##### Table of Contents



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 September 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
(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)
 
 þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



BEARINGPOINT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2008
 TABLE OF CONTENTS
 PagePART IFINANCIAL INFORMATIONItem 1: Financial Statements (unaudited)Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007
    
    
    3Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007
    
    
    4Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007
    
    
    5Notes
to Consolidated Financial Statements
    
    
    6Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3: Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4: Controls and Procedures
    
    
    36PART IIOTHER INFORMATIONItem 1: Legal Proceedings
    
    
    37Item 1A: Risk Factors
    
    
    37Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3: Defaults Upon Senior Securities
    
    
    39Item 4: Submission of Matters to a Vote of Security Holders
    
    
    39Item 5: Other Information
    
    
    39Item 6: Exhibits
    
    
    40Ex-10.3EX-31.1EX-31.2EX-32.1EX-32.2
  2




---



##### Table of Contents



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
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenue
    
    $
    800,987
    
    
    $
    861,897
    
    
    $
    2,517,731
    
    
    $
    2,603,495Costs of service:Professional compensation
    
    
    417,435
    
    
    
    440,672
    
    
    
    1,285,865
    
    
    
    1,386,580Other direct contract expenses
    
    
    171,574
    
    
    
    202,980
    
    
    
    522,624
    
    
    
    588,429Lease and facilities restructuring charges (credits)
    
    
    1,381
    
    
    
    3,866
    
    
    
    (6,298
    )
    
    
    308Other costs of service
    
    
    66,119
    
    
    
    81,759
    
    
    
    208,862
    
    
    
    220,967Total costs of service
    
    
    656,509
    
    
    
    729,277
    
    
    
    2,011,053
    
    
    
    2,196,284Gross profit
    
    
    144,478
    
    
    
    132,620
    
    
    
    506,678
    
    
    
    407,211Selling, general and administrative expenses
    
    
    139,915
    
    
    
    160,324
    
    
    
    423,514
    
    
    
    512,275Operating income (loss)
    
    
    4,563
    
    
    
    (27,704
    )
    
    
    83,164
    
    
    
    (105,064
    )Interest income
    
    
    2,136
    
    
    
    3,087
    
    
    
    6,619
    
    
    
    7,475Interest expense
    
    
    (15,931
    )
    
    
    (17,532
    )
    
    
    (47,886
    )
    
    
    (44,198
    )Other expense, net
    
    
    (16,897
    )
    
    
    (5,377
    )
    
    
    (13,770
    )
    
    
    (5,747
    )(Loss) income before taxes
    
    
    (26,129
    )
    
    
    (47,526
    )
    
    
    28,127
    
    
    
    (147,534
    )Income tax expense
    
    
    4,364
    
    
    
    20,480
    
    
    
    63,349
    
    
    
    46,205Net loss
    
    $
    (30,493
    )
    
    $
    (68,006
    )
    
    $
    (35,222
    )
    
    $
    (193,739
    )Loss per share  basic and diluted:
    
    $
    (0.14
    )
    
    $
    (0.32
    )
    
    $
    (0.16
    )
    
    $
    (0.90
    )Weighted average shares  basic and diluted:
    
    
    224,001,730
    
    
    
    215,247,757
    
    
    
    222,817,265
    
    
    
    214,677,985
  3




---



##### Table of Contents



BEARINGPOINT, INC.
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share amounts)
 September 30,2008
    
    
    December 31,(unaudited)
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    330,048
    
    
    $
    466,815Restricted cash
    
    
    2,964
    
    
    
    1,703Accounts receivable, net of allowances of $3,418 at
September 30, 2008 and $5,980 at December 31, 2007
    
    
    293,773
    
    
    
    356,178Unbilled revenue
    
    
    336,873
    
    
    
    319,132Income tax receivable
    
    
    6,759
    
    
    
    8,869Deferred income taxes
    
    
    10,789
    
    
    
    11,521Prepaid expenses
    
    
    46,306
    
    
    
    36,500Other current assets
    
    
    30,165
    
    
    
    38,122Total current assets
    
    
    1,057,677
    
    
    
    1,238,840Property and equipment, net
    
    
    108,154
    
    
    
    113,771Goodwill
    
    
    480,358
    
    
    
    494,656Deferred income taxes, less current portion
    
    
    20,266
    
    
    
    25,179Other assets
    
    
    96,234
    
    
    
    108,958Total assets
    
    $
    1,762,689
    
    
    $
    1,981,404LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Current portion of notes payable
    
    $
    205,195
    
    
    $
    3,700Accounts payable
    
    
    159,660
    
    
    
    215,999Accrued payroll and employee benefits
    
    
    306,403
    
    
    
    368,208Deferred revenue
    
    
    72,563
    
    
    
    115,961Income tax payable
    
    
    38,882
    
    
    
    58,304Current portion of accrued lease and facilities charges
    
    
    14,565
    
    
    
    17,618Deferred income taxes
    
    
    13,344
    
    
    
    15,022Accrued legal settlements
    
    
    14,205
    
    
    
    8,716Other current liabilities
    
    
    87,899
    
    
    
    108,364Total current liabilities
    
    
    912,716
    
    
    
    911,892Notes payable, less current portion
    
    
    772,408
    
    
    
    970,943Accrued employee benefits
    
    
    122,053
    
    
    
    118,235Accrued lease and facilities charges, less current portion
    
    
    28,129
    
    
    
    48,066Deferred income taxes, less current portion
    
    
    10,416
    
    
    
    9,581Income tax reserve
    
    
    246,032
    
    
    
    242,308Other liabilities
    
    
    140,085
    
    
    
    149,668Total liabilities
    
    
    2,231,839
    
    
    
    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, 225,527,781 shares issued and 220,688,470
shares outstanding on September 30, 2008 and 219,890,126
shares issued and 215,156,077 shares outstanding on
December 31, 2007
    
    
    2,243
    
    
    
    2,186Additional paid-in capital
    
    
    1,477,149
    
    
    
    1,438,369Accumulated deficit
    
    
    (2,215,800
    )
    
    
    (2,180,578
    )Accumulated other comprehensive income
    
    
    305,534
    
    
    
    308,857Treasury stock, at cost (4,839,311 shares on September 30,
2008 and 4,734,049 shares on December 31, 2007)
    
    
    (38,276
    )
    
    
    (38,123
    )Total stockholders deficit
    
    
    (469,150
    )
    
    
    (469,289
    )Total liabilities and stockholders deficit
    
    $
    1,762,689
    
    
    $
    1,981,404
  4




---



##### Table of Contents



BEARINGPOINT,
INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (35,222
    )
    
    $
    (193,739
    )Adjustments to reconcile net loss to net cash used in operating activities:Provision for deferred income taxes
    
    
    4,397
    
    
    
    3,525(Benefit) provision for doubtful accounts
    
    
    (933
    )
    
    
    1,056Stock-based compensation
    
    
    38,019
    
    
    
    76,516Depreciation and amortization of property and equipment
    
    
    34,894
    
    
    
    48,307Lease and facilities restructuring (credit) charge
    
    
    (6,298
    )
    
    
    308Loss on disposal and impairment of assets
    
    
    2,248
    
    
    
    5,685Amortization of debt issuance costs and debt accretion
    
    
    9,301
    
    
    
    11,428Reversal of global tax equalization accruals
    
    
    (29,239
    )
    
    
    Unrealized foreign exchange losses
    
    
    9,373
    
    
    
    9,148Changes in assets and liabilities:Accounts receivable
    
    
    61,064
    
    
    
    21,066Unbilled revenue
    
    
    (23,262
    )
    
    
    (67,035
    )Income tax receivable, prepaid expenses and other current assets
    
    
    (2,179
    )
    
    
    13,953Other assets
    
    
    6,875
    
    
    
    (20,610
    )Accounts payable
    
    
    (56,343
    )
    
    
    (79,544
    )Income tax payable, accrued legal settlements and other current liabilities
    
    
    (37,431
    )
    
    
    (63,602
    )Accrued payroll and employee benefits
    
    
    (27,721
    )
    
    
    13,424Deferred revenue
    
    
    (46,678
    )
    
    
    (19,137
    )Income tax reserve and other liabilities
    
    
    (1,422
    )
    
    
    17,300Net cash used in operating activities
    
    
    (100,557
    )
    
    
    (221,951
    )Cash flows from investing activities:Purchases of property and equipment
    
    
    (31,972
    )
    
    
    (31,834
    )Increase in restricted cash
    
    
    (1,261
    )
    
    
    (14
    )Net cash used in investing activities
    
    
    (33,233
    )
    
    
    (31,848
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    1,695
    
    
    
    Treasury stock through net share delivery
    
    
    (117
    )
    
    
    Net proceeds from issuance of notes payable
    
    
    2,141
    
    
    
    284,016Repayments of notes payable
    
    
    (3,514
    )
    
    
    (1,860
    )Net cash provided by financing activities
    
    
    205
    
    
    
    282,156Effect of exchange rate changes on cash and cash equivalents
    
    
    (3,182
    )
    
    
    10,203Net (decrease) increase in cash and cash equivalents
    
    
    (136,767
    )
    
    
    38,560Cash and cash equivalents  beginning of period
    
    
    466,815
    
    
    
    389,571Cash and cash equivalents  end of period
    
    $
    330,048
    
    
    $
    428,131
  5




---



##### Table of Contents



BEARINGPOINT, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Note 1. Basis of Presentation and Liquidity
 Basis of Presentation
   Liquidity
    6




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 2. Recently Issued Accounting Pronouncements
    Note 3. Stock-Based Compensation
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Stock options
    
    $
    241
    
    
    $
    1,877
    
    
    $
    834
    
    
    $
    6,510RSUs
    
    
    1,614
    
    
    
    4,675
    
    
    
    9,570
    
    
    
    15,641PSUs
    
    
    14,809
    
    
    
    21,686
    
    
    
    26,882
    
    
    
    50,489ESPP and BE an Owner
    
    
    290
    
    
    
    1,178
    
    
    
    609
    
    
    
    3,533Restricted stock awards
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    343Total
    
    $
    16,954
    
    
    $
    29,416
    
    
    $
    38,019
    
    
    $
    76,516
  7




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 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
    
    
    2,064,516
    
    
    $
    2.27
    
    
    
    Vested
    
    
    (2,071,084
    )
    
    $
    8.40
    
    
    
    Forfeited
    
    
    (1,412,877
    )
    
    $
    5.81
    
    
    
    (3,703,004
    )
    
    $
    12.36Nonvested at September 30, 2008
    
    
    5,009,319
    
    
    $
    6.27
    
    
    
    14,401,842
    
    
    $
    12.57Vested at September 30, 2008
    
    
    4,400,479
    
    
    
    
    
    
    
    Outstanding at September 30, 2008
    
    
    9,409,798
    
    
    
    
    
    
    
    14,401,842
 
 (1)
    
    Approximately 41,883 RSUs (net of forfeitures) and 45,563 RSUs (net of forfeitures) have been
excluded from the December 31, 2007 and September 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 September 30, 2008 vested and outstanding balances,
respectively.(2)
    
    Approximately 54,348 PSUs (net of forfeitures) have been excluded from the December 31, 2007
and September 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 September 30, 2008 outstanding balance. Note 4. Loss per Share
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (30,493
    )
    
    $
    (68,006
    )
    
    $
    (35,222
    )
    
    $
    (193,739
    )Weighted average common shares outstanding
    
    
    219,568,666
    
    
    
    201,761,301
    
    
    
    217,836,352
    
    
    
    201,321,963Weighted average vested RSUs
    
    
    4,433,064
    
    
    
    13,486,456
    
    
    
    4,980,913
    
    
    
    13,356,022Weighted average shares outstanding
    
    
    224,001,730
    
    
    
    215,247,757
    
    
    
    222,817,265
    
    
    
    214,677,985Earnings per share  basic and diluted
    
    $
    (0.14
    )
    
    $
    (0.32
    )
    
    $
    (0.16
    )
    
    $
    (0.90
    )
  8




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Employee stock options
    
    
    27,503,164
    
    
    
    33,064,651
    
    
    
    28,957,430
    
    
    
    34,259,109ESPP and BE an owner
    
    
    4,244,613
    
    
    
    6,545,850
    
    
    
    2,670,556
    
    
    
    6,545,850Unvested restricted stock units
    
    
    5,438,408
    
    
    
    8,130,456
    
    
    
    5,846,181
    
    
    
    8,366,845Performance share units(1)
    
    
    38,203,103
    
    
    
    54,246,351
    
    
    
    40,663,150
    
    
    
    42,857,179$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
    
    
    
    3,500,000157,976,594
    
    
    
    184,574,614
    
    
    
    160,724,623
    
    
    
    174,616,289
 
 (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 Loss
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net loss
    
    $
    (30,493
    )
    
    $
    (68,006
    )
    
    $
    (35,222
    )
    
    $
    (193,739
    )Pension prior service cost, net of tax of $20 and $65
    
    
    278
    
    
    
    
    
    
    
    869
    
    
    
    Pension net actuarial gain, net of tax of $2 and $6
    
    
    (6
    )
    
    
    
    
    
    
    (21
    )
    
    
    Foreign currency translation adjustment
    
    
    (33,311
    )
    
    
    31,070
    
    
    
    (4,171
    )
    
    
    41,844Comprehensive loss
    
    $
    (63,532
    )
    
    $
    (36,936
    )
    
    $
    (38,545
    )
    
    $
    (151,895
    )
 Note 6. Goodwill
  ForeignBalance
    
    
    
    
    
    
    Currency
    
    
    BalanceDecember 31,
    
    
    
    
    
    
    Translation
    
    
    September 30,2007
    
    
    Reductions
    
    
    Adjustment
    
    
    2008Public Services
    
    $
    23,581
    
    
    $
    
    
    
    $
    
    
    
    $
    23,581Financial Services
    
    
    9,210
    
    
    
    
    
    
    
    
    
    
    
    9,210EMEA
    
    
    385,650
    
    
    
    
    
    
    
    (11,453
    )
    
    
    374,197Asia Pacific
    
    
    75,003
    
    
    
    (1,003
    )(1)
    
    
    (1,812
    )
    
    
    72,188Latin America
    
    
    1,010
    
    
    
    
    
    
    
    (30
    )
    
    
    980Corporate/Other
    
    
    202
    
    
    
    
    
    
    
    
    
    
    
    202Total
    
    $
    494,656
    
    
    $
    (1,003
    )
    
    $
    (13,295
    )
    
    $
    480,358
 
 (1)
    
    Amount represents the write off of a deferred tax liability established in the original
acquisition, whose statute of limitations had expired. 9




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Note 7. Notes Payable
  September 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 Financing Arrangements
    
    
    2,195
    
    
    
    700Total current portion
    
    
    205,195
    
    
    
    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 $10,788 and $14,389, respectively)
    
    
    29,212
    
    
    
    25,611Term Loans under the 2007 Credit Facility
    
    
    292,500
    
    
    
    294,750Other
    
    
    696
    
    
    
    582Total long-term portion
    
    
    772,408
    
    
    
    970,943Total notes payable
    
    $
    977,603
    
    
    $
    974,643
  Note 8. Lease and Facilities Restructuring Activities
   10




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   TotalBalance at December 31, 2007
    
    $
    65,684New charges
    
    
    Adjustment to the provision
    
    
    (6,298
    )Payments and other utilization
    
    
    (16,730
    )Other(1)
    
    
    38Balance at September 30, 2008
    
    $
    42,694
 
 (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, Tellabs Tellabs
 11




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  SEC Investigation
   Government Contracting Matters
  Other Matters
  Other Commitments
  12




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
      13




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 10. Pension and Postretirement Benefits
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Components of net periodic pension cost:Service cost
    
    $
    1,592
    
    
    $
    1,589
    
    
    $
    4,838
    
    
    $
    4,767Interest cost
    
    
    1,506
    
    
    
    1,165
    
    
    
    4,575
    
    
    
    3,495Expected return on plan assets
    
    
    (338
    )
    
    
    (243
    )
    
    
    (1,029
    )
    
    
    (729
    )Amortization of (gain) loss
    
    
    (5
    )
    
    
    95
    
    
    
    (15
    )
    
    
    285Amortization of prior service cost
    
    
    178
    
    
    
    163
    
    
    
    575
    
    
    
    489Net periodic pension cost
    
    $
    2,933
    
    
    $
    2,769
    
    
    $
    8,944
    
    
    $
    8,307Components of net periodic postretirement medical cost:Service cost
    
    $
    631
    
    
    $
    618
    
    
    $
    1,893
    
    
    $
    1,854Interest cost
    
    
    235
    
    
    
    217
    
    
    
    705
    
    
    
    651Amortization of losses
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    39Amortization of prior service cost
    
    
    119
    
    
    
    119
    
    
    
    357
    
    
    
    357Net periodic postretirement medical cost
    
    $
    985
    
    
    $
    967
    
    
    $
    2,955
    
    
    $
    2,901
 Note 11. Income Taxes
    14




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 12. Fair Value Measurements
       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
    
    $
    103,827
    
    
    $
    103,827
    
    
    $
    
    
    
    $
    Other Current Assets(1)
    
    
    5,051
    
    
    
    5,051
    
    
    
    
    
    
    
    Other Assets
    
    
    426
    
    
    
    111
    
    
    
    
    
    
    
    315
    (2)Total Assets
    
    $
    109,304
    
    
    $
    108,989
    
    
    $
    
    
    
    $
    315Other Current Liabilities(1)
    
    $
    5,051
    
    
    $
    5,051Total Liabilities
    
    $
    5,051
    
    
    $
    5,051
 
 (1)
    
    The Company has assets held in a Rabbi Trust deferred compensation plan, which generally
include actively traded mutual funds and money market accounts.(2)
    
    The Company carries cost-basis investments in privately-held companies. An other than
temporary impairment in value of $34 and a temporary impairment in value of $5 for the three
and nine months ending September 30, 2008 was recorded as part of Other Income in the
Consolidated Statement of Operations. 15




---



##### Table of Contents



BEARINGPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Note 13. Segment Reporting
  Three Months Ended September 30,2008
    
    
    2007Operating
    
    
    
    
    

OperatingRevenue

    
    
    Income (Loss)
    
    
    Revenue
    
    
    
    Income (Loss)Public Services
    
    $
    354,654
    
    
    $
    61,355
    
    
    $
    362,893
    
    
    $
    64,593Commercial Services
    
    
    92,329
    
    
    
    11,356
    
    
    
    131,383
    
    
    
    21,135Financial Services
    
    
    48,428
    
    
    
    7,820
    
    
    
    66,412
    
    
    
    8,207EMEA
    
    
    199,914
    
    
    
    38,520
    
    
    
    184,318
    
    
    
    24,132Asia Pacific
    
    
    76,711
    
    
    
    18,545
    
    
    
    94,081
    
    
    
    20,575Latin America
    
    
    28,593
    
    
    
    5,802
    
    
    
    22,240
    
    
    
    (3,338
    )Corporate/Other
    
    
    358
    
    
    
    (138,835
    )
    
    
    570
    
    
    
    (163,008
    )Total
    
    $
    800,987
    
    
    $
    4,563
    
    
    $
    861,897
    
    
    $
    (27,704
    )
 Nine Months Ended September 30,2008
    
    
    2007Operating
    
    
    
    
    
    
    OperatingRevenue
    
    
    Income (Loss)
    
    
    Revenue
    
    
    Income (Loss)Public Services
    
    $
    1,075,929
    
    
    $
    223,878
    
    
    $
    1,084,080
    
    
    $
    197,335Commercial Services
    
    
    311,183
    
    
    
    44,943
    
    
    
    401,638
    
    
    
    61,149Financial Services
    
    
    144,681
    
    
    
    20,196
    
    
    
    209,378
    
    
    
    18,641EMEA
    
    
    647,328
    
    
    
    121,688
    
    
    
    570,111
    
    
    
    92,852Asia Pacific
    
    
    252,656
    
    
    
    56,209
    
    
    
    267,161
    
    
    
    51,877Latin America
    
    
    85,145
    
    
    
    13,576
    
    
    
    67,787
    
    
    
    (8,614
    )Corporate/Other
    
    
    809
    
    
    
    (397,326
    )
    
    
    3,340
    
    
    
    (518,304
    )Total
    
    $
    2,517,731
    
    
    $
    83,164
    
    
    $
    2,603,495
    
    
    $
    (105,064
    )
 16




---



##### Table of Contents



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.
    
    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.
 17




---



##### Table of Contents




    
    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 $500.0 million Senior Secured Credit Facility dated as of May 2007, as amended and
restated in June 2007 (the 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.
  18




---



##### Table of Contents



Overview
  Economic and Industry Factors
    Revenue and Income Drivers
    19




---



##### Table of Contents



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.
    
    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.
 20




---



##### Table of Contents




    
    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 Nine Months Ended September 30, 2008 Highlights
  
    
    New contract bookings for the three months ended September 30, 2008 were $739.4 million,
a decrease of $24.7 million, or 3.2%, from new contract bookings of $764.1 million for the
three months ended September 30, 2007. In North America we set a
new record for quarterly bookings in Public
Services, while continuing to experience significant year-over-year bookings declines in Commercial Services and
Financial Services for the fourth consecutive quarter. Internationally, bookings increased significantly in Latin America and
to a lesser extent in EMEA, with favorable foreign exchange rates responsible for most of
the U.S. dollar-denominated bookings growth in EMEA. Favorable foreign exchange rates also contributed significantly to soften
notable bookings declines in Asia Pacific. New contract bookings for the nine months ended
September 30, 2008 were $2,160.1 million, a decrease of $60.4 million, or 2.7%, from new
contract bookings of $2,220.5 million for the nine months ended September 30, 2007.
Declines in bookings in the nine months ended September 30, 2008 were most significant in
Commercial Services and Financial Services and the combined declines in those segments and in
Asia Pacific more than offset increases in Public Services, EMEA and Latin America.  Favorable
foreign exchange rates continued to positively affect U.S. dollar-denominated bookings growth in
our international segments, while bookings stated in local currency in EMEA remained flat and
decreased in Asia Pacific.
    
    Our revenue for the three months ended September 30, 2008 was $801.0 million, a decrease
of $60.9 million, or 7.1%, from revenue for the three months ended September 30, 2007 of
$861.9 million. For the three month period, favorable foreign
currency exchange rates were responsible for all of the revenue growth in EMEA and had
positive impacts in Latin America and Asia Pacific. Our revenue for the nine months ended September 30, 2008 was $2,517.7
million, a decrease of $85.8 million, or 3.3%, from revenue for the nine months ended
September 30, 2007 of $2,603.5 million. For the nine month period, favorable foreign
currency exchange rates were responsible for most U.S. dollar-denominated bookings growth in
EMEA and had a positive impact in Latin America and contributed significantly to soften
notable revenue declines in Asia Pacific.
    
    Our gross profit for the three months ended September 30, 2008 was $144.5 million, an
increase of $11.9 million, or 8.9%, compared with gross profit for the three months ended
September 30, 2007 of $132.6 million. Gross profit as a percentage of revenue increased to
18.0% during the three months ended September 30, 2008 from 15.4% during the three months
ended September 30, 2007. This increase was primarily the result of a $72.8 million decrease
in total cost of services (primarily attributable to a reduction in stock
compensation expenses related to our PSU program and the reversal of accruals related to global tax equalization, both
of which are discussed below) partially offset by the previously mentioned $60.9 million reduction in
revenue. Our gross profit for the nine months ended September 30, 2008 was $506.7 million,
an increase of $99.5 million, or 24.4%,
 21




---



##### Table of Contents



compared with gross profit of $407.2 million for the nine months ended September 30, 2007.
Gross profit as a percentage of revenue increased to 20.1% during the nine months ended
September 30, 2008 from 15.6% during the nine months ended September 30, 2007. This increase
was primarily the result of a $185.2 million decrease in total cost of services (primarily
attributable to reductions in cash compensation expense, as well as the reduction in stock
compensation expense related to our PSU program, and the reversal of
accruals related to global tax equalization, both of which are
discussed below) partially offset by the
previously mentioned $85.8 million reduction in revenue.
    
    Global tax equalization refers to our policy of estimating and recording expenses to
ensure that our employees working on domestic long-term and foreign short-term assignments outside of their home tax
jurisdiction will be subject to the same level of personal tax as their home tax
jurisdiction. 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. During the second quarter of 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. During the third quarter of 2008, we reversed accruals of
$6.3 million of these liabilities and reduced reserves on employee
receivables, which also resulted in our professional compensation
expense being reduced by this amount.
    
    Reductions in our stock compensation expense are attributable to a combination of
reductions in the number of awards earned in a period and revised estimates related to future
forfeitures. 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 second quarter of 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 during the second quarter of 2008. Of this adjustment, $13.6
million was recorded to professional compensation and $7.8 million was recorded to SG&A
expenses. We continued to use this revised forfeiture rate in the
third quarter of 2008 and such rate
contributed significantly to the $6.9 million reduction in stock compensation expense associated
with PSU awards. PSUs were not awarded ratably or uniformly across our business units. 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 $139.9 million in the third quarter of 2008, representing a
decrease of $20.4 million, or 12.7%, over SG&A expenses of $160.3 million in the third
quarter of 2007. We incurred SG&A expenses of $423.5 million in the nine months ended
September 30, 2008, representing a decrease of $88.8 million, or 17.3%, from SG&A expenses
of $512.3 million in the nine months ended September 30, 2007. The decrease in SG&A expense
for the three and nine months ended September 30, 2008 was primarily due to reduced
subcontracted labor and other costs related to the closing of our financial statements
slightly offset by increases in expenses associated with pursuing various strategic alternatives
involving the potential sale of some or all of the Companys assets.
    
    Operating income for the three months ended September 30, 2008 was $4.6 million, an
increase of $32.3 million, or 116.5%, compared with operating loss for the three months
ended September 30, 2007 of $27.7 million. Our operating income for the nine months ended
September 30, 2008 was $83.2 million, an increase of $188.2 million, or 179.2%, compared
with operating loss of $105.1 million for the nine months ended September 30, 2007. The
significant increases in operating income in both the three and nine month periods were
driven by the significant increases in gross profit and significant decreases in SG&A
expenses during those periods.
As previously noted, however, revised accounting estimates and accrual reversals factor
significantly in these gross profit improvements.
    
    Our income tax expense decreased by $16.1 million and increased by $17.1 million for the
three and nine months ended September 30, 2008, respectively, as compared to the three and
nine months ended September 30, 2007. The decrease in income taxes during the third quarter
of 2008 includes the effect of a discrete tax benefit of $11.2 million, which includes approximately $5.6 million related to the release of valuation allowances recorded on
certain foreign deferred tax assets and an adjustment to a tax refund receivable of approximately $5.6 million relating to the filing of amended tax returns in the United States.
The increase in our tax expense for the nine months ended September 30, 2008 is due largely to a
number of our foreign subsidiaries which generated significant levels of taxable income in
these foreign jurisdictions. Historically, we have not fully allocated our corporate-level
expenses to local country operations. Consequently, our tax expense is increasing as
increasing foreign source income is not being reduced by corporate-level expenses being
borne by the Company, which are not being allocated to foreign jurisdictions. Additionally,
included in our tax expense during the second quarter of 2008, we recognized $18.9 million
of expense as a result of the loss of certain loss carry-forwards and the realization of capital gains in connection with
a foreign corporate entity restructuring conducted during this three
month period.
    
    During the third quarter of 2008, we realized a net loss of $30.5 million,
or a loss of
$0.14 per share, representing an improvement of $37.5 million over the net loss of $68.0
million, or a loss of $0.32 per share, during the third quarter of 2007. This improvement
was primarily attributable to:
 
    
    an increase in gross profit of $11.9 million;
 22




---



##### Table of Contents




    
    a decrease of $20.4 million in SG&A expenses;
    
    a decrease in tax expense of $16.1 million; and
    
    partially offset by a $11.5 million increase in other expense primarily related to
unrealized foreign exchange losses on our short term intercompany transactions.
 
    
    During the nine months ended September 30, 2008, we realized a net loss of $35.2 million,
or a loss of $0.16 per share, representing an improvement of $158.5 million over the net
loss of $193.7 million, or a loss of $0.90 per share, during the nine months ended September
30, 2007. This improvement in net loss was primarily attributable to:
 
    
    an increase in gross profit of $99.5 million; and
    
    a decrease of $88.8 million in SG&A expenses.
 These improvements were partially offset by:
 
    
    a net increase in interest expense of $3.7 million (net of interest income
and foreign currency gains/losses); and
    
    an increase in income tax expense of $17.1 million, as discussed previously.
 
    
    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 nine months of 2008, the business units gross profit margin
showed significant improvements as compared to the first nine months of 2007; however, these
improvements were primarily the result of 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 are seeing some signs that our strategy may be
producing improved profitability of our work as evidenced in the third quarter of 2008 as
compared to the third quarter of 2007, and when comparing the third quarter of 2008 to the
second quarter of 2008, after adjusting for the above mentioned expense reversals. Though
significant improvements have been made in the profitability of our Financial Services
business unit, it has not yet reached the level of profitability required to be able to fund
the portion of total SG&A and other overhead expenses attributable to its operations, and we
do not expect to reach this level by the end of 2008. Among our clients, our Financial
Services clients tend to be most sensitive to negative perceptions around our financial
stability and our ability to properly staff our engagements. The negative perceptions have
affected our ability to achieve our goals.
    
    Our Commercial Services business unit is continuing to position itself for profitability
through its stated strategy of promoting more focused market offerings to more specifically
targeted clients. While we have made significant progress in implementing this strategy in
the first nine months 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 and attrition will cause us to be unable to maintain appropriate
staffing of our engagements. In the first nine months of 2008, the business units gross
margin was relatively flat as compared to the first nine months of 2007; however, the gross
profit margin in the first nine months of 2008 was positively impacted by adjustments
recorded for the reversal of accruals for global tax equalization expense and stock based
compensation, as discussed above. While the quantity of our new contract signings continues
to decline, we are seeing some signs that our strategy may be producing improved
profitability as evidenced in our gross profit margin in the third quarter of 2008 compared
to the gross profit margin in the second quarter of 2008, after adjusting for the above
mentioned expense reversals. We believe that 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. To
continue to successfully execute on our strategy we must be able to address perceptions
about our financial stability and our clients increasing concerns regarding our ability to
properly staff our projects.
    
    Utilization for the three months ended September 30, 2008 was 79.1%, an increase of 60
basis points from the three months ended September 30, 2007. Utilization for the nine months
ended September 30, 2008 was 78.8%, an increase of 160 basis points over the nine months
ended September 30, 2007.
 23




---



##### Table of Contents




    
    As of September 30, 2008, our DSOs stood at 78 days, representing a decrease of 11 days,
or 12.4%, from our DSOs at September 30, 2007. Nonetheless, in line with the historical
patterns of our business, DSOs as of September 30, 2008 were higher than DSOs as of December
31, 2007 by 1 day, and lower than DSOs as of June 30, 2008 by 9 days.
    
    Free cash flow for the nine months ended September 30, 2008 and 2007 was ($132.5) million
and ($253.8) million, respectively. Net cash used in
operating activities in the nine months ended September 30, 2008 and 2007 was ($100.6)
million and ($222.0) million, respectively. Purchases of property and equipment in the nine
months ended September 30, 2008 and 2007 were $32.0 million and $31.8 million,
respectively. The change in free cash flow for the nine month period was primarily attributable to
a decrease in net loss for the period, improved collection of outstanding receivables, and lower
bonus and insurance payments, offset by higher tax and severance payments.Significant uses of cash in operating activities in the first nine months of 2008 were
attributed to the payment of taxes (net of refunds) for certain of our profitable operating
entities of $58.0 million and severance payments related to managed reductions in our
workforce of approximately $11.0 million, partially offset by an unfavorable impact of $3.2
million due to the weakening 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 September 30, 2008, we had approximately 15,700 full-time employees, including
approximately 13,100 consulting professionals. This represented a decrease in billable
headcount of approximately 9.0% from our headcount as of December 31, 2007.
    
    Our voluntary, annualized attrition rate for the third quarter of 2008 was 25.4%,
compared to 26.6% for the third quarter of 2007. The highly competitive industry in which
we operate and our financial position continues to make it particularly critical and
challenging for us to attract and retain experienced personnel.
 Segments
   24




---



##### Table of Contents



Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007
 Revenue.
 Percent
    
    
    PercentThree Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseSeptember 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyRevenuePublic Services
    
    $
    354,654
    
    
    $
    362,893
    
    
    $
    (8,239
    )
    
    
    (2.3
    %)
    
    
    (2.3
    %)Commercial Services
    
    
    92,329
    
    
    
    131,383
    
    
    
    (39,054
    )
    
    
    (29.7
    %)
    
    
    (29.7
    %)Financial Services
    
    
    48,428
    
    
    
    66,412
    
    
    
    (17,984
    )
    
    
    (27.1
    %)
    
    
    (27.1
    %)EMEA
    
    
    199,914
    
    
    
    184,318
    
    
    
    15,596
    
    
    
    8.5
    %
    
    
    (0.3
    %)Asia Pacific
    
    
    76,711
    
    
    
    94,081
    
    
    
    (17,370
    )
    
    
    (18.5
    %)
    
    
    (23.8
    %)Latin America
    
    
    28,593
    
    
    
    22,240
    
    
    
    6,353
    
    
    
    28.6
    %
    
    
    16.8
    %Corporate/Other
    
    
    358
    
    
    
    570
    
    
    
    (212
    )
    
    
    (37.2
    %)
    
    
    n/mTotal
    
    $
    800,987
    
    
    $
    861,897
    
    
    $
    (60,910
    )
    
    
    (7.1
    %)
    
    
    (9.8
    %)
 
 n/m = not meaningful 
    
    Public Servicesrevenue decreased in the third quarter of 2008 primarily due to revenue
decreases in the Emerging Markets, SLED and Healthcare sectors, offset by increases in the
Civilian and Defense sectors. The decrease in the Emerging Markets sector was due to delays
in funding and a decline in the Middle East region. The decrease in the SLED sector was
primarily driven by reductions in revenue due to performance issues on certain contracts.
The increases in the Civilian and Defense sectors were due primarily to an increased demand
for our services.
    
    Commercial Servicesrevenue decreased significantly in the third quarter of 2008 due to
revenue decreases across all sectors. Revenue decreases were attributable to a combination
of reduced demand for our services and reductions in the effective rates charged for our
services.
    
    Financial Servicesrevenue decreased significantly in the third quarter of 2008 due
primarily to significant decreases in the Banking sector. Revenue decreases were
attributable to lower levels of contract signings since the fourth quarter of 2007, which,
in turn, were due to reduced demand for our services as many clients deferred new
initiatives in the wake of the crisis in the financial markets and became increasingly
sensitive to negative perceptions regarding our financial stability. These revenue declines
were only slightly offset by increased revenue in the Insurance sector driven by additional
efforts on a small number of large client engagements.
    
    EMEArevenue increased in the third 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 revenue growth in Germany and France. Partially
offsetting these increases were decreases in the United Kingdom, Spain, and Sweden. The
significant increase in revenues in Germany and France resulted from both increased billing
rates and increased demand for our services. Revenues in Spain continue to decline as a
result of our strategic decision to reduce our activities in this country. The revenues in
the United Kingdom and Sweden declined due to the loss of key personnel in the early part of
2008 in these countries.
    
    Asia Pacificrevenue decreased in the third quarter of 2008 due primarily to significant
revenue decreases in Australia and New Zealand, and, to a lesser extent, Japan. The revenue
declines were partially offset by the favorable impact of the strengthening of foreign
currencies against the U.S. dollar, particularly the Japanese yen. Revenue declines in
Australia were primarily related to losses of key employees, including managing directors,
which resulted in a significant reduction in the volume of our Australian business. In
addition, our decision to reduce our presence in New Zealand in late 2007 has resulted in a
significant decline in revenue. In Japan, revenue declines were due, in part, to a lower
volume of work related to projects involving compliance with Japans Financial Instruments
and Exchange Law (J-SOX), which companies were required to comply with as early as April
2008. We have historically utilized a higher number of sub-contractors to supplement our
work on J-SOX engagements, and, as these engagements have declined, we have shifted our
focus to engagements that utilize a higher number of our employees, which has resulted in
overall lower revenue.
 25




---



##### Table of Contents




    
    Latin Americarevenue increased in the third quarter of 2008 primarily as a result of
revenue increases in Costa Rica and Brazil, as well as the favorable impact of the
strengthening of the Brazilian Real against the U.S. dollar, 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 increased to 52.1% for the
third quarter of 2008, compared to 51.1% for the third quarter of 2007. We experienced a net
decrease in professional compensation expense of $23.2 million, or 5.3%, to $417.4 million
for the third quarter of 2008 over $440.7 million for the third quarter of 2007. This
decrease in professional compensation expense over the third quarter of 2007 was primarily
due to reductions in stock based compensation expense of $11.4 million primarily attributable to a
higher rate of forfeitures applied to the current period and to a lesser extent, a lower number
of awards earned during the quarter, a reversal of $6.3 million associated
with global tax equalization expense and reductions in salaries due to lower headcount.
    
    Other direct contract expenses decreased as a percentage of revenue to 21.4% for the
third quarter of 2008, compared to 23.6% for the third quarter of 2007. We experienced a
net decrease in other direct contract expenses of $31.4 million, or 15.5%, to $171.6 million
for the third quarter of 2008 from $203.0 million for the third quarter of 2007, primarily
as a result of lower use of subcontractors as we continue to realign our staffing to
increase profitability.
    
    Other costs of service as a percentage of revenue decreased to 8.3% for the third quarter
of 2008 from 9.5% for the third quarter of 2007. We experienced a net decrease in other
costs of service of $15.6 million, or 19.1%, to $66.1 million for the third quarter of 2008
from $81.8 million for the third quarter of 2007, primarily due to declines in recruiting
and occupancy expenses, and an asset impairment charge recorded in the third quarter of
2007.
    
    During the third quarter of 2008 and 2007, we recorded, within the Corporate/Other
operating segment, restructuring charges of $1.4 million and $3.9 million, respectively,
related to lease, facilities and other exit activities. These charges relate primarily to
adjustments to the fair value of future lease obligations associated with office space,
which we will no longer be using within the EMEA and North America regions. The
restructuring charge for the three months ended September 30, 2007 represents a net
reduction of accruals, primarily attributable to the change in sublease income assumptions
associated with certain vacated leased facilities.
 Gross Profit by Segment.
 Percent
    
    
    PercentThree Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseSeptember 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyGross ProfitPublic Services
    
    $
    68,468
    
    
    $
    73,283
    
    
    $
    (4,815
    )
    
    
    (6.6
    %)
    
    
    (6.6
    %)Commercial Services
    
    
    15,148
    
    
    
    27,235
    
    
    
    (12,087
    )
    
    
    (44.4
    %)
    
    
    (44.4
    %)Financial Services
    
    
    10,502
    
    
    
    12,873
    
    
    
    (2,371
    )
    
    
    (18.4
    %)
    
    
    (18.4
    %)EMEA
    
    
    45,874
    
    
    
    31,044
    
    
    
    14,830
    
    
    
    47.8
    %
    
    
    35.3
    %Asia Pacific
    
    
    21,835
    
    
    
    24,064
    
    
    
    (2,229
    )
    
    
    (9.3
    %)
    
    
    (15.6
    %)Latin America
    
    
    6,166
    
    
    
    (1,916
    )
    
    
    8,082
    
    
    
    421.8
    %
    
    
    398.2
    %Corporate/Other
    
    
    (23,515
    )
    
    
    (33,963
    )
    
    
    10,448
    
    
    
    30.8
    %
    
    
    n/mTotal
    
    $
    144,478
    
    
    $
    132,620
    
    
    $
    11,858
    
    
    
    8.9
    %
    
    
    5.0
    %
 26




---



##### Table of Contents



Three Months EndedSeptember 30,2008
    
    2007Gross Profit as a % of revenuePublic Services
    
    
    19.3
    %
    
    
    20.2
    %Commercial Services
    
    
    16.4
    %
    
    
    20.7
    %Financial Services
    
    
    21.7
    %
    
    
    19.4
    %EMEA
    
    
    22.9
    %
    
    
    16.8
    %Asia Pacific
    
    
    28.5
    %
    
    
    25.6
    %Latin America
    
    
    21.6
    %
    
    
    (8.6
    %)Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    18.0
    %
    
    
    15.4
    %
 
 n/m = not meaningful  
    
    Public Servicesgross profit decreased in the third quarter of 2008 due primarily to
decreases in revenue, particularly in our SLED and Emerging Markets sectors, and increases
in professional compensation. The increase in professional compensation is primarily
attributable to costs associated with two loss contracts in our SLED sector.
    
    Commercial Servicesgross profit decreased in the third quarter of 2008 as significant
revenue declines were only partially offset by significant reductions in professional
compensation. The reduction in professional compensation was primarily due to actions taken
in 2007, and early 2008, to align our staffing levels to business demands.
    
    Financial Servicesgross profit decreased in the third quarter of 2008 as significant
revenue decreases were mostly offset by significant decreases in professional compensation.
The reduction in professional compensation was due primarily to the effects of continuing
headcount reductions.
    
    EMEAgross profit increased in the third quarter of 2008 due to higher profitability in
Germany, a decline in other costs of service, as well as the favorable impact of the
strengthening of foreign currencies, specifically the Euro, against the U.S. dollar. The
decline in other costs of service was driven primarily by an asset impairment recorded in
the third quarter of 2007 as well as cost
cutting measures taken in 2008.
    
    Asia Pacificgross profit decreased in the third quarter of 2008 due primarily to a
decline in revenue partially offset by declines in other direct contract expenses and
professional compensation expense. The contractions in our Australian and New Zealand
businesses were the primary contributors to lower professional compensation costs while
reductions in our J-SOX work in Japan contributed to the decline in our other direct
contract expenses.
    
    Latin Americagross profit increased in the third quarter of 2008 due primarily to
increases in revenue as well as reductions in professional compensation.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related charges,
which decreased in the third quarter of 2008 primarily due to lower expense adjustments to
lease and facilities restructuring charges, as discussed above.
 Selling, General and Administrative Expenses .
 Interest Income.
 27




---



##### Table of Contents



Interest Expense.
 Other Expense, net.
 Income Tax Expense .
 Net
Loss.
 Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007
 Revenue.
 Percent
    
    
    PercentNine Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseSeptember 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyRevenuePublic Services
    
    $
    1,075,929
    
    
    $
    1,084,080
    
    
    $
    (8,151
    )
    
    
    (0.8
    %)
    
    
    (0.8
    %)Commercial Services
    
    
    311,183
    
    
    
    401,638
    
    
    
    (90,455
    )
    
    
    (22.5
    %)
    
    
    (22.5
    %)Financial Services
    
    
    144,681
    
    
    
    209,378
    
    
    
    (64,697
    )
    
    
    (30.9
    %)
    
    
    (30.9
    %)EMEA
    
    
    647,328
    
    
    
    570,111
    
    
    
    77,217
    
    
    
    13.5
    %
    
    
    0.9
    %Asia Pacific
    
    
    252,656
    
    
    
    267,161
    
    
    
    (14,505
    )
    
    
    (5.4
    %)
    
    
    (14.4
    %)Latin America
    
    
    85,145
    
    
    
    67,787
    
    
    
    17,358
    
    
    
    25.6
    %
    
    
    11.4
    %Corporate/Other
    
    
    809
    
    
    
    3,340
    
    
    
    (2,531
    )
    
    
    (75.8
    %)
    
    
    n/mTotal
    
    $
    2,517,731
    
    
    $
    2,603,495
    
    
    $
    (85,764
    )
    
    
    (3.3
    %)
    
    
    (7.5
    %)
 
 n/m = not meaningful 
    
    Public Servicesrevenue for the nine months ended September 30, 2008 decreased due to
declines in the Healthcare and SLED sectors, offset by increases in the Defense, Civilian
and Emerging Markets sectors. The declines in the Healthcare and SLED sectors were primarily
due to a reduced demand for services combined with reductions in revenue due to performance
issues on certain SLED contracts. Revenue growth in the Civilian sector was due to increased
activity with existing clients as well as increases in billing rates for our services.
Revenue growth in the Emerging Markets sector was due to an increase in services provided to
our clients, primarily through the use of subcontractors. Revenue growth in the Defense
sector was due to increased demand for our services and the recognition of $7.7 million in
revenue during the first quarter of 2008 relating to work performed in earlier periods for
which contract contingencies were resolved in the current period.
    
    Commercial Servicesrevenue decreased significantly during the nine months ended
September 30, 2008 due to declines in all sectors. Revenue decreases were attributable to
reduced demand for our services and reductions in the effective rates charged for our
services.
    
    Financial Servicesrevenue decreased significantly during the nine months ended September
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. These decreases were due to a combination of factors, including our
devoting
 28




---



##### Table of Contents



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 the crisis in the financial markets and became increasingly
sensitive to negative perceptions regarding our financial stability. These revenue declines
were only slightly offset by increased revenue in the Insurance sector driven by additional
efforts on a small number of large client engagements.
    
    EMEArevenue increased during the nine months ended September 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 revenue
growth in Germany and France, and partially offset the effects of revenue decreases in the
United Kingdom, Spain, Sweden and Norway. The increase in revenues in Germany and France
resulted from both increased billing rates and increased demand for our services. Revenues
in Spain continue to decline as a result of our strategic decision to reduce our activities
in this country. The revenues in the United Kingdom, Sweden and Norway declined due to the
loss of key personnel in the early part of 2008 in these countries.
    
    Asia Pacificrevenue decreased during the nine months ended September 30, 2008 primarily
as a result of declines in Australia and New Zealand, and, to a significantly lesser extent,
Japan. The revenue declines were partially offset by the favorable impact of the
strengthening of foreign currencies against the U.S. dollar, particularly the Japanese yen.
In Australia, we experienced significant attrition and lost a number of key employees,
including managing directors in early 2008, which led to a substantial reduction in our
business and lower revenues in the nine months ended September 30, 2008. In addition, our
decision to reduce our presence in New Zealand in late 2007 resulted in significantly less
revenue year to date. A decline in revenue in Japan, due in part to the impact of fewer
projects related to J-SOX, also contributed to the overall decline in revenue.
    
    Latin Americarevenue increased during the nine months ended September 30, 2008 primarily
as a result of revenue increases in Costa Rica and Brazil, as well as the favorable impact
of the strengthening of the Brazilian Real against the U.S. dollar, 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 51.1% for the
nine months ended September 30, 2008, compared to 53.3% for the nine months ended September
30, 2007. We experienced a net decrease in professional compensation expense of $100.7
million, or 7.3%, to $1,285.9 million for the nine months ended September 30, 2008 from
$1,386.6 million for the nine months ended September 30, 2007. The decrease in professional
compensation expense over the first nine months of 2007 was primarily due to reductions in
salaries and fringe expenses of $34.7 million and stock based compensation expense of $27.6
million as well as the reversal of accruals associated with global tax equalization expense
of $29.2 million, and declines in bonuses of approximately $17.0 million.
The decline in stock based compensation was primarily driven by the revision of our forfeiture rate applied to
PSUs in the second quarter of 2008.
    
    Other direct contract expenses as a percentage of revenue decreased to 20.8% for the nine
months ended September 30, 2008 compared to 22.6% for the nine months ended September 30,
2007. We experienced a net decrease in other direct contract expenses of $65.8 million, or
11.2%, to $522.6 million for the nine months ended September 30, 2008 from $588.4 million
for the nine months ended September 30, 2007. The decrease was driven primarily by declines
in subcontractor expense and reimbursable travel expenses.
    
    Other costs of service as a percentage of revenue decreased to 8.3% for the nine months
ended September 30, 2008 from 8.5% for the nine months ended September 30, 2007. We
experienced a net decrease in other costs of service of $12.1 million, or 5.5%, to $208.9
million for the nine months ended September 30, 2008 from $221.0 million for the nine months
ended September 30, 2007. The decrease was primarily due to declines in recruiting expenses
and real estate related expenses, offset by increases in costs associated with practice
support.
    
    During the nine months ended September 30, 2008, we recorded, within the Corporate/Other
operating segment, a restructuring credit of $6.3 million related to lease, facilities and
other exit activities, compared with a $0.3 million charge during the nine months ended
September 30, 2007. These credits related primarily to the reduction of the fair value of
future lease obligations
 29




---



##### Table of Contents



associated with office space that we will no longer be using, primarily within the EMEA and
North America regions. The restructuring charge for the nine months ended September 30, 2007
represents a net increase in lease restructuring accruals, due to changes in sublease income
assumptions associated with vacated leased facilities.
 Gross Profit by Segment.
 Percent
    
    
    PercentNine Months Ended
    
    
    
    
    
    
    Increase
    
    
    IncreaseSeptember 30,
    
    
    
    
    
    
    (Decrease)
    
    
    (Decrease)2008
    
    
    2007
    
    
    US$ Change
    
    
    US$
    
    
    Local CurrencyGross ProfitPublic Services
    
    $
    248,062
    
    
    $
    219,505
    
    
    $
    28,557
    
    
    
    13.0
    %
    
    
    13.0
    %Commercial Services
    
    
    59,486
    
    
    
    78,309
    
    
    
    (18,823
    )
    
    
    (24.0
    %)
    
    
    (24.0
    %)Financial Services
    
    
    31,394
    
    
    
    32,667
    
    
    
    (1,273
    )
    
    
    (3.9
    %)
    
    
    (3.9
    %)EMEA
    
    
    142,390
    
    
    
    113,191
    
    
    
    29,199
    
    
    
    25.8
    %
    
    
    11.4
    %Asia Pacific
    
    
    66,349
    
    
    
    61,015
    
    
    
    5,334
    
    
    
    8.7
    %
    
    
    (1.5
    %)Latin America
    
    
    15,923
    
    
    
    (4,127
    )
    
    
    20,050
    
    
    
    485.8
    %
    
    
    445.2
    %Corporate/Other
    
    
    (56,926
    )
    
    
    (93,349
    )
    
    
    36,423
    
    
    
    39.0
    %
    
    
    n/mTotal
    
    $
    506,678
    
    
    $
    407,211
    
    
    $
    99,467
    
    
    
    24.4
    %
    
    
    18.6
    %
 Nine Months EndedSeptember 30,2008
    
    2007Gross Profit as a % of revenuePublic Services
    
    
    23.1
    %
    
    
    20.2
    %Commercial Services
    
    
    19.1
    %
    
    
    19.5
    %Financial Services
    
    
    21.7
    %
    
    
    15.6
    %EMEA
    
    
    22.0
    %
    
    
    19.9
    %Asia Pacific
    
    
    26.3
    %
    
    
    22.8
    %Latin America
    
    
    18.7
    %
    
    
    (6.1
    %)Corporate/Other
    
    
    n/m
    
    
    
    n/mTotal
    
    
    20.1
    %
    
    
    15.6
    %
 
 n/m = not meaningful  
    
    Public Servicesgross profit increased in the nine months ended September 30, 2008
primarily due to improved results in the Defense and Civilian 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 for which contract contingencies were resolved in the current period.
    
    Commercial Servicesgross profit decreased in the nine months ended September 30, 2008.
The impact of significant revenue declines in most sectors was offset in part 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 decreased in the nine months ended September 30, 2008 as
the impact of significant revenue decreases were largely offset 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 2008 reductions in stock based compensation,
and, to a lesser extent, accrual reversals for costs associated with global tax
equalization.
    
    EMEAgross profit increased in the nine months ended September 30, 2008 due to the
favorable impact of the strengthening of the Euro against the U.S. dollar, as well as
increased profitability, primarily in Germany, as well as a decline in other costs of
services, which were driven primarily by an asset impairment recorded in the third quarter
of 2007.
 30




---



##### Table of Contents




    
    Asia Pacificgross profit increased in the nine months ended September 30, 2008 due
primarily to the favorable impact of the strengthening of foreign currencies against the
U.S. dollar, particularly the Japanese yen. Significant declines in revenue, particularly in
Australia and New Zealand, were substantially offset by lower professional compensation and
other direct contract expenses. This was due to the lower volume of work in Australia and
New Zealand, lower use of sub-contracted labor in Japan and a reduction in cost accruals
related to loss contracts.
    
    Latin Americagross profit increased in the nine months ended September 30, 2008 due to
increases in revenue as well as reductions in professional compensation.
    
    Corporate/Otherconsists primarily of rent expense and other facilities related charges,
which decreased in the nine months ended September 30, 2008 primarily due to lower
facilities costs as a result of restructuring actions taken in 2007. Additionally we
recorded a larger credit during the nine months ended September 30, 2008 for lease and
facilities restructuring charges discussed above, when compared with the nine months ended
September 30, 2007.
 Selling, General and Administrative Expenses .
 Interest Income.
 Interest Expense.
 Other Expense, net.
 Income
Tax Expense .
 Net
Loss .
 31




---



##### Table of Contents



Liquidity and Capital Resources
  Nine Months Ended September 30,2007 to 20082008
    
    
    2007
    
    
    ChangeNet cash provided by (used in):Operating activities
    
    $
    (100,557
    )
    
    $
    (221,951
    )
    
    $
    121,394Investing activities
    
    
    (33,233
    )
    
    
    (31,848
    )
    
    
    (1,385
    )Financing activities
    
    
    205
    
    
    
    282,156
    
    
    
    (281,951
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (3,182
    )
    
    
    10,203
    
    
    
    (13,385
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (136,767
    )
    
    $
    38,560
    
    
    $
    (175,327
    )
 Operating Activities.
 Investing Activities .
 Financing Activities .
  Additional Cash Flow Information
  32




---



##### Table of Contents



2008
    
    2007First quarter
    
    
    85
    
    
    
    91Second quarter
    
    
    87
    
    
    
    95Third quarter
    
    
    78
    
    
    
    89Fourth quarter
    
    
    N/A
    
    
    
    77
   Update on Analysis of Alternative Strategies
    33




---



##### Table of Contents



2007 Credit Facility  Prepayments
   Repurchase of Debentures at the Option of the Holders
  34




---



##### Table of Contents



voluntary or optional
  Off Balance Sheet Arrangements
    Recently Issued Accounting Pronouncements
  35




---



##### Table of Contents



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
  36




---



##### Table of Contents



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;
    
    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; 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.
  
 ITEM 1A. RISK FACTORS
  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 5.00% Senior
Convertible Debentures and our 2007 Credit Facility. 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.
   37




---



##### Table of Contents



Risks That Relate To Our Common Stock
 If the Company does not comply with the NYSEs continued listing standards, 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 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.
  -
    
    on July 16, 2008, the minimum average share price (relating to the fact that the average
closing share price of our common stock over a 30-day consecutive trading period was less
than $1.00); and-
    
    on October 28, 2008, the minimum average market capitalization (relating to the fact that
the average market capitalization of the Company over a 30-day consecutive trading period
was less than $100 million).
      38




---



##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Issuer Purchases of Equity Securities
  ApproximateDollar Value ofTotal Number of
    
    Shares that MayShares Purchased
    
    Yet Be Purchasedas Part of
    
    Under PubliclyPublicly
    
    Announced PlansTotal Number of
    
    Average Price
    
    Announced Plans
    
    or ProgramsPeriod
    
    Shares Purchased
    
    per Share
    
    or Programs(1)
    
    ($ in millions)(1)July 1, 2008 July 31, 2008
    
    
    32,637
    (2)
    
    $ .79
    
    
    
    $
    64.3
 
 (1)
    
    In July 2001, our Board authorized us to repurchase up to $100.0 million of our common stock.
Any shares so repurchased are held as treasury shares. During the quarter ended September 30,
2008, there were no open market purchases by the Company of our common stock.(2)
    
    In July 2008, as permitted under the LTIP, we acquired an aggregate of 32,637 shares of our
common stock for an aggregate price of $25,783 in connection with share withholding for
payroll tax obligations due from employees and former employees for the issuance of shares of
common stock upon settlement of RSUs. 
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5. OTHER INFORMATION
 Appointment/Departure of Principal Officer
    39




---



##### Table of Contents



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 July 1, 2008, effective as of June 4, 2008, between the
Company and Eddie R. Munson, 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 June 30, 2008.10.2
    
    Managing Director Agreement dated July 1, 2008, effective as of June 4, 2008,
between the Company and Eddie R. Munson, 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 June 30, 2008.10.3*
    
    Agreement for Interim Management Services dated November 10, 2008, between the Company and AlixPartners, LLP.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.
 
 *
    
    Filed herewith. 40




---



##### Table of Contents



SIGNATURES
  BearingPoint, Inc.DATE: November 10, 2008
    By:
    /s/ Eddie R. MunsonEddie R. MunsonChief Financial Officer 41