 compared to the same period in 2007, in North America we experienced significant
year over year declines in bookings in Commercial Services and Financial Services while
Public Services bookings remained flat. Favorable foreign exchange rates were responsible
for most of the U.S. dollar-denominated bookings growth in EMEA and contributed
significantly to soften notable bookings declines in Asia Pacific. Declines in bookings in
the six month ended June 30, 2008 were experienced in all segments with the exception of
Public Services and EMEA, where favorable foreign exchange rates were responsible for most
U.S. dollar-denominated bookings growth.
    
    Our revenue for the three months ended June 30, 2008 was $886.7 million, an increase of
$11.4 million, or 1.3%, from revenue for the three months ended June 30, 2007 of $875.3
million. For the three-month period, revenue increases in EMEA, Public Services and Latin
America were offset by declines in Financial Services, Commercial Services, and Asia
Pacific. Our revenue for the six months ended June 30, 2008 was $1,716.7 million, a
decrease of $24.9 million, or 1.4%, over revenue for the six months ended June 30, 2007 of
$1,741.6 million. For the six-month period, revenue increases in EMEA and Latin America were
more than offset by revenue declines in Financial Services and Commercial Services, while
Asia Pacific and Public Services revenues were relatively flat on a year over year.
Favorable foreign currency exchange rates had a positive impact year over year on revenue
for both the three and six month periods ended June 30, 2008.
    
    Our gross profit for the three months ended June 30, 2008 was $209.5 million, an increase
of $66.9 million, or 47.0%, compared with gross profit for the three months ended June 30,
2007 of $142.5 million. Gross profit as a percentage of revenue increased to 23.6% during
the three months ended June 30, 2008 from 16.3% during the three months ended June 30, 2007.
This increase was primarily the result of a $56.6 million decrease in professional
compensation expense and an $11.4 million
 23




---



##### 



increase in revenue. This decrease in professional compensation expense was primarily due to
the reversal of $22.9 million of accruals related to global tax equalization (as described
below) and a $20.5 million reduction in stock compensation expense which in turn was due
primarily to the impact of adjusting the forfeiture rate estimate on our PSU program (as
described below). Our gross profit for the six months ended June 30, 2008 was $362.2 million,
an increase of $87.6 million, or 31.9%, compared with gross profit of $274.6 million for the
six months ended June 30, 2007. Gross profit as a percentage of revenue increased to 21.1%
during the six months ended June 30, 2008 from 15.8% during the six months ended June 30,
2007. This increase was primarily the result of a $77.5 million decrease in professional
compensation expense (primarily attributable to reductions in cash and stock compensation
expenses and the reversal of accruals related to global tax equalization, both of which are
discussed below) and a $34.4 million decrease in other direct contract expenses, which were
partially offset by the previously mentioned $24.9 million reduction in revenue.
    
    Global tax equalization refers to our policy of estimating and recording expenses to
ensure that our employees on long-term assignments will be subject to the same level of
personal tax regardless of where they work. If the estimated tax equalization liability is
determined to be greater or less than the amount due upon final settlement, the difference
is recorded in the current period. In the three months ended June 30, 2008, we reversed
accruals of $22.9 million in connection with our global tax equalization policy, which
resulted in our professional compensation expense being reduced by this amount.
    
    Accounting for our PSU program requires us to make significant judgments and estimates,
including estimates of the expected forfeitures over the vesting period of the awards.
Forfeitures may occur for various reasons; however, employee terminations and attrition are
the primary causes of forfeitures. During the three months ended June 30, 2008, we revised
our forfeiture rate estimate based on actual historical forfeitures through June 30, 2008
and expected future forfeitures over the remainder of the vesting term of the PSU awards.
This revised forfeiture rate resulted in an adjustment of approximately $21.4 million to
reduce stock compensation expense in the three months ended June 30, 2008. Of this
adjustment, $13.6 million was recorded to professional compensation and $7.8 million was
recorded to SG&A expenses. PSUs were not awarded ratably or uniformly across our business.
PSUs were predominantly awarded to our North American business units. Consequently, due to
the recent increases in planned and unplanned attrition in the Financial Services and
Commercial Services business units, as discussed below, the majority of the adjustment which
was recognized in professional compensation was recorded in these two business units while
there has been little or no impact on our EMEA or Asia Pacific business units.
    
    We incurred SG&A expenses of $140.9 million in the second quarter of 2008, representing a
decrease of $33.9 million, or 19.4%, over SG&A expenses of $174.7 million in the second
quarter of 2007. We incurred SG&A expenses of $283.6 million in the six months ended June
30, 2008, representing a decrease of $68.4 million, or 19.4%, from SG&A expenses of $352.0
million in the six months ended June 30, 2007. The decrease in SG&A expense for the three
and six months ended June 30, 2008 was primarily due to reduced labor and other costs
related to the closing of our financial statements.
    
    During the second quarter of 2008, we realized net income of $18.5 million, or income
of $0.08 per share, representing an improvement of $82.5 million over the net loss of $64.0
million, or a loss of $0.30 per share, during the second quarter of 2007. This improvement
in net income was primarily attributable to:
 
    
    an increase in gross profit of $66.9 million (consisting primarily of a decrease in
professional compensation of $56.6 million and an increase in revenue of $11.4
million);
    
    a decrease of $33.9 million in SG&A expenses; and
    
    a $5.9 million increase in other income related to foreign exchange gains.
 These improvements were partially offset by an increase in income tax expense of $23.5
million, which was primarily due to additional tax expense incurred as a result of a foreign
corporate entity restructuring conducted during the second quarter of 2008 (as described
below).
    
    During the six months ended June 30, 2008, we realized a net loss of $4.7 million, or a
loss of $0.02 per share, representing an improvement of $121.0 million over the net loss of
$125.7 million, or a loss of $0.59 per share, during the six months ended June 30, 2007.
This improvement in net loss was primarily attributable to:
 
    
    an increase in gross profit of $87.6 million (consisting primarily of a
decrease in professional compensation of $77.5 million and a decrease in other direct
contract expenses of $34.4 million); and
 24




---



##### 




    
    a decrease of $68.4 million in SG&A expenses,
 These improvements were partially offset by:
 
    
    a net increase in interest expense of $1.7 million (net of interest income
and foreign currency gains/losses); and
    
    an increase in income tax expense of $33.3 million, as discussed below.
 
    
    Our income tax expense increased by $23.5 million and $33.3 million for the three and six
months ended June 30, 2008, respectively, as compared to the first half of 2007. A number
of our foreign subsidiaries generated significant levels of taxable income in local
currencies. Historically, we have not fully allocated our corporate-level expenses to local
country operations. Consequently, our tax expense is increasing as increasing
local-currency income is not being reduced by corporate-level expenses being borne by the
Company and not locally allocated. Additionally, included in our tax expense during the
three months ended June 30, 2008, we recorded $18.9 million of expense related to a foreign
corporate entity restructuring conducted during this three month period. The restructuring
resulted in the loss of certain loss carry-forwards and the realization of capital gains.
    
    Our Financial Services business unit ended 2007 overstaffed for the business downturn
that has occurred within the industry in 2008. Our portfolio of business is over-weighted
in those areas of the financial services industry most impacted by recent financial losses
and write-downs.  We have a limited number of multi-year outsourcing engagements. Having
devoted significant efforts in the first quarter of 2008 to reducing headcount and
stabilizing our business model, we are now turning to aggressively rebalancing the
weighting of our portfolio and market offerings to provide the greatest opportunity for a
return to profitability. In the first half of 2008, the business units gross profit margin
showed significant improvements as compared to the first half of 2007; however, these
improvements were the result of the adjustments recorded in the second quarter of 2008 for
the reversal of accruals for global tax equalization expense, and stock based compensation,
as discussed above. We must significantly improve gross profit for the second half of 2008
for our Financial Services business unit to be able to fund the portion of total SG&A and
other overhead expenses attributable to its operations.  Among our clients, our Financial
Services clients tend to be most sensitive to perceptions of financial instability of our
business and if these continue to increase, our ability to achieve these goals for the
remainder of the year will be in jeopardy.
    
    Our Commercial Services business unit is continuing to position itself for
profitability through its stated strategy of promoting more focused market offerings to a
more specifically targeted clientele. While we have made significant progress in
implementing this strategy in the first half of 2008, that progress has been obscured as
higher than expected contract fee adjustments have hindered our ability to achieve our goal
of significantly improving our net rates per hour earned for our services. We have also
devoted a significant amount of time to managing both planned and unplanned attrition, as
we optimize our service delivery model and respond to some clients concerns that
perceptions regarding our financial stability will cause us to be unable to maintain
appropriate staffing of our engagements. In the first half of 2008, the business units
gross margin showed significant improvements as compared to the first half of 2007;
however, these improvements were the result of the adjustments recorded for the reversal of
accruals for global tax equalization expense and stock based compensation, as discussed
above. Excluding the effect of these expense reversals, gross profit margin contracted 22%
year-over-year. While the quantity of our new contract signings has declined, we believe
our strategy should result in improving the quality, focus and profitability of new work.
Our workforce is now more appropriately aligned with our execution strategy and we are
placing increasing emphasis on the utilization of our lower-cost, global delivery centers,
so as to further reduce our cost of services. If we can continue to successfully execute
on our strategy and address our clients concerns regarding our ability to properly staff
our projects, the results of our change in strategy will become more apparent and tangible
over the second half of 2008.
    
    Utilization for the three months ended June 30, 2008 was 79.4%, an increase of 310 basis
points from the three months ended June 30, 2007. Utilization for the six months ended June
30, 2008 was 78.6%, an increase of 210 basis points over the six months ended June 30, 2007.
    
    As of June 30, 2008, our DSOs stood at 87 days, representing a decrease of 8 days, or
8.4%, from our DSOs at June 30, 2007. Nonetheless, in line with the historical patterns of
our business, DSOs as of June 30, 2008 were incrementally higher than DSOs as of December
31, 2007 by 10 days.
 25




---



##### 




    
    Free cash flow for the six months ended June 30, 2008 and 2007 was ($132.8) million and
($321.0) million, respectively. Net cash used in operating activities in the six months
ended June 30, 2008 and 2007 was ($112.0) million and ($298.4) million, respectively.
Purchases of property and equipment in the six months ended June 30, 2008 and 2007 were
($20.8) million and ($22.6) million, respectively. The change in free cash flow for the
six-month period was primarily attributable to $156.0 million increase in operating income.Significant uses of cash in operating activities in the first half of 2008 were caused by an
increase in accounts receivable of $58.7 million, the payment of taxes (net of refunds) for
certain of our profitable operating entities of $41.1 million and severance payments related
to managed reductions in our workforce of $11.5 million, partially offset by a favorable
impact of $11.0 million due to the strengthening of foreign currencies against the U.S.
Dollar. For a more detailed discussion of our cash and cash equivalents, see Part I, Item 2,
Managements Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity.
    
    As of June 30, 2008, we had approximately 15,900 full-time employees, including
approximately 13,400 consulting professionals. This represented a decrease in billable
headcount of approximately 6.9% from our headcount as of December 31, 2007.
    
    Our voluntary, annualized attrition rate for the second quarter of 2008 was 26.1%,
compared to 26.4% for the second quarter of 2007. Historically the attrition rates among our
managing directors have been significantly lower than the rates of attrition we have
experienced for our entire workforce. However, in the second quarter of 2008, the
annualized attrition rate for managing directors came much closer to converging with the
annualized attrition rate for our entire workforce than it has in the past.
 Segments
   26




---



##### 



Three Months ended June 30, 2008 Compared to Three Months ended June 30, 2007
 Revenue.
 Percent
    
    
    PercentThree Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseJune 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyRevenuePublic Services
    
    $
    381,177
    
    
    $
    359,494
    
    
    $
    21,683
    
    
    
    6.0
    %
    
    
    6.0
    %Commercial Services
    
    
    106,423
    
    
    
    133,973
    
    
    
    (27,550
    )
    
    
    (20.6
    %)
    
    
    (20.6
    %)Financial Services
    
    
    46,869
    
    
    
    70,761
    
    
    
    (23,892
    )
    
    
    (33.8
    %)
    
    
    (33.8
    %)EMEA
    
    
    236,780
    
    
    
    196,988
    
    
    
    39,792
    
    
    
    20.2
    %
    
    
    4.3
    %Asia Pacific
    
    
    86,679
    
    
    
    89,925
    
    
    
    (3,246
    )
    
    
    (3.6
    %)
    
    
    (14.3
    %)Latin America
    
    
    28,860
    
    
    
    23,281
    
    
    
    5,579
    
    
    
    24.0
    %
    
    
    10.2
    %Corporate/Other
    
    
    (64
    )
    
    
    924
    
    
    
    (988
    )
    
    
    (106.9
    %)
    
    
    n/mTotal
    
    $
    886,724
    
    
    $
    875,346
    
    
    $
    11,378
    
    
    
    1.3
    %
    
    
    (4.0
    %)
 
 n/m = not meaningful 
    
    Public Servicesrevenue increased significantly in the second quarter of 2008 primarily
due to revenue increases in the Emerging Markets, Defense and Civilian sectors, offset by a
decrease in the Healthcare sector. The increase in the Emerging Markets sector was due to
an increase in services provided to our clients, primarily through the increased use of
subcontractors. The increases in the Defense and Civilian sectors were due primarily to an
increase in the services we provide to clients. The revenue decline in Healthcare was due
primarily to reduced demand for our services.
    
    Commercial Servicesrevenue decreased significantly in the second quarter of 2008
primarily due to revenue decreases in the Communications & Media and Products sectors.
Revenue decreases in these sectors were all attributable to different combinations of
reduced demand for our services and reductions in the effective rates charged for our
services. Revenue in the Life Sciences sector remained flat year over year.
    
    Financial Servicesrevenue decreased significantly in the second quarter of 2008 due to
revenue decreases in the Banking, Services and Global Markets sectors. Revenue decreases
were attributable, in part, to lower levels of contract signings since the fourth quarter
of 2007, which, in turn, were due to a combination of factors including: our devoting
significant efforts during the first quarter of this year to reducing headcount and
stabilizing our business model and reduced demand for our services, as many clients
deferred new initiatives in the wake of increasing industry-wide losses and became
increasingly sensitive to negative perceptions regarding our financial stability.
    
    EMEArevenue increased in the second quarter of 2008 primarily as a result of the
favorable impact of the strengthening of foreign currencies, specifically the Euro, against
the U.S. dollar, as well as meaningful local currency revenue growth in Germany and France.
The currency impact also dampened revenue decreases in the United Kingdom, Spain and the
Nordics. The increase in revenues in Germany and France resulted from increased demand
for our services and increased billing rates for our services. Revenues in Spain continue
to decline as a result of our strategic decision to reduce our activities in this country.
Revenue declines in the United Kingdom and the Nordics are primarily attributable to the
loss of key personnel in these countries.
    
    Asia Pacificrevenue decreased in the second quarter of 2008 due primarily to the
significant revenue decreases in Australia and New Zealand, which were partially offset by
revenue increases in Japan. The revenue declines in Australia and New Zealand were
dampened by the favorable impact of the strengthening of foreign currencies against the
U.S. dollar, particularly the Japanese yen, and enhanced local currency growth in Japan.
Revenue declines in Australia were primarily related to loss of
 27




---



##### 



key personnel and reduced
demand for our services. Revenue in Japan continued to grow from system implementation
contracts and projects involving compliance with Japans Financial Instruments and Exchange
Law (J-SOX). Since companies are required to comply with J-SOX as early as April 2008,
we expect that the number of client engagements related to J-SOX will decline.
    
    Latin Americarevenue increased in the second quarter of 2008 primarily as a result of
the favorable impact of the strengthening of the Brazilian Real against the U.S. dollar and
revenue increases in Costa Rica, partially offset by revenue declines in Mexico.
    
    Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue.
 Gross Profit .
 
    
    Professional compensation expense as a percentage of revenue decreased to 46.8% for the
second quarter of 2008, compared to 53.8% for the second quarter of 2007. We experienced a
net decrease in professional compensation expense of $56.6 million, or 12.0%, to $414.7
million for the second quarter of 2008 over $471.3 million for the second quarter of 2007.
This decrease in professional compensation expense over the second quarter of 2007 was
primarily due to the previously discussed reversal of $22.9 million of accruals associated
with global tax equalization expense and a $20.5 million reduction in stock-based
compensation expense. The reduction in stock-based compensation was due, in part, to the
impact of forfeitures during the quarter and, due in part, to changes in estimates of future
rates of forfeitures used in computing stock compensation expense as discussed above.
    
    Other direct contract expenses as a percentage remained consistent at 21.7% for the
second quarter of 2008 and 2007. We experienced a net increase in other direct contract
expenses of $3.2 million, or 1.7%, to $192.8 million for the second quarter of 2008 from
$189.6 million for the second quarter of 2007.
    
    Other costs of service as a percentage of revenue remained consistent at 8.1% for the
second quarter of 2008 and 2007. We experienced a net increase in other costs of service of
$0.8 million, or 1.1%, to $71.4 million for the second quarter of 2008 from $70.6 million
for the second quarter of 2007.
    
    During the second quarter of 2008 we recorded, within the Corporate/Other operating
segment, a restructuring credit of $1.6 million related to lease, facilities and other exit
activities, compared with a $1.3 million charge during the second quarter of 2007. These
credits and charges related primarily to the fair value of future lease obligations
associated with office space, which we will no longer be using, primarily within the EMEA
and North America regions. The restructuring credit for the three months ended June 30, 2007
represents a net reduction of accruals, primarily attributable to the change in sublease
income assumptions associated with vacated leased facilities.
 
 28




---



##### 



Gross Profit by Segment.
 Percent
    
    
    PercentThree Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseJune 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyGross ProfitPublic Services
    
    $
    103,523
    
    
    $
    75,217
    
    
    $
    28,306
    
    
    
    37.6
    %
    
    
    37.6
    %Commercial Services
    
    
    25,016
    
    
    
    25,094
    
    
    
    (78
    )
    
    
    (0.3
    %)
    
    
    (0.3
    %)Financial Services
    
    
    15,156
    
    
    
    11,529
    
    
    
    3,627
    
    
    
    31.5
    %
    
    
    31.5
    %EMEA
    
    
    56,451
    
    
    
    40,278
    
    
    
    16,173
    
    
    
    40.2
    %
    
    
    20.5
    %Asia Pacific
    
    
    19,596
    
    
    
    22,955
    
    
    
    (3,359
    )
    
    
    (14.6
    %)
    
    
    (24.4
    %)Latin America
    
    
    5,101
    
    
    
    575
    
    
    
    4,526
    
    
    
    787.1
    %
    
    
    686.5
    %Corporate/Other
    
    
    (15,382
    )
    
    
    (33,117
    )
    
    
    17,735
    
    
    
    (53.6
    %)
    
    
    n/mTotal
    
    $
    209,461
    
    
    $
    142,531
    
    
    $
    66,930
    
    
    
    47.0
    %
    
    
    39.7
    %
 Three Months EndedJune 30,2008
    
    
    2007Gross Profit as a % of revenuePublic Services
    
    
    27.2
    %
    
    
    20.9
    %Commercial Services
    
    
    23.5
    %
    
    
    18.7
    %Financial Services
    
    
    32.3
    %
    
    
    16.3
    %EMEA
    
    
    23.8
    %
    
    
    20.4
    %Asia Pacific
    
    
    22.6
    %
    
    
    25.5
    %Latin America
    
    
    17.7
    %
    
    
    2.5
    %Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    23.6
    %
    
    
    16.3
    %
 
 n/m = not meaningful  
    
    Public Servicesgross profit increased in the second quarter of 2008 due primarily to
increases in revenue, particularly in our Defense sector, and decreases in professional
compensation, particularly in the Emerging Markets and SLED sectors. The decrease in
professional compensation is primarily attributable to the reversal of costs associated
with global tax equalization and, to a lesser extent, lower stock compensation costs.
    
    Commercial Servicesgross profit remained flat in the second quarter of 2008 as
significant revenue declines were offset by significant reductions in professional
compensation in most sectors. The reduction in professional compensation was primarily due
to the reversal of costs associated with global tax equalization, declines in stock based
compensation expense, and to a lesser extent, the effects of continuing headcount
reductions.
    
    Financial Servicesgross profit increased in the second quarter of 2008 as significant
revenue decreases were more than offset by significant decreases in professional
compensation. The reduction in professional compensation, and thus increase in gross
profit, was due primarily to accrual reversals for costs associated with global tax
equalization expense, declines in stock based compensation expense, and to a lesser
extent, the effects of continuing headcount reductions.
    
    EMEAgross profit increased in the second quarter of 2008 due to revenue increases in
the region as well as the favorable impact of the strengthening of foreign currencies,
specifically the Euro, against the U.S. dollar, which enhanced meaningful local currency
revenue growth in Germany and France.
 29




---



##### 




    
    Asia Pacificgross profit decreased in the second quarter of 2008 due primarily to a
decline in revenue. The decline in revenues was dampened by the favorable impact of the
strengthening of foreign currencies against the U.S. dollar, particularly the Japanese yen.
    
    Latin Americagross profit increased in the second quarter of 2008 due primarily to
reductions in professional compensation and to a lesser extent an increase in revenues.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related charges,
which increased in the second quarter of 2008 primarily due to the lease and facilities
restructuring charges discussed above.
 Selling, General and Administrative Expenses .
 Interest Income.
 Interest Expense.
 Other Income (Expense), net.
 Income Tax Expense .
 Net Income (Loss).
 30




---



##### 



Six Months ended June 30, 2008 Compared to Six Months ended June 30, 2007
 Revenue.
 Percent
    
    
    PercentSix Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseJune 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyRevenuePublic Services
    
    $
    721,275
    
    
    $
    721,187
    
    
    $
    88
    
    
    
    <0.1
    %
    
    
    <0.1
    %Commercial Services
    
    
    218,854
    
    
    
    270,255
    
    
    
    (51,401
    )
    
    
    (19.0
    %)
    
    
    (19.0
    %)Financial Services
    
    
    96,253
    
    
    
    142,966
    
    
    
    (46,713
    )
    
    
    (32.7
    %)
    
    
    (32.7
    %)EMEA
    
    
    447,414
    
    
    
    385,793
    
    
    
    61,621
    
    
    
    16.0
    %
    
    
    1.4
    %Asia Pacific
    
    
    175,945
    
    
    
    173,080
    
    
    
    2,865
    
    
    
    1.7
    %
    
    
    (9.3
    %)Latin America
    
    
    56,552
    
    
    
    45,547
    
    
    
    11,005
    
    
    
    24.2
    %
    
    
    8.7
    %Corporate/Other
    
    
    451
    
    
    
    2,770
    
    
    
    (2,319
    )
    
    
    (83.7
    %)
    
    
    n/mTotal
    
    $
    1,716,744
    
    
    $
    1,741,598
    
    
    $
    (24,854
    )
    
    
    (1.4
    %)
    
    
    (6.4
    %)
 
 n/m = not meaningful 
    
    Public Servicesrevenue for the six months ended June 30, 2008 was effectively flat year
over year. Revenue increases in the Emerging Markets, Defense and Civilian sectors were
offset by declines in Healthcare and SLED. Revenue growth in the Emerging Markets sector
was due to an increase in services provided to our clients, primarily through the use of
increased subcontractors. Revenue growth in the Civilian sector was due to increased
activity with existing clients. Revenue growth in Defense was primarily due to the
recognition of $7.7 million in revenue during the first quarter of 2008 relating to work
performed in earlier periods. Revenue decreased in Healthcare and SLED primarily due to
reduced demand for our services.
    
    Commercial Servicesrevenue decreased significantly during the six months ended June 30,
2008 primarily due to declines in the Products and Communications & Media sectors. Revenue
decreases in these sectors were all attributable to different combinations of reduced demand
for our services and reductions in the effective rates charged for our services.
    
    Financial Servicesrevenue decreased significantly during the six months ended June 30,
2008 due to revenue decreases in the Banking, Services and Global Markets sectors. Revenue
decreases were attributable, in part, to lower levels of contract signings since the fourth
quarter of 2007, which, in turn, were due to a combination of factors, including: our
devoting significant efforts during the first quarter of this year to reducing headcount and
stabilizing our business model and reduced demand for our services, as many clients deferred
new initiatives in the wake of increasing industry-wide losses and became increasingly
sensitive to negative perceptions regarding our financial stability.
    
    EMEArevenue increased during the six months ended June 30, 2008 primarily as a result of
the favorable impact of the strengthening of foreign currencies, specifically the Euro,
against the U.S. dollar. The currency impact further enhanced meaningful local currency
revenue growth in Germany and France, and dampened the effects of revenue decreases in the
United Kingdom, Spain and the Nordics. The increase in revenues in Germany and France
resulted from increased demand for our services and increased billing rates for our
services. Revenues in Spain continue to decline as a result of our strategic decision to
reduce our activities in this country. Revenue declines in the United Kingdom and the
Nordics are primarily attributable to the loss of key personnel in these countries.
    
    Asia Pacificrevenue increased during the six months ended June 30, 2008 primarily as a
result of the favorable impact of the strengthening of foreign currencies against the U.S.
dollar, particularly the Japanese yen. The currency impact further enhanced local currency
growth in Japan and dampened the effects of revenue decreases in Australia and New Zealand.
 31




---



##### 



Revenue in Japan continued to grow from system implementation contracts and projects
involving compliance with J-SOX. Since companies are required to comply with J-SOX as early
as April 2008, we expect that the number of client engagements related to J-SOX will
decline. Revenue declines in Australia were primarily related to loss of key personnel and
reduced demand for our services.
    
    Latin Americarevenue increased during the six months ended June 30, 2008 primarily as
a result of the favorable impact of the strengthening of the Brazilian Real against the
U.S. dollar, and revenue increases in Costa Rica and Brazil, partially offset by revenue
declines in Mexico.
    
    Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue.
 Gross Profit .
 
    
    Professional compensation expense as a percentage of revenue decreased to 50.6% for the
six months ended June 30, 2008, compared to 54.3% for the six months ended June 30, 2007. We
experienced a net decrease in professional compensation expense of $77.5 million, or 8.2%,
to $868.4 million for the six months ended June 30, 2008 from $945.9 million for the six
months ended June 30, 2007. The decrease in professional compensation expense over the
second quarter of 2007 was primarily due to reductions in stock based compensation expense
of $16.2 million as well as the reversal of accruals associated with global tax equalization
expense.
    
    Other direct contract expenses as a percentage of revenue decreased to 20.4% for the six
months ended June 30, 2008 compared to 22.1% for the six months ended June 30, 2007. We
experienced a net decrease in other direct contract expenses of $34.4 million, or 8.9%, to
$351.1 million for the six months ended June 30, 2008 from $385.4 million for the six months
ended June 30, 2007. The decrease was driven primarily by declines in subcontractor expense,
as well as declines in reimbursable travel and entertainment expense.
    
    Other costs of service as a percentage of revenue increased to 8.3% for the six months
ended June 30, 2008 from 8.0% for the six months ended June 30, 2007. We experienced a net
increase in other costs of service of $3.5 million, or 2.5%, to $142.7 million for the six
months ended June 30, 2008 from $139.2 million for the six months ended June 30, 2007. The
increase was primarily due to increases in costs associated with practice support and
recruiting expenses, offset by declines in real estate related expenses.
    
    During the six months ended June 30, 2008 we recorded, within the Corporate/Other
operating segment, a restructuring credit of $7.7 million related to lease, facilities and
other exit activities, compared with a $3.6 million credit during the six months ended June
30, 2007. These credits related primarily to the fair value of future lease obligations
associated with office space that we will no longer be using, primarily within the EMEA and
North America regions. The restructuring credit for the six months ended June 30, 2007
represents a net reduction of accruals, primarily attributable to the change in sublease
income assumptions associated with vacated leased facilities.
 32




---



##### 



Gross Profit by Segment.
 Percent
    
    
    PercentSix Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseJune 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyGross ProfitPublic Services
    
    $
    179,594
    
    
    $
    146,222
    
    
    $
    33,372
    
    
    
    22.8
    %
    
    
    22.8
    %Commercial Services
    
    
    44,338
    
    
    
    51,074
    
    
    
    (6,736
    )
    
    
    (13.2
    %)
    
    
    (13.2
    %)Financial Services
    
    
    20,892
    
    
    
    19,794
    
    
    
    1,098
    
    
    
    5.5
    %
    
    
    5.5
    %EMEA
    
    
    96,516
    
    
    
    82,147
    
    
    
    14,369
    
    
    
    17.5
    %
    
    
    2.5
    %Asia Pacific
    
    
    44,514
    
    
    
    36,951
    
    
    
    7,563
    
    
    
    20.5
    %
    
    
    7.7
    %Latin America
    
    
    9,757
    
    
    
    (2,211
    )
    
    
    11,968
    
    
    
    (541.3
    %)
    
    
    (485.8
    %)Corporate/Other
    
    
    (33,411
    )
    
    
    (59,386
    )
    
    
    25,975
    
    
    
    (43.7
    %)
    
    
    n/mTotal
    
    $
    362,200
    
    
    $
    274,591
    
    
    $
    87,609
    
    
    
    31.9
    %
    
    
    25.2
    %
 Six Months EndedJune 30,2008
    
    
    2007Gross Profit as a % of revenuePublic Services
    
    
    24.9
    %
    
    
    20.3
    %Commercial Services
    
    
    20.3
    %
    
    
    18.9
    %Financial Services
    
    
    21.7
    %
    
    
    13.8
    %EMEA
    
    
    21.6
    %
    
    
    21.3
    %Asia Pacific
    
    
    25.3
    %
    
    
    21.3
    %Latin America
    
    
    17.3
    %
    
    
    (4.9
    %)Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    21.1
    %
    
    
    15.8
    %
 
 n/m = not meaningful  
    
    Public Servicesgross profit increased in the six months ended June 30, 2008 primarily
due to improved results in the Defense and SLED sectors. Gross profit improvements were
also attributable to the significant decrease in subcontractor expenses, reversal of costs
associated with global tax equalization, a decrease in stock compensation expense, and the
recognition of $7.7 million in revenue during the first quarter of 2008 relating to work
performed in earlier periods.
    
    Commercial Servicesgross profit decreased in the six months ended June 30, 2008. The
impact of significant revenue declines in most sectors was lessened somewhat by
contributions made by significant reductions in professional compensation and, to a lesser
extent, reductions in other direct contract expenses. The reduction in professional
compensation was due to the effects of continuing headcount reductions, including reductions
among additional internal personnel allocated to this segment, the second quarter reversal
of costs associated with global tax equalization, and, to a lesser extent, reductions in
stock based compensation.
    
    Financial Servicesgross profit increased in the six months ended June 30, 2008 as the
impact of significant revenue decreases was lessened somewhat by significant decreases in
professional compensation, and, to a lesser extent reductions, in other direct contract
expenses. The reduction in professional compensation was due primarily to the effects of
continuing headcount reductions, second quarter reductions in stock based compensation, and,
to a lesser extent, accrual reversals for costs associated with global tax equalization
    
    EMEAgross profit increased in the six months ended June 30, 2008 due to the favorable
impact of the strengthening of foreign currencies, specifically the Euro, against the U.S.
dollar as well as revenue increases in the region.
 33




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
    
    Asia Pacificgross profit increased in the six months ended June 30, 2008 due primarily
to the favorable impact of the strengthening of foreign currencies against the U.S. dollar,
particularly the Japanese yen. Additionally, gross profit was
positively impacted by declines in professional compensation, contract loss reserves and other
direct contract expenses, which offset declines in revenue.
    
    Latin Americagross profit increased in the six months ended June 30, 2008 due to
reductions in professional compensation and to a lesser extent revenue growth.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related charges,
which decreased in the six months ended June 30, 2008 primarily due to reductions in
salaries related to our cross industry solutions group which were transferred into the other
North American industries effective in the first quarter of 2008. Additionally we recorded
a larger credit during the six months ended June 30, 2008 for lease and facilities
restructuring charges discussed above, when compared with the six months ended June 30,
2007.
 Selling, General and Administrative Expenses .
 Interest Income.
 Interest Expense.
 Other Income (Expense), net.
 Income Tax Expense .
 Net Loss .
 34




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Liquidity and Capital Resources
  Six Months EndedJune 30,2007 to 20082008



2007



ChangeNet cash provided by (used in):Operating activities
    
    $
    (111,984
    )
    
    $
    (298,435
    )
    
    $
    186,451Investing activities
    
    
    (22,861
    )
    
    
    (23,533
    )
    
    
    672Financing activities
    
    
    4,136
    
    
    
    280,089
    
    
    
    (275,953
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    11,040
    
    
    
    1,126
    
    
    
    9,914Net decrease in cash and cash equivalents
    
    $
    (119,669
    )
    
    $
    (40,753
    )
    
    $
    (78,916
    )
 Operating Activities.
 Investing Activities .
 Financing Activities .
 Additional Cash Flow Information
    35




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Update on Analysis of Alternative Strategies
      2007 Credit Facility  Prepayments
   Repurchase of Debentures at the Option of the Holders
  36




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voluntary or optional
  Off Balance Sheet Arrangements
    37




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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
    38




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Changes in Internal Control over Financial Reporting
  
 PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Overview
  
    
    Claims and investigations arising from our continuing inability to timely file periodic
reports under the Exchange Act, and the restatement of our 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 our 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 Shareholders Derivative Demand
 39




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ITEM 1A. RISK FACTORS
 10-K.
 Risks that Relate to Our Liquidity
 Our cash resources might not be sufficient to meet our expected cash needs over time. Beginning in
early 2009, we will begin to become subject to significant required payments under our 2007 Credit
Facility and our 5.00% Senior Convertible Debentures. We are increasingly concerned that our cash
balances, together with cash generated from operating activities and borrowings previously made
under our 2007 Credit Facility, may not be sufficient to provide adequate funds for our anticipated
internal growth, operating needs and debt service obligations during 2009.
     The holders of our debentures have the right, at their option, to require us to purchase some or
all of our debentures upon certain dates or upon the occurrence of certain designated events, which
could have a material adverse effect on our liquidity.
  40




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##### 



Debentures
    
    Maturity Date
    
    Put Date$250.0 Million 2.50% Series AConvertible Subordinated Debentures due 2024
    
    December 15, 2024
    
    December 15, 2011December 15, 2014December 15, 2019$200.0 Million 2.75% Series BConvertible Subordinated Debentures due 2024
    
    December 15, 2024
    
    December 15, 2014
December 15, 2019$200.0 Million 5.00% ConvertibleSenior Subordinated Debentures due 2025
    
    April 15, 2025
    
    April 15, 2009April 15, 2013April 15, 2015April 15, 2020$40.0 Million 0.50% ConvertibleSenior Subordinated Debentures due 2010
    
    July 15, 2010
    
    N/A
    Risks That Relate To Our Business
 Our ability to sign new business and recruit and retain employees may be materially and adversely
affected while our Board of Directors evaluates strategic alternatives.
  If we are unable to timely and properly implement our new North American financial reporting
system, we may be unable to reduce certain SG&A expenses as a percentage of revenue as rapidly as
we have previously planned. We may also incur additional, unexpected expenses in connection with
the implementation of our new North American financial reporting system. Our inability
 41




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##### 



to reduce
SG&A expenses as rapidly as planned and/or the incurrence of additional, unexpected expenses could
have a material adverse effect on our financial condition and impact our ability to meet our
short-term debt service obligations.
    Risks That Relate To Our Common Stock
 If the price of shares of our common stock remains below $1.00, we may be delisted by the NYSE. If
we are delisted by the NYSE before we are able to be listed on another national stock exchange,
payment of substantially all of our outstanding debentures would be accelerated and, by
implication, an event of default would exist under our 2007 Credit Facility that could require
repayment of all amount outstanding under that facility. If this were to occur, there would be
material adverse effects on our business, financial condition and results of operations.
     42




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If the price per share of our common stock remains below $1.00 for an extended period of time or
shares of our common stock are otherwise delisted from the NYSE there could a negative effect on
our business that could significantly impact our financial condition, our results of operation and
our ability to service our debt obligations.
  §
    
    reducing the liquidity and market price of our common stock;§
    
    reducing the number of investors willing to hold or acquire our common stock, thereby
further restricting our ability to obtain equity financing;§
    
    reducing our ability to retain our clients and obtain new clients;§
    
    reducing our ability to retain, attract and motivate our Managing Directors and other
key employees; and§
    
    impairing our ability to provide equity incentives to our employees.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
  43




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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 August 2, 2007, which is incorporated herein by
reference to Exhibit 3.1 from the Companys Form 8-K filed with the SEC on August 8, 2007.3.3
    
    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 Computershare Trust Company, N.A.
(formerly 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
    
    First Amendment to the Rights Agreement between the Company and Computershare Trust Company, N.A. (formerly
EquiServe Trust Company, N.A.), which is incorporated herein by reference to Exhibit 99.1 from the
Companys Form 8-K filed with the SEC on September 6, 2002.4.4
    
    Second Amendment to the Rights Agreement, dated as of October 27, 2007, between the Company and
Computershare Trust Company, N.A. (formerly EquiServe Trust Company, N.A.), which is incorporated herein by
reference to Exhibit 4.4 from the Companys Form 10-Q for the quarter ended June 30, 2007.10.1
    
    Employment Letter dated April 24, 2008, effective as of May 13, 2008, between the Company and Eileen A.
Kamerick, which is incorporated herein by reference to Exhibit 10.5 from the Companys Quarterly Report on
Form 10-Q for the Quarterly Period Ended March 31, 2008.10.2
    
    Supplemental Employment Letter dated May 12, 2008, between the Company and Eileen A. Kamerick, which is
incorporated herein by reference to Exhibit 10.6 from the Companys Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 2008.10.3
    
    Special Termination Agreement, effective as of May 13, 2008, between the Company and Eileen A. Kamerick,
which is incorporated herein by reference to Exhibit 10.7 from the Companys Quarterly Report on Form 10-Q
for the Quarterly Period Ended March 31, 2008.10.4
    
    Form of Restricted Stock Unit Agreement (including for Eileen A. Kamerick), which is incorporated herein by
reference to Exhibit 10.8 from the Companys Quarterly Report on Form 10-Q for the Quarterly Period Ended
March 31, 2008.10.5*
    
    Employment Letter dated July 1, 2008, effective as of June 4, 2008, between the Company and Eddie R. Munson.10.6*
    
    Managing Director Agreement dated July 1, 2008, effective as of June 4, 2008, between the Company and Eddie
R. Munson.10.7*
    
    Separation and Release of Claims Agreement dated as of May 12, 2008, between the Company and Judy A. Ethell.10.8*
    
    Form of BearingPoint, Inc. Performance Cash Award Agreement.10.9*
    
    Form of BearingPoint, Inc. Performance Share Unit Award Agreement.
 44




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##### 



ExhibitNo.
    
    Description31.1*
    
    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.
 
 *
    
    Filed herewith. 45




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SIGNATURES
  BearingPoint, Inc.DATE: August 11, 2008
    By:
    /s/ Eddie R. MunsonEddie R. MunsonChief Financial Officer