##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934For
the quarterly period ended March 31, 2006.
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
 Commission File Number 001-31451
 
 BEARINGPOINT, INC.
 (Exact name of Registrant as specified in its charter)
 
 DELAWARE(State or other jurisdiction of
incorporation or organization)
    
    22-3680505(IRS Employer Identification
No.)1676
International Drive, McLean, VA
    
    22102(Address
of principal executive offices)
    

(Zip
Code)
 (703) 747-3000(Registrants telephone number,
including area code)
 
  o þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
 o þ




---



##### 



BEARINGPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2006
 EXPLANATORY NOTE
    i




---



##### 



BEARINGPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2006
 TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1: Financial Statements (unaudited)
    
    
    1Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2006
and 2005
    
    
    1Consolidated Condensed Balance Sheets as of March 31, 2006 and December 31, 2005
    
    
    2Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2006
and 2005
    
    
    3Notes to Consolidated Condensed Financial Statements
    
    
    4Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3: Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4: Controls and Procedures
    
    
    34PART IIOTHER INFORMATIONItem 1: Legal Proceedings
    
    
    34Item 1A: Risk Factors
    
    
    34Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3: Defaults Upon Senior Securities
    
    
    35Item 4: Submission of Matters to a Vote of Security Holders
    
    
    35Item 5: Other Information
    
    
    35Item 6: Exhibits
    
    
    35SIGNATURES
    
    
    36
 ii




---



##### 



PART I, ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
 BEARINGPOINT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Revenue
    
    $
    833,744
    
    
    $
    871,333Costs of service:Professional compensation
    
    
    429,249
    
    
    
    476,574Other direct contract expenses
    
    
    242,394
    
    
    
    283,842Lease and facilities restructuring charges
    
    
    2,800
    
    
    
    19,605Other costs of service
    
    
    60,827
    
    
    
    66,362Total costs of service
    
    
    735,270
    
    
    
    846,383Gross profit
    
    
    98,474
    
    
    
    24,950Amortization of purchased intangible assets
    
    
    515
    
    
    
    566Selling, general and administrative expenses
    
    
    188,913
    
    
    
    163,441Operating loss
    
    
    (90,954
    )
    
    
    (139,057
    )Interest income
    
    
    2,251
    
    
    
    1,351Interest expense
    
    
    (8,966
    )
    
    
    (8,056
    )Insurance settlement
    
    
    38,000
    
    
    
    Other income (expense), net
    
    
    378
    
    
    
    (5,083
    )Loss before taxes
    
    
    (59,291
    )
    
    
    (150,845
    )Income tax expense
    
    
    13,422
    
    
    
    81,713Net loss
    
    $
    (72,713
    )
    
    $
    (232,558
    )Loss per share  basic and diluted
    
    $
    (0.34
    )
    
    $
    (1.16
    )Weighted average shares  basic and diluted
    
    
    211,704,290
    
    
    
    200,358,531
  1




---



##### 



BEARINGPOINT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
 March 31,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    290,857
    
    
    $
    255,340Restricted cash
    
    
    31,796
    
    
    
    121,247Accounts receivable, net of allowances of $5,354 at
March 31, 2006 and $9,326 at December 31, 2005
    
    
    386,158
    
    
    
    432,415Unbilled revenue
    
    
    428,180
    
    
    
    355,137Income tax receivable
    
    
    9,273
    
    
    
    10,867Deferred income taxes
    
    
    13,217
    
    
    
    18,991Prepaid expenses
    
    
    32,173
    
    
    
    35,875Other current assets
    
    
    72,725
    
    
    
    40,345Total current assets
    
    
    1,264,379
    
    
    
    1,270,217Property and equipment, net
    
    
    162,491
    
    
    
    170,133Goodwill
    
    
    433,805
    
    
    
    427,688Other intangible assets, net
    
    
    1,030
    
    
    
    1,545Deferred income taxes, less current portion
    
    
    23,603
    
    
    
    20,915Other assets
    
    
    78,427
    
    
    
    81,928Total assets
    
    $
    1,963,735
    
    
    $
    1,972,426LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current portion of notes payable
    
    $
    3,581
    
    
    $
    6,393Accounts payable
    
    
    279,663
    
    
    
    286,273Accrued payroll and employee benefits
    
    
    315,053
    
    
    
    309,510Deferred revenue
    
    
    138,904
    
    
    
    166,647Income tax payable
    
    
    35,722
    
    
    
    41,839Current portion of accrued lease and facilities charges
    
    
    11,949
    
    
    
    12,515Deferred income taxes
    
    
    13,462
    
    
    
    10,095Accrued legal settlements
    
    
    79,772
    
    
    
    38,601Other current liabilities
    
    
    172,188
    
    
    
    169,624Total current liabilities
    
    
    1,050,294
    
    
    
    1,041,497Notes payable, less current portion
    
    
    668,841
    
    
    
    668,367Accrued employee benefits
    
    
    97,479
    
    
    
    92,338Accrued lease and facilities charges, less current portion
    
    
    37,792
    
    
    
    38,082Deferred income taxes, less current portion
    
    
    15,976
    
    
    
    22,876Income tax reserve
    
    
    95,490
    
    
    
    89,530Other liabilities
    
    
    96,098
    
    
    
    65,308Total liabilities
    
    
    2,061,970
    
    
    
    2,017,998Commitments and contingencies (note 9)Stockholders deficit:Preferred stock, $.01 par value 10,000,000 shares authorized
    
    
    
    
    
    
    Common stock, $.01 par value 1,000,000,000 shares authorized,
205,350,249 shares issued and 201,537,999 shares outstanding
on March 31, 2006 and December 31, 2005
    
    
    2,044
    
    
    
    2,044Additional paid-in capital
    
    
    1,271,781
    
    
    
    1,261,797Accumulated deficit
    
    
    (1,556,912
    )
    
    
    (1,484,199
    )Notes receivable from stockholders
    
    
    (7,579
    )
    
    
    (7,578
    )Accumulated other comprehensive income
    
    
    228,158
    
    
    
    218,091Treasury stock, at cost (3,812,250 shares)
    
    
    (35,727
    )
    
    
    (35,727
    )Total stockholders deficit
    
    
    (98,235
    )
    
    
    (45,572
    )Total liabilities and stockholders deficit
    
    $
    1,963,735
    
    
    $
    1,972,426
  2




---



##### 



BEARINGPOINT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (72,713
    )
    
    $
    (232,558
    )Adjustments to reconcile net loss to net cash used in
operating activities:Deferred income taxes
    
    
    4,985
    
    
    
    64,810Benefit for doubtful accounts
    
    
    (3,271
    )
    
    
    (1,629
    )Stock-based compensation
    
    
    9,984
    
    
    
    1,720Depreciation and amortization of property and equipment
    
    
    19,595
    
    
    
    17,774Amortization of purchased intangible assets
    
    
    515
    
    
    
    566Lease and facilities restructuring charges
    
    
    2,800
    
    
    
    19,605Amortization of debt issuance costs and debt accretion
    
    
    2,078
    
    
    
    4,682Other
    
    
    2,159
    
    
    
    4,044Changes in assets and liabilities:Accounts receivable
    
    
    51,839
    
    
    
    (24,758
    )Unbilled revenue
    
    
    (71,520
    )
    
    
    (39,991
    )Income tax receivable, prepaid expenses and other
current assets
    
    
    (33,523
    )
    
    
    4,173Other assets
    
    
    2,553
    
    
    
    1,199Accounts payable, accrued legal settlements and other current liabilities
    
    
    27,438
    
    
    
    103,880Accrued payroll and employee benefits
    
    
    3,261
    
    
    
    (9,935
    )Deferred revenue
    
    
    (28,532
    )
    
    
    3,322Income tax reserve and other liabilities
    
    
    36,881
    
    
    
    (23,100
    )Net cash used in operating activities
    
    
    (45,471
    )
    
    
    (106,196
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (14,099
    )
    
    
    (6,365
    )Decrease in restricted cash
    
    
    89,452
    
    
    
    21,053Net cash provided by investing activities
    
    
    75,353
    
    
    
    14,688Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    
    
    
    
    14,593Proceeds from issuance of notes payable
    
    
    
    
    
    
    51,453Repayments of notes payable
    
    
    (3,163
    )
    
    
    (3,166
    )Increase (decrease) in book overdrafts
    
    
    6,458
    
    
    
    (1,329
    )Net cash provided by financing activities
    
    
    3,295
    
    
    
    61,551Effect of exchange rate changes on cash and cash equivalents
    
    
    2,340
    
    
    
    (4,182
    )Net increase (decrease) in cash and cash equivalents
    
    
    35,517
    
    
    
    (34,139
    )Cash and cash equivalents  beginning of period
    
    
    255,340
    
    
    
    244,810Cash and cash equivalents  end of period
    
    $
    290,857
    
    
    $
    210,671
  3




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 Note 1. Basis of Presentation and Liquidity
 Basis of Presentation
    Liquidity
  
    
    The Company has experienced significant recurring net losses. At March 31, 2006, the
Company had an accumulated deficit of $1,556,912 and a total stockholders deficit of
$98,235.
    
    The Companys business has not generated positive cash from operating activities in
certain quarters during fiscal years 2006 and 2005.
    
    Due to the material weaknesses in its internal controls, the Company continues to
experience significant delays in completing its consolidated financial statements and
filing periodic reports with the SEC on a timely basis. Accordingly, the Company continues
to devote substantial additional internal and external resources, and experience higher
than expected fees for audit services.
 4




---



##### 



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




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Options OutstandingOptions/Shares
    
    
    
    
    
    Weighted AverageAvailable
    
    
    
    
    
    Exercisefor Grant
    
    Number
    
    Price per ShareBalance at December 31, 2005
    
    
    7,609,567
    
    
    
    45,676,141
    
    
    $
    11.33Additional shares authorized
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (400
    )
    
    
    400
    
    
    
    8.95Options exercised
    
    
    
    
    
    
    
    
    
    
    Options forfeited/canceled
    
    
    4,218,350
    
    
    
    (4,218,350
    )
    
    
    12.82Restricted stock awards, net of forfeitures
    
    
    67,649
    
    
    
    n/a
    
    
    
    6.44Balance at March 31, 2006
    
    
    11,895,166
    
    
    
    41,458,191
    
    
    $
    11.17
     Unrecognized
    
    
    Weighted-Compensation
    
    
    Average Life inCosts
    
    
    YearsStock options
    
    $
    26,366
    
    
    
    2.5Restricted stock and stock unit awards
    
    
    14,062
    
    
    
    3.8ESPP
    
    
    8,642
    
    
    
    1.8Total
    
    $
    49,070
    
    
    
    2.7
 6




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Three Months EndedMarch 31, 2005Net loss
    
    $
    (232,558
    )Add back:Total stock-based compensation expense recorded under intrinsic
value method for all stock awards, net of tax effects
    
    
    1,720Deduct:Total stock-based compensation expense recorded under fair
value method for all stock awards, net of tax effects
    
    
    (25,115
    )Pro forma net loss
    
    $
    (255,953
    )Loss per share:Basic and diluted  as reported
    
    $
    (1.16
    )Basic and diluted  pro forma
    
    $
    (1.28
    )
   WeightedWeighted
    
    AverageStock Price
    
    Risk-Free
    
    
    
    
    
    Expected
    
    Average
    
    Grant DateExpected
    
    Interest
    
    Expected
    
    Dividend
    
    Exercise
    
    FairVolatility
    
    Rate
    
    Life
    
    Yield
    
    Price
    
    ValueThree months ended March 31, 2006
    
    
    50.80
    %
    
    
    4.59
    %
    
    
    6
    
    
    
    
    
    
    $
    8.95
    
    
    $
    4.82Three months ended March 31, 2005
    
    
    51.28
    %
    
    
    3.99
    %
    
    
    6
    
    
    
    
    
    
    $
    7.77
    
    
    $
    4.74
  7




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Stock Option Plans
  Outstanding Options(1)
    
    Options Exercisable(1)Weighted Average
    
    Weighted
    
    
    
    
    
    WeightedNumber
    
    Remaining
    
    Average
    
    Number
    
    AverageOutstanding
    
    Contractual
    
    Exercise
    
    Exercisable
    
    ExerciseRange of Exercise Price
    
    March 31, 2006
    
    Life (Years)
    
    Price
    
    March 31, 2006
    
    Price$ 0.00-$11.10
    
    
    28,590,432
    
    
    
    7.5
    
    
    $
    8.83
    
    
    
    19,693,663
    
    
    $
    9.20$11.11-$16.64
    
    
    5,953,343
    
    
    
    5.5
    
    
    $
    13.25
    
    
    
    5,866,130
    
    
    $
    13.24$16.65-$27.75
    
    
    6,721,233
    
    
    
    4.7
    
    
    $
    18.03
    
    
    
    6,721,233
    
    
    $
    18.03$49.95-$55.50
    
    
    193,183
    
    
    
    3.8
    
    
    $
    55.50
    
    
    
    193,183
    
    
    $
    55.5041,458,191
    
    
    
    6.7
    
    
    $
    11.17
    
    
    
    32,474,209
    
    
    $
    12.03Vested or Expected to vest at March 31, 2006 (1)
    
    
    40,110,594
    
    
    
    6.7
 
 (1)
    
    The aggregate intrinsic values for stock options
outstanding, exercisable and vested or expected to vest as of March 31, 2006 of
$9,266, $4,504 and $8,551, respectively, represent the total pre-tax intrinsic
values based upon our closing stock price of $8.49 as of March 31, 2006 which
would have been received by the option holders had all the in-the-money options
been exercised as of that date.      Restricted Stock Units
  8




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 WeightedAverageGrantDate FairNumber of RSUs
    
    ValueOutstanding at December 31, 2005
    
    
    13,268,265
    
    
    $
    7.61Granted
    
    
    76,455
    
    
    
    8.82Settled
    
    
    
    
    
    
    Forfeited
    
    
    (125,689
    )
    
    
    7.75Outstanding at March 31, 2006
    
    
    13,219,031
    
    
    $
    7.62
    Employee Stock Purchase Plan
    9




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Note 3. Notes Payable
  March 31,
    
    
    December 31,2006
    
    
    2005Current portion:Yen-denominated term loan (January 31, 2003)
    
    $
    
    
    
    $
    2,803Yen-denominated term loan (June 30, 2003)
    
    
    1,401
    
    
    
    1,402Other
    
    
    2,180
    
    
    
    2,188Total current portion
    
    
    3,581
    
    
    
    6,393Long-term portion:Series A and Series B Convertible Debentures
    
    
    450,000
    
    
    
    450,000April 2005 Convertible Debentures
    
    
    200,000
    
    
    
    200,000July 2005 Convertible Debentures (net of discount of
$21,159 and $21,946, respectively)
    
    
    18,841
    
    
    
    18,054Other
    
    
    
    
    
    
    313Total long-term portion
    
    
    668,841
    
    
    
    668,367Total notes payable
    
    $
    672,422
    
    
    $
    674,760
 2007 Credit Facility
     
    
    The affirmative covenantsinclude, among other things: the delivery of unaudited
quarterly and audited annual financial statements, all in accordance with generally
accepted accounting principles, certain monthly operating metrics and budgets; compliance
with applicable laws and regulations (excluding, prior to October 31, 2008, compliance with
certain filing requirements under the securities laws); maintenance of existence and
insurance; after
 10




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 October 31, 2008, as requested by the Administrative Agent, maintenance of credit ratings;
and maintenance of books and records (subject to the material weaknesses previously
disclosed in the Companys 2005 Form 10-K).
    
    The negative covenants, which (subject to exceptions) restrict certain of the Companys
corporate activities, include, among other things, limitations on: disposition of assets;
mergers and acquisitions; payment of dividends; stock repurchases and redemptions;
incurrence of additional indebtedness; making of loans and investments; creation of liens;
prepayment of other indebtedness; and engaging in certain transactions with affiliates.
    Discontinued 2005 Credit Facility
      
    
    The financial covenants included: (i) a minimum U.S. cash collections requirement, (ii)
a minimum trailing twelve-month EBITDA covenant, (iii) a maximum leverage ratio and (iv) a
maximum trailing twelve-month capital expenditures covenant.
 11




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 
  
    
    The affirmative covenants included the Company becoming
current in its SEC periodic filings in
accordance to a predetermined schedule, repatriation of a $65,000 of cash from foreign
subsidiaries and the submission to its lender certain weekly and monthly reports providing
various financial information.
    
    The negative covenants significantly restricted the Companys corporate activities and
ability to dispose of assets without the lenders consent.
    
    Standard events of default for a senior secured facility were included, as well as
default for payments in respect of judgments against the Company in excess of $18,000;
termination of trading of Company stock; and certain indictments, convictions or the
commencement of criminal proceedings of or against the Company or any subsidiary.
    Note 4. Earnings (Loss) Per Share
  12




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Note 5. Comprehensive Loss
  Three Months EndedMarch 31,2006
    
    
    2005Net loss
    
    $
    (72,713
    )
    
    $
    (232,558
    )Foreign currency translation adjustment, net of tax (a)
    
    
    4,736
    
    
    
    (20,681
    )Minimum pension liability
    
    
    5,329
    
    
    
    Comprehensive loss
    
    $
    (62,648
    )
    
    $
    (253,239
    )
 
 (a)
    
    Movement in the foreign currency translation adjustment is primarily due to exchange-rate
fluctuations of the Euro and Japanese Yen against the U.S. dollar. Note 6. Segment Reporting
  Three Months EndedMarch 31,2006
    
    
    2005Operating
    
    
    
    
    
    
    OperatingRevenue
    
    
    Income (Loss)
    
    
    Revenue
    
    
    Income (Loss)Public Services
    
    $
    331,116
    
    
    $
    52,153
    
    
    $
    332,101
    
    
    $
    68,768Commercial Services
    
    
    117,107
    
    
    
    (28,519
    )
    
    
    172,787
    
    
    
    (88,497
    )Financial Services
    
    
    110,502
    
    
    
    36,751
    
    
    
    90,699
    
    
    
    20,320EMEA
    
    
    164,180
    
    
    
    25,647
    
    
    
    171,540
    
    
    
    20,695Asia Pacific
    
    
    90,435
    
    
    
    17,355
    
    
    
    83,711
    
    
    
    12,230Latin America
    
    
    19,221
    
    
    
    1,039
    
    
    
    20,033
    
    
    
    3,812Corporate/Other
    
    
    1,183
    
    
    
    (195,380
    )
    
    
    462
    
    
    
    (176,385
    )Total
    
    $
    833,744
    
    
    $
    (90,954
    )
    
    $
    871,333
    
    
    $
    (139,057
    )
 13




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Note 7. Goodwill and Other Intangible Assets
  ForeignBalance
    
    
    
    
    
    
    Currency
    
    
    BalanceDecember 31,
    
    
    Impairment
    
    
    Translation
    
    
    March 31,2005
    
    
    Charge
    
    
    Adjustment
    
    
    2006Public Services
    
    $
    23,581
    
    
    $
    
    
    
    $
    
    
    
    $
    23,581Financial Services
    
    
    9,210
    
    
    
    
    
    
    
    
    
    
    
    9,210EMEA
    
    
    325,262
    
    
    
    
    
    
    
    6,707
    
    
    
    331,969Asia Pacific
    
    
    68,562
    
    
    
    
    
    
    
    (622
    )
    
    
    67,940Latin America
    
    
    871
    
    
    
    
    
    
    
    32
    
    
    
    903Corporate/Other
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    202Total
    
    $
    427,688
    
    
    $
    
    
    
    $
    6,117
    
    
    $
    433,805
   March 31,
    
    
    December 31,2006
    
    
    2005Other intangible assets:Backlog, customer contracts and related customer relationships
    
    $
    1,309
    
    
    $
    1,309Market rights
    
    
    10,297
    
    
    
    10,297Total other intangibles
    
    
    11,606
    
    
    
    11,606Accumulated amortization:Backlog, customer contracts and related customer relationships
    
    
    (1,309
    )
    
    
    (1,309
    )Market rights
    
    
    (9,267
    )
    
    
    (8,752
    )Total accumulated amortization
    
    
    (10,576
    )
    
    
    (10,061
    )Other intangible assets, net
    
    $
    1,030
    
    
    $
    1,545
  Note 8. Restructuring Activities
  14




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
   TotalBalance at December 31, 2005
    
    $
    50,597Charges to operations
    
    
    2,800Payments
    
    
    (3,847
    )Other (a)
    
    
    191Balance at March 31, 2006
    
    $
    49,741
 
 (a)
    
    Other changes in the restructuring accrual consist primarily of foreign currency translation
adjustments. Note 9. Commitments and Contingencies
  
    
    Claims and investigations arising from its continuing inability to timely file periodic
reports under the Exchange Act (the Exchange Act), and the restatement of its financial
statements for certain prior periods to correct accounting errors and departures from
generally accepted accounting principles for those years (SEC Reporting Matters);
    
    Claims and investigations being conducted by agencies or officers of the U.S. Federal
government and arising in connection with its provision of services under contracts with
agencies of the U.S. Federal government (Government Contracting Matters); and
    
    Claims made in the ordinary course of business by clients seeking damages for alleged
breaches of contract or failure of performance, by current or former employees seeking
damages for alleged acts of wrongful termination or discrimination, and by creditors or
other vendors alleging defaults in payment or performance (Other Matters).
  SEC Reporting Matters
 2005 Class Action Suits
  15




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Makor Issues & Rights, Ltd v. Tellabs, Tellabs
 2005 Shareholders Derivative Demand
  Series B Debenture Suit
      SEC Investigation
  16




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
   Government Contracting Matters
 Government Contracts
  California Subpoena
  Travel Rebate Investigation
  17




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Department of Interior
  United States Agency for International Development Contract
  Core Financial Logistics System
  General Services Administration Audit
   18




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
 Other Matters
 Peregrine Litigation
  In re Peregrine Systems, Inc. Securities Litigation
  Hawaiian Telcom Communications, Inc.
  Telecommunications Company
  Michael Donahue
  19




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
  Canon Australia
  Transition Services Provided By KPMG LLP
   Other Commitments
  20




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
   Note 10. Pension and Postretirement Benefits
  Three Months EndedMarch 31,2006
    
    
    2005Components of net periodic pension cost:Service cost
    
    $
    1,792
    
    
    $
    1,591Interest cost
    
    
    1,107
    
    
    
    1,042Expected return on plan assets
    
    
    (269
    )
    
    
    (293
    )Amortization of loss
    
    
    256
    
    
    
    4Amortization of prior service cost
    
    
    159
    
    
    
    194Curtailment
    
    
    30
    
    
    
    (208
    )Settlement
    
    
    (91
    )
    
    
    (58
    )Net periodic pension cost
    
    $
    2,984
    
    
    $
    2,272Components of net periodic postretirement medical cost:Service cost
    
    $
    480
    
    
    $
    314Interest cost
    
    
    184
    
    
    
    143Amortization of
losses
    
    
    39
    
    
    
    18Amortization of prior service cost
    
    
    120
    
    
    
    120Net periodic postretirement medical cost
    
    $
    823
    
    
    $
    595
 Note 11. Income Taxes
   Note 12. Recently Issued Accounting Pronouncements
  21




---



##### 



BEARINGPOINT INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS  (Continued)
       22




---



##### 



PART I, ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 The following Managements Discussion and Analysis of Financial Condition and Results of
Operations (MD&A) should be read in conjunction with the interim Consolidated Condensed Financial
Statements and the Notes to the Consolidated Condensed Financial Statements included elsewhere in
this Quarterly Report on Form 10-Q .
 Disclosure Regarding Forward-Looking Statements
  
    
    Our continuing failure to timely file certain periodic reports with the SEC poses
significant risks to our business, each of which could materially and adversely affect our
financial condition and results of operations.
    
    In 2004, we identified material weaknesses in our internal control over financial
reporting, the remediation of which has materially and adversely affected our business and
financial condition, and as of December 31, 2006, these material weaknesses remain.
    
    We face risks related to securities litigation and regulatory actions that could
adversely affect our financial condition and business.
    
    Our business may be adversely impacted as a result of changes in demand, both globally
and in individual market segments, for our consulting and systems integration services.
    
    Our operating results will suffer if we are not able to maintain our billing and
utilization rates or control our costs.
    
    We continue to incur selling, general and administrative (SG&A) expenses at levels
significantly higher than those of our competitors. If we are unable to significantly
reduce SG&A expenses over the near term, our ability to achieve, and make significant
improvements in, net income and profitability will remain in jeopardy.
    
    The systems integration consulting markets are highly competitive, and we may not be
able to compete effectively if we are not able to maintain our billing rates or control our
costs related to these engagements.
    
    Contracting with the Federal government is inherently risky and exposes us to risks that
may materially and adversely affect our business.
    
    Our ability to attract, retain and motivate our managing directors and other key
employees is critical to the success of our business. We continue to experience sustained,
higher-than-industry average levels of voluntary turnover among our workforce, which has
impacted our ability to grow our business.
    
    Our contracts can be terminated by our clients with short notice, or our clients may
cancel or delay projects.
    
    If we are not able to keep up with rapid changes in technology or maintain strong
relationships with software providers, our business could suffer.
    
    Loss of our joint marketing relationships could reduce our revenue and growth prospects.
    
    We are not likely to be able to significantly grow our business through mergers and acquisitions in the near term.
    
    There will not be a consistent pattern in our financial results from quarter to quarter,
which may result in increased volatility of our stock price.
    
    Our profitability may decline due to financial, regulatory and operational risks
inherent in worldwide operations.
    
    We may bear the risk of cost overruns relating to our services, thereby adversely affecting our profitability.
    
    We may face legal liabilities and damage to our professional reputation from claims made against our work.
 
 23




---



##### 




    
    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 current cash resources might not be sufficient to meet our expected cash needs over time.
    
    We have been unable to issue shares of our common stock under our ESPP since February 1,
2005. The longer we are unable to issue shares of our common stock, the more likely our
ESPP participants may elect to withdraw their accumulated cash contributions from the ESPP
at rates higher than those we have historically experienced.
    
    Our 2007 Credit Facility imposes a number of restrictions on the way in which we operate
our business and may negatively affect our ability to finance future needs, or do so on
favorable terms. If we violate these restrictions, we will be in default under the 2007
Credit Facility, which may cross-default to our other indebtedness.
    
    If we cannot generate positive cash flow from our operations, we eventually may not be
able to service our indebtedness.
    
    We may be unable to obtain new surety bonds, letters of credit or bank guarantees in
support of client engagements on acceptable terms.
    
    Downgrades of our credit ratings may increase our borrowing costs and materially and
adversely affect our financial condition.
    
    Our leverage may adversely affect our business and financial performance and may
restrict our operating flexibility.
    
    The holders of our debentures have the right, at their option, to require us to purchase
some or all of their debentures upon certain dates or upon the occurrence of certain
designated events, which could have a material adverse effect on our liquidity.
    
    The price of our common stock may decline due to the number of shares that may be
available for sale in the future.
    
    There are significant limitations on the ability of any person or company to acquire the
Company without the approval of our Board of Directors.
  Explanatory Note
   Overview
   Economic and Industry Factors
  24




---



##### 



Revenue and Income Drivers
     Key Performance Indicators
  
    
    Bookings.We believe that information regarding our new contract bookings provides
useful trend information regarding how the volume of our new business changes over time.
Comparing the amount of new contract bookings and revenue provides us with an additional
measure of the short-term sustainability of revenue growth. Information regarding our new
bookings should not be compared to, or substituted for, an analysis of our revenue over
time. There are no third-party standards or requirements governing the calculation of
bookings. New contract bookings are recorded using then existing currency exchange rates
and are not subsequently adjusted for currency fluctuations. These amounts represent our
estimate at contract signing of the net revenue expected over the term of that contract and
involve estimates and judgments regarding new contracts as well as renewals, extensions and
additions to existing contracts. Subsequent cancellations, extensions and other matters may
affect the amount of bookings previously reported. Bookings do not include potential
revenue that could be earned from a client relationship as a result of future expansion of
service offerings to that client, nor does it reflect option years under contracts that are
subject to client discretion. In addition, government contracts or work orders are not included in bookings until
related appropriations spending has been properly approved and, then, only to the extent of the
amount of spending approved. Consequently, there can be significant differences between the times
of contract signing and new contract booking recognition. Although our level of bookings provides an indication of
how our
 25




---



##### 



business is performing, we do not characterize our bookings, or our engagement contracts
associated with new bookings, as backlog because our engagements generally can be cancelled
or terminated on short notice or without notice.
    
    Revenue Growth.Unlike bookings, which provide only a general sense of future
expectations, period-over-period comparisons of revenue provide a meaningful depiction of
how successful we have been in growing our business over time.
    
    Gross Margin (gross profit as a percentage of revenue).Gross margin is a meaningful
tool for monitoring our ability to control our costs of services. Analysis of the various
cost elements, including professional compensation expense, effects of foreign exchange
rate changes and the use of subcontractors, as a percentage of revenue over time can
provide additional information as to the key challenges we are facing in our business. The
cost of subcontractors is generally more expensive than the cost of our own workforce and
can negatively impact our gross profit. While the use of subcontractors can help us to win
larger, more complex deals, and also may be mandated by our clients, we focus on limiting
the use of subcontractors whenever possible in order to minimize our costs. We also
utilize certain adjusted gross margin metrics in connection with the vesting and settlement
of certain employee incentive awards. For a discussion of these
metrics, see Item 11,
Executive Compensation 
Compensation Discussion and Analysis, included in our 2006 Form 10-K.
    
    Utilization.Utilization represents the percentage of time our consultants are
performing work, and is defined as total hours charged to client engagement or to
non-chargeable client-relationship projects divided by total available hours for any
specific time period, net of holiday and paid vacation hours. In 2006, we changed how we
define utilization to make this metric more consistent with how we believe our industry
peer group measures this metric. Utilization percentages for fiscal 2005 set forth herein
have been adjusted to conform to this new definition.
    
    Days Sales Outstanding (DSO).DSO is an operational metric that approximates the
amount of earned revenue that remains unpaid by clients at a given time. DSOs are derived
by dividing the sum of our outstanding accounts receivable and unbilled revenue, less
deferred revenue, by our average net revenue per day. Average net revenue per day is
determined by dividing total net revenue for the most recently ended trailing twelve-month
period by 365.
    
    Free Cash Flow.Free cash flow is calculated by subtracting purchases of property and
equipment from cash provided by operating activities. We believe free cash flow is a useful
measure because it allows better understanding and assessment of our ability to meet debt
service requirements and the amount of recurring cash generated from operations after
expenditures for fixed assets. Free cash flow does not represent our residual
cash flow available for discretionary expenditures as it excludes certain mandatory
expenditures such as repayment of maturing debt. We use free cash flow as a measure of
recurring operating cash flow. Free cash flow is a non-GAAP financial measure. The most
directly comparable financial measure calculated in accordance with
generally accepted accounting principles in the United States of
America (GAAP) is net cash
provided by operating activities.
    
    Attrition.Attrition, or voluntary total employee turnover, is calculated by dividing
the number of our employees who have chosen to leave the Company within a certain period by
the total average number of all employees during that same period. Our attrition statistic
covers all of our employees, which we believe provides metrics that are more compatible
with, and comparable to, those of our competitors.
  First Quarter of 2006 Highlights
  26




---



##### 




    
    New contract bookings for first quarter of 2006 were $804.6 million, an increase of
$110.4 million, or 15.9%, over new contract bookings of $694.2 million for the first
quarter of 2005. New contract bookings increased in North America, driven by strong
bookings in our Public Services industry group, which offset slightly decreased bookings in
our Financial Services and Commercial Services industry groups. Bookings also increased in
our EMEA and Asia Pacific regions.
    
    Our revenue for the first quarter of 2006 was $833.7 million, representing a decrease of
$37.6 million, or 4.3%, from first quarter of 2005 revenue of $871.3 million. Our
Commercial Services industry group experienced decreased revenue due to declines and
reversals attributable to the settlement of disputes with two significant
telecommunications industry clients, which more than offset increases in our Financial
Services industry group.
    
    Our gross profit for the first quarter of 2006 was $98.5 million, compared with $25.0
million for the first quarter of 2005. Gross profit as a percentage of revenue increased to
11.8% during the first quarter of 2006 from 2.9% during the first quarter of 2005.
Significant reductions in professional compensation expense and other direct contract
expenses contributed to this improvement, despite the decline in revenue.
    
    We incurred SG&A expenses of $188.9 million in
the first quarter of 2006, representing an increase of $25.5 million, or 15.6%, over SG&A
expenses of $163.4 million in the first quarter of 2005. The increase was due to increases
in our finance and accounting costs, primarily for sub-contracted labor and other costs
related to the closing of our 2005 financial statements.
    
    During the first quarter of 2006, we realized a net loss of $72.7 million, or a loss of
$0.34 per share, compared to a net loss of $232.6 million, or a loss of $1.16 per share,
during the first quarter of 2005. This change in net loss was attributable to several
factors, including:
 
    
    Gross profit for the first quarter of 2006 improved Company-wide compared to
our gross profit for the first quarter of 2005, representing an increase of
$73.5 million;
    
    We recorded $38.0 million in the first quarter of 2006 for an insurance
settlement in connection with our settlement with Hawaiian Telcom
Communications, Inc. (the HT Contract); and
    
    Our income tax provision for the first quarter of 2006 was lower than our
income tax provision for the first quarter of 2005, as the 2005 amount included
a $57.3 million increase to valuation allowance, primarily against our U.S.
deferred tax assets.
 Contributing
to the net loss for the first quarter of 2006 were $33.6 million of losses related to the
previously mentioned settlements with telecommunication clients, $12.9 million accrued for bonuses
payable to our employees, $10.0 million of stock-based
compensation expense and $2.8 million of lease
and facilities restructuring charges. 
    
    Utilization for the first quarter of 2006 was 73.4%, a decrease of 320 basis points from
the first quarter of 2005. Utilization for the three months ended March 31, 2007 was 76.6%.
    
    Free cash flow for the first quarters of 2006 and 2005 was ($59.6) million and ($112.6)
million, respectively. Net cash used in operating activities in the first quarters of 2006
and 2005 was ($45.5) million and ($106.2) million, respectively. Purchases of property and
equipment in the first quarters of 2006 and 2005 were $14.1 million and $6.4 million,
respectively. The change in free cash flow for the first quarter of 2006 compared to the
first quarter of 2005 resulted from the following:
 
    
    At March 31, 2006, our DSOs stood at 102 days, representing a decrease of 10
days, or 9%, from our DSOs at March 31, 2005, largely due to more aggressive
collection efforts. Our continued focus on this metric during 2006 improved our
free cash flow by $76.6 million during the first quarter of 2006 as compared to
the first quarter of 2005.
    
    We experienced higher operating profitability in our business, as evidenced
by the sharp decline in operating loss for the first quarter of 2006 as compared
to the first quarter of 2005.
    
    We experienced greater cash outflows in first quarter of 2006 due to payments
made for professional services and related expenses accrued during 2005 under
our contract with HT.
 27




---



##### 




    
    As of March 31, 2006, we had approximately 17,500 full-time employees, including
approximately 15,400 consulting professionals. This represented an increase in billable
headcount of approximately 3.4% from our headcount as of March 31, 2005, which consisted of
approximately 17,000 full-time employees and 14,900 consulting professionals, respectively.
As of March 31, 2007, we had approximately 17,500 full-time employees, including
approximately 15,200 consulting professionals.
    
    Our voluntary, annualized attrition rate for the first quarter of 2006 was 24.2%,
compared to 24.9% for the first quarter of 2005. The highly competitive industry in which
we operate, and our continuing issues related to our North American financial reporting
systems and internal controls, have made it particularly critical and challenging for us to
attract and retain experienced personnel. Our voluntary, annualized attrition rate for the
three months ended March 31, 2007 was 23.9%.
 Principal Business Priorities for 2007 and Beyond
  Segments
   Three Months Ended March 31, 2006 Compared to Three Months Ended March 31, 2005
 Revenue.
 28




---



##### 



Three Months EndedMarch 31,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeRevenuePublic Services
    
    $
    331,116
    
    
    $
    332,101
    
    
    $
    (985
    )
    
    
    (0.3
    %)Commercial Services
    
    
    117,107
    
    
    
    172,787
    
    
    
    (55,680
    )
    
    
    (32.2
    %)Financial Services
    
    
    110,502
    
    
    
    90,699
    
    
    
    19,803
    
    
    
    21.8
    %EMEA
    
    
    164,180
    
    
    
    171,540
    
    
    
    (7,360
    )
    
    
    (4.3
    %)Asia Pacific
    
    
    90,435
    
    
    
    83,711
    
    
    
    6,724
    
    
    
    8.0
    %Latin America
    
    
    19,221
    
    
    
    20,033
    
    
    
    (812
    )
    
    
    (4.1
    %)Corporate/Other
    
    
    1,183
    
    
    
    462
    
    
    
    721
    
    
    
    n/mTotal
    
    $
    833,744
    
    
    $
    871,333
    
    
    $
    (37,589
    )
    
    
    (4.3
    %)
 Impact of
    
    Revenue growthcurrency
    
    (decline), net offluctuations
    
    currency impact
    
    TotalRevenuePublic Services
    
    
    0.0
    %
    
    
    (0.3
    %)
    
    
    (0.3
    %)Commercial Services
    
    
    0.0
    %
    
    
    (32.2
    %)
    
    
    (32.2
    %)Financial Services
    
    
    0.0
    %
    
    
    21.8
    %
    
    
    21.8
    %EMEA
    
    
    (8.7
    %)
    
    
    4.4
    %
    
    
    (4.3
    %)Asia Pacific
    
    
    (7.2
    %)
    
    
    15.2
    %
    
    
    8.0
    %Latin America
    
    
    14.7
    %
    
    
    (18.8
    %)
    
    
    (4.1
    %)Corporate/Other
    
    
    n/m
    
    
    
    n/m
    
    
    
    n/mTotal
    
    
    (2.1
    %)
    
    
    (2.2
    %)
    
    
    (4.3
    %)
 
 n/m
    
    = not meaningful 
    
    Public Servicesrevenue slightly decreased during the first quarter of 2006,
primarily due to a revenue decline in our Civilian business sector, which significantly
offset revenue growth in our Defense and State, Local and Education (SLED) sector.
    
    Commercial Servicesrevenue decreased during the first quarter of 2006, primarily due
to a $30.6 million year-over-year decrease in revenue associated with the HT Contract and a reduction of $20.0 million in revenue related to the resolution of
a billings dispute with another large telecommunications client regarding an engagement
completed in 2003. Reduced customer demand for our services, particularly within the
telecommunications industry affected our revenue. These decreases were partially offset
by the recognition of approximately $11.0 million in previously deferred revenue in the
first quarter of 2006.
    
    Financial Servicesrevenue increased during the first quarter of 2006, due to revenue
growth in all business sectors. The revenue increases in the Banking and Global Markets
sectors were attributable to existing client engagements and the introduction of some new
clients into our traditional client base. Insurance sector revenue increased in response
to industry-wide demand for major technology updates and upgrades to operational systems.
    
    EMEArevenue decreased during the first quarter of 2006, primarily as a result of the
unfavorable impact of the weakening of foreign currencies (primarily the Euro) against
the U.S. dollar. Significant revenue declines in Germany were partially offset by
revenue growth in France. Revenue in Germany decreased due to a combination of the impact
of reductions in billable headcount precipitated by the restructuring of our practice in
Germany, increased pressure on pricing and a reduction in the spending levels of German
public sector
 
 29




---



##### 



clients. Revenue growth in France was driven by an expanding systems integration
practice and additional penetration into the French public sector market in 2006.
    
    Asia Pacificrevenue increased during the first quarter of 2006, primarily due to
significant revenue growth in Australia from a significant new client engagement in the
telecommunications industry. Asia Pacific revenue was negatively affected in the first
quarter of 2006 by the weakening of foreign currencies against the U.S. dollar (primarily
the Japanese Yen).
    
    Latin Americarevenue decreased during the first quarter of 2006, due to decline in
local revenue growth in Mexico, partially offset by the strengthening of foreign
currencies in Latin America against the U.S. Dollar (particularly the Brazilian Real).
Revenue in Mexico declined as the practice continues to be restructured to position
itself for future growth.
    
    Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue.
 Gross Profit .
 
    
    Professional compensation expense decreased as a percentage of revenue to 51.5% for the
first quarter of 2006, compared to 54.7% for the first quarter of 2005. We experienced a
net decrease in professional compensation expense of $47.3 million, or 9.9%, to $429.2
million for the first quarter of 2006 from $476.6 million for the first quarter of 2005.
The decrease in professional compensation expense from the first quarter of 2005 was
primarily due to higher professional compensation expense recorded in 2005 (as compared to
2006) related to the loss accrual for the HT Contract, partially offset by increasing
payroll costs attributable to additional billable employees hired during the first quarter
of 2006.
    
    Other direct contract expenses decreased as a percentage of revenue to 29.1% for the
first quarter of 2006 compared to 32.6% for the first quarter of 2005. We experienced a
net decrease in other direct contract expenses of $41.4 million, or 14.6%, to $242.4
million for the first quarter of 2006 from $283.8 million for the first quarter of 2005.
The decrease from the first quarter of 2005 was driven primarily by higher other direct
contract expenses recorded in the first quarter of 2005 related to the loss accrual for
the HT Contract. In addition, the decline was driven by reduced subcontractor expenses as
a result of increased use of internal resources.
    
    Other costs of service as a percentage of revenue decreased to 7.3% for the first
quarter of 2006 from 7.6% for the first quarter of 2005. We experienced a net decrease in
other costs of service of $5.5 million, or 8.3%, to $60.8 million for the first quarter of
2006 from $66.4 million for the first quarter of 2005. The decrease was primarily
attributable to a cost savings realized directly or indirectly from office space reduction
efforts taken to date.
    
    In the first quarter of 2006 we recorded, within the Corporate/Other operating
segment, a charge of $2.8 million related to lease, facilities and other exit activities,
compared with a $19.6 million charge related to lease, facilities and other exit
activities in the first quarter of 2005. These charges related primarily to the fair
value of future lease obligations associated with office space, primarily within the EMEA
and North America regions, which we will no longer be using.
 Gross Profit by Segment.
 30




---



##### 



Three Months EndedMarch 31,2006
    
    
    2005
    
    
    $ Change
    
    
    % ChangeGross ProfitPublic Services
    
    $
    59,380
    
    
    $
    77,698
    
    
    $
    (18,318
    )
    
    
    (23.6
    %)Commercial Services
    
    
    (23,166
    )
    
    
    (79,295
    )
    
    
    56,129
    
    
    
    70.8
    %Financial Services
    
    
    41,936
    
    
    
    26,089
    
    
    
    15,847
    
    
    
    60.7
    %EMEA
    
    
    32,909
    
    
    
    27,802
    
    
    
    5,107
    
    
    
    18.4
    %Asia Pacific
    
    
    20,841
    
    
    
    16,100
    
    
    
    4,741
    
    
    
    29.4
    %Latin America
    
    
    1,961
    
    
    
    4,697
    
    
    
    (2,736
    )
    
    
    (58.2
    %)Corporate/Other
    
    
    (35,387
    )
    
    
    (48,141
    )
    
    
    12,754
    
    
    
    n/mTotal
    
    $
    98,474
    
    
    $
    24,950
    
    
    $
    73,524
    
    
    
    294.7
    %
 Three Months EndedMarch 31,2006
    
    2005Gross Profit as a % of revenuePublic Services
    
    
    17.9
    %
    
    
    23.4
    %Commercial Services
    
    
    (19.8
    %)
    
    
    (45.9
    %)Financial Services
    
    
    38.0
    %
    
    
    28.8
    %EMEA
    
    
    20.0
    %
    
    
    16.2
    %Asia Pacific
    
    
    23.0
    %
    
    
    19.2
    %Latin America
    
    
    10.2
    %
    
    
    23.4
    %Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    11.8
    %
    
    
    2.9
    %
 
 n/m
    
    = not meaningful  
    
    Public Servicesgross profit decreased in the first quarter of 2006, primarily due to
increases in professional compensation expense related to hiring needs related to demand
for our services.
    
    Commercial Servicesgross profit increased in the first quarter of 2006 despite
significantly lower revenue, primarily due to a $61.5 million year-over-year reduction in
losses relating to the HT Contract. Other factors contributing to the increase in gross
profit were the cost savings realized in 2006 from 2005 workforce realignments and
reduced subcontractor expenses as a result of the increased use of internal resources.
    
    Financial Servicesgross profit increased in the first quarter of 2006, as higher
revenue across all sectors more than offset increases in compensation expense related to
a substantial increase in billable headcount. Also reducing gross profit was an increase
in other direct contract expenses due to additional subcontractor usage driven by higher
revenue.
    
    EMEAgross profit increased in the first quarter of 2006, due primarily to improved
profitability in France and Austria along with significantly improved profitability in
Spain as a result of higher utilization and reduced costs. Declines in compensation
expenses and other direct contract expenses also contributed to the increase in gross
profit, although compensation expense for 2006 continued to be affected by severance and
other costs related to the internal restructuring of the Companys business in Germany.
    
    Asia Pacificgross profit increased in the first quarter of 2006 primarily due to
significant improvements in profitability and staff utilization in the Companys
businesses in Australia and China. Due to the high demand for resources in the Japanese
market and limited availability of qualified personnel, increases in subcontractor
expenses served to depress the growth of gross profit in the Companys business in Japan.
Significant regional improvements in compensation expense in 2006 derived from the 2005
workforce reductions in Japan and China were substantially offset by additional
compensation expenses associated with the use of the Companys
 31




---



##### 



personnel from outside the region in connection with a significant new telecommunications
industry engagement in Australia.
    
    Latin Americagross profit decreased in the first quarter of 2006 due to lower revenue
combined with increases to other direct contract expenses, primarily subcontractor
expenses.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related
charges, which decreased in the first quarter of 2006 primarily due to the lease and
facilities restructuring charges discussed above.
 Amortization of Purchased Intangible Assets .
 Selling, General and Administrative Expenses .
 Interest Income.
 Interest Expense.
 Insurance Settlement.
 Other Expense, net.
 Income Tax Expense .
 Net Loss .
  Liquidity and Capital Resources
  32




---



##### 



Three Months EndedMarch 31,2006 to 20052006
    
    
    2005
    
    
    ChangeNet cash provided by (used in):Operating activities
    
    $
    (45,471
    )
    
    $
    (106,196
    )
    
    $
    60,725Investing activities
    
    
    75,353
    
    
    
    14,688
    
    
    
    60,665Financing activities
    
    
    3,295
    
    
    
    61,551
    
    
    
    (58,256
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    2,340
    
    
    
    (4,182
    )
    
    
    6,522Net increase (decrease) in cash and cash equivalents
    
    $
    35,517
    
    
    $
    (34,139
    )
    
    $
    69,656
 Operating Activities.
 Investing Activities.
 Financing Activities.
    Debt Ratings
  Recently Issued Accounting Pronouncements
  33




---



##### 



PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  PART I, ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
     Changes in Internal Control over Financial Reporting
  PART II. OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM
1A. RISK FACTORS
  34




---



##### 



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Sales of Securities Not Registered Under the Securities Act
  Issuer Purchases of Equity Securities
  ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  ITEM 5. OTHER INFORMATION
   ITEM 6. EXHIBITS
  ExhibitNo.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, dated as of February 7, 2001,
which is incorporated herein by reference to Exhibit 3.1 from the Companys Form
10-Q for the quarter ending March 31, 2001.3.2
    
    Amended and Restated Bylaws, amended and restated as of May 5, 2004, which is
incorporated herein by reference to Exhibit 3.1 from the Companys Form 10-Q for
the quarter ending March 31, 2004.3.3
    
    Certificate of Ownership and Merger merging Bones Holding into the Company,
dated October 2, 2002, which is incorporated herein by reference to Exhibit 3.3
from the Companys Form 10-Q for the quarter ended September 30, 2002.4.1
    
    Rights Agreement, dated as of October 2, 2001, between the Company and EquiServe
Trust Company, N.A., which is incorporated herein by reference to Exhibit 1.1
from the Companys Registration Statement on Form 8-A dated October 3, 2001.4.2
    
    Certificate of Designation of Series A Junior Participating Preferred Stock,
which is incorporated herein by reference to Exhibit 1.2 from the Companys
Registration Statement on Form 8-A dated October 3, 2001.4.3
    
    Amendment No. 1 to the Rights Agreement between the Company and EquiServe Trust
Company, N.A., which is incorporated herein by reference to Exhibit 99.1 from
the Companys Form 8-K filed on September 6, 2002.10.1
    
    Amendment No. 6 to Amended and Restated 401(k) Plan, effective as of January 1,
2006, which is incorporated by reference to Exhibit 10.32 from the Companys
Form 10-K for the year ended December 31, 2006.10.2
    
    Amended and Restated BearingPoint, Inc. Managing Directors Deferred Compensation
Plan dated January 1, 2006, which is incorporated by reference to Exhibit 10.30
from the Companys Form 10-K for the year ended December 31, 2004.10.3
    
    Employment Letter, effective as of February 24, 2006, between the Company and
Laurent C. Lutz, which is incorporated by reference to Exhibit 10.91 from the
Companys Form 10-K for the year ended December 31, 2005.10.4
    
    Managing Director Agreement, dated as of February 24, 2006, between the Company
and Laurent C. Lutz, which is incorporated by reference to Exhibit 10.92 from
the Companys Form 10-K for the year ended December 31, 2005.10.5
    
    Special Termination Agreement, dated as of February 24, 2006, between the
Company and Laurent C. Lutz, which is incorporated by reference to Exhibit 10.94
from the Companys Form 10-K for the year ended December 31, 2005.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).32.1
    
    Certification of Chief Executive Officer pursuant to Section 1350.32.2
    
    Certification of Chief Financial Officer pursuant to Section 1350.99.1
    
    Legal Proceedings section of the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2006. 35




---



##### 



SIGNATURES
  BearingPoint, Inc.DATE:  June 28, 2007
    By:
    /s/  Judy A. EthellJudy A. EthellChief Financial Officer 36