##### 



UNITED STATES
    SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
    FORM 10-K
    þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2005o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE  SECURITIES EXCHANGE ACT OF 1934  Commission File Number
    001-31451
   BEARINGPOINT, INC.
 (Exact name of Registrant as
    specified in its charter)
    DELAWARE

22-3680505(State or other jurisdiction
    of
    incorporation or organization)

(IRS Employer
    Identification No.)1676 International Drive,
    McLean, VA

22102(Address of principal executive
    offices)

(Zip
    Code)   (703) 747-3000
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12 (b) of the
    Act:
  Common Stock, $.01 Par Value
  Series A Junior Participating Preferred Stock Purchase
    Rights
  Securities registered pursuant to Section 12 (g) of the
    Act: None
     o þ
  o þ
  o þ
  Regulation S-K þ
  Rule 12b-2
  Large
    accelerated filer þ
    Accelerated
    Filer o
    Non-accelerated
    filer o  Rule 12b-2 o þ




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TABLE OF
    CONTENTS
  PageDescription

NumberPART I.Item 1.


Business


1Item 1A.


Risk Factors


7Item 1B.


Unresolved Staff Comments


19Item 2.


Properties


20Item 3.


Legal Proceedings


20Item 4.


Submission of Matters to a Vote of
    Security Holders


23PART II.Item 5.


Market for the Registrants
    Common Stock, Related Stockholder Matters and Issuer Purchases
    of Equity Securities


25Item 6.


Selected Financial Data


28Item 7.


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


31Item 7A.


Quantitative and Qualitative
    Disclosures About Market Risk


67Item 8.


Financial Statements and
    Supplementary Data


68Item 9.


Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure


68Item 9A.


Controls and Procedures


68Item 9B.


Other Information


74PART III.Item 10.


Directors and Executive Officers
    of the Registrant


76Item 11.


Executive Compensation


79Item 12.


Security Ownership of Certain
    Beneficial Owners and Management and Related Stockholder Matters


89Item 13.


Certain Relationships and Related
    Transactions


92Item 14.


Principal Accountant Fees and
    Services


92PART IV.Item 15.


Exhibits and Financial Statement
    Schedules


94Signatures


102




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PART I.
  FORWARD-LOOKING
    STATEMENTS
  Form 10-K
  AVAILABLE
    INFORMATION
  www.bearingpoint.com. Form 10-K, Form 10-Q Form 8-K,
  Form 10-K,
  ITEM 1.
    BUSINESS
  General
   1




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Strategy
  We operate in a highly competitive, global market.
  
    Consolidation of North American Industry Groups and Service
    Offerings. In 2005, we combined general market segments
    serving similar customers and consolidated our North American
    business from four to three industry groups. To achieve better
    returns on our investments, we streamlined our solutions
    offerings to ten key areas, including customer relationship
    management, enterprise solutions, supply chain management,
    managed services and technology integration.
    Focus on Larger Clients and Projects. We began
    concentrating our selling efforts on our more profitable large
    and growing client accounts and projects.
    Focus on Strengths and Specialization. We began pursuing
    advisory-led engagements as opposed to commoditized services,
    aligning our market spending to our existing strengths and
    distinct competencies, and striving to build a higher value for
    our customized offerings.
    Common Operating Model. We began implementing a common
    operating model across our geographic regions to provide our
    clients with integrated global solutions. We intend to continue
    this transition through 2007. We increased our thought
    leadership in business areas of interest to our clients and
    integrated the uniform application of this knowledge across
    service offerings in all geographies.  North
    American Industry Groups
      
    Public Servicesserves a broad range of both public and
    private clients, including agencies of the U.S. Federal
    government such as the Departments of Defense, Homeland
    Security, Health and Human Services; provincial, state and local
    governments; public and private sector healthcare agencies;
    aerospace and defense companies; and higher education clients.     2




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
    Commercial Servicessupports a highly diversified range
    of clients, including those in the technology, consumer markets,
    manufacturing, life sciences, transportation and communications
    sectors, as well as companies in the chemicals, oil and gas
    industries, and private and public utilities.    
    Financial Servicesdirects its solutions to many of the
    worlds leading banking, insurance, securities, real
    estate, hospitality and professional services institutions. We
    strive to anticipate global industry trends, opportunities and
    needs, and then deliver solutions that transform our clients.
    These service offerings are designed to allow customers to
    capitalize on existing application systems and
    e-business
    strategies and development. We believe we have differentiated
    ourselves from our competition by combining in-depth technical
    knowledge of our customers markets with focused offerings,
    and that this strategy has led to growth rates that exceed the
    growth rates of our competitors.  International
    Operations
    Global
    Development Centers
    BearingPoint
    Institute for Executive Insight
   3




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Our
    Joint Marketing Relationships
      Competition
            Intellectual
    Property
   4




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Customer
    Dependence
    Employees
           5




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
    In January 2006, we paid an aggregate of $18.4 million for
    cash payments made to each eligible employee in an amount equal
    to 1.5% of that employees annual salary as of
    October 3, 2005; and
    On January 1, 2007, we intend to pay an aggregate amount of
    approximately $14 million as a special contribution under
    our Employee Stock Purchase Plan (the ESPP), to be
    made to each eligible employee in an amount equal to 1.5% of
    that employees annual salary as of October 3, 2005
    into his or her ESPP account, which contribution will be used to
    purchase shares of our common stock pursuant to the terms of the
    ESPP.      Background
  22102-4828.
     6




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ITEM 1A.
    RISK
    FACTORS  Risks
    that Relate to our Failure to Timely File Reports with the SEC
    and our Internal Control over Financial Reporting
  and/or
  Our continuing failure to timely file certain periodic
    reports with the SEC poses significant risks to our business,
    each of which could materially and adversely affect our
    financial condition and results of operations.
  Forms 10-K Forms 10-Q
    
    A breach could be declared under our senior secured credit
    facility if our lenders cease to grant us extensions to file our
    periodic reports, which may result in the lenders declaring our
    outstanding loans due and payable in whole or in part, and
    potentially resulting in a cross default to one or more series
    of our convertible subordinated debentures and other
    indebtedness. See Risks that Relate to Our
    Liquidity.
    If the NYSE ceases to grant us extensions to file our periodic
    reports with the NYSE, it has the right to begin proceedings to
    delist our common stock. A delisting of our common stock would
    have a material adverse effect on us by, among other things:  
    reducing the liquidity and market price of our common stock;
    resulting in a possible event of default under and acceleration
    of our senior secured credit facility and triggering a right to
    the holders of our debentures to request us to repurchase all
    then outstanding debentures; and
    reducing the number of investors willing to hold or acquire our
    common stock, thereby restricting our ability to obtain equity
    financing.  
    Since we continue to be unable to file a registration statement
    for the resale of the common stock underlying one or more series
    of our convertible subordinated debentures, we continue to be
    required to pay additional interest on them.
    We may have difficulty retaining our clients and obtaining new
    clients.
    We are not eligible to use a registration statement to offer and
    sell freely tradable securities, which prevents us from
    accessing the public capital markets.
    Until we are current in our SEC filings, there will not be
    adequate current public information available to permit certain
    resales of restricted securities pursuant to Rule 144 under
    the Securities Act, which could have a detrimental effect on our
    relations with our employees and investors who hold restricted
    securities.
    Because we are not current in our SEC filings, significant
    features of many of our employee equity plans remain suspended
    and our employees have effectively been precluded from realizing
    the 7




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appreciation in equity-based awards. For instance, if we are
    unable to become current in our SEC filings by April 30,
    2007, we may experience increased rates of withdrawals by our
    employees of their accumulated contributions to our ESPP. For
    more information, see Risks that Relate to our
    Liquidity.    In fiscal 2004, we identified material weaknesses in our
    internal control over financial reporting, which could
    materially and adversely affect our business and financial
    condition, and as of December 31, 2005, these material
    weaknesses remain.
        We face risks related to securities litigation and
    regulatory actions that could adversely affect our financial
    condition and business.
  class-action
   8




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Risks
    that Relate to Our Business
  Our business may be adversely impacted as a result of
    changes in demand, both globally and in individual market
    segments, for 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.
      
    our clients perception of our ability to add value through
    our services;
    use of lower-cost service delivery personnel;
    introduction of new services or products by us or our
    competitors;
    pricing policies of our competitors; and
    general economic conditions in the United States and abroad.    
    seasonal trends, primarily as a result of our hiring cycle and
    holiday and summer vacations;
    our ability to transition employees from completed projects to
    new engagements; 9




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
    our ability to forecast demand for our services and thereby
    maintain an appropriately balanced and sized workforce;
    our ability to manage attrition; and
    our ability to mobilize our workforce quickly or economically,
    especially outside the United States.    The systems integration consulting markets are highly
    competitive, and we may not be able to compete effectively if we
    are not able to maintain our billing rates or control our
    costs.
    We have incurred significant operating losses under our
    contract with Hawaiian Telcom Communications, Inc. and could
    incur significant additional losses and cash outflows in fiscal
    2006.
    Contracting with the Federal government is inherently
    risky and exposes us to risks that may materially and adversely
    affect our business.
    
    Our government contracts are subject to laws and regulations
    that provide government clients with rights and remedies not
    typically found in commercial contracts, which are unfavorable
    to us. These rights and remedies allow government clients, among
    other things, to:  
    establish temporary holdbacks of funds due and owing to us under
    contracts for various reasons; 10




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
    terminate our facility security clearances and thereby prevent
    us from receiving classified contracts;
    cancel multi-year contracts and related orders if funds for
    contract performance for any subsequent year become unavailable;
    claim rights in products, systems and technology produced by us;
    prohibit future procurement awards with a particular agency if
    it is found that our prior relationship with that agency gives
    us an unfair advantage over competing contractors;
    subject the award of contracts to protest by competitors, which
    may require the suspension of our performance pending the
    outcome of the protest or our resubmission of a bid for the
    contract, or result in the termination, reduction or
    modification of the awarded contract; and
    prospectively reduce our pricing based upon achieving certain
    agreed service volumes or other metrics and reimburse any
    previously charged amounts subsequently found to have been
    improperly charged under the contract.  
    Our failure to obtain and maintain necessary security clearances
    may limit our ability to perform classified work for government
    clients, which could cause us to lose business. In addition,
    security breaches in sensitive government systems that we have
    developed could damage our reputation and eligibility for
    additional work and expose us to significant losses.
    The Federal government audits and reviews our performance on
    contracts, pricing and cost allocation practices, cost
    structure, systems, and compliance with applicable laws,
    regulations and standards. If the government finds that our
    costs are not reimbursable, have not been properly determined or
    are based on outdated estimates of our costs, we may not be
    allowed to bill for all or part of those costs, or we may have
    to refund cash that we have already collected, which may
    materially affect our operating margin and the expected timing
    of our cash flows.
    Government contracting officers have wide latitude in their
    ability to conclude as to the financial responsibility of
    companies that contract with agencies of the U.S. Federal
    government. Officers who conclude that a company is not
    financially responsible may withhold new engagements and
    terminate recently contracted engagements for which significant
    expenditures and outlays already may have been made.
    If the government uncovers improper or illegal activities in the
    course of audits or investigations, we may be subject to civil
    and criminal penalties and administrative sanctions, including
    termination of contracts, forfeiture of profits, suspension of
    payments, fines and suspension or debarment from doing business
    with Federal government agencies. These consequences could
    materially and adversely affect our revenue and operating
    results. The inherent limitations of internal controls, even
    when adequate, may not prevent or detect all improper or illegal
    activities.
    Government contracts, and the proceedings surrounding them, are
    often subject to more extensive scrutiny and publicity than
    other commercial contracts. Negative publicity related to our
    government contracts, regardless of its accuracy, may further
    damage our business by affecting our ability to compete for new
    contracts.    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.
   11




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Our contracts can be terminated by our clients with short
    notice, or our clients may cancel or delay projects.
  engagement-by-engagement
  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.
   12




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There will not be a consistent pattern in our financial
    results from quarter to quarter, which may result in increased
    volatility of our stock price.
    
    the business decisions of our clients regarding the use of our
    services;
    seasonality, including the number of work days and holidays and
    summer vacations;
    the stage of completion of existing projects or their
    termination;
    cost overruns or revenue write-offs resulting from unexpected
    delays or delivery issues on engagements;
    periodic differences between our clients estimated and
    actual levels of business activity associated with ongoing
    engagements;
    our ability to transition employees quickly from completed
    projects to new engagements;
    the introduction of new products or services by us or our
    competitors;
    changes in our pricing policies or those of our competitors;
    our ability to manage costs, including personnel costs and
    support services costs, particularly outside the United States
    where local labor laws may significantly affect our ability to
    mobilize personnel quickly or economically;
    currency exchange fluctuations;
    changes in, or the application of changes to, accounting
    principles generally accepted in the United States, particularly
    those related to revenue recognition; and
    global, regional and local economic and political conditions and
    related risks, including acts of terrorism.  Our profitability may decline due to financial, regulatory
    and operational risks inherent in worldwide operations.
    We may bear the risk of cost overruns relating to our
    services, thereby adversely affecting our profitability.
  level-of-effort level-of-effort
 13




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level-of-effort
  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.
     14




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Risks
    that Relate to Our Liquidity
  Our current cash resources might not be sufficient to meet
    our expected near-term cash needs, especially to fund
    intra-quarter operating cash requirements and non-recurring cash
    requirements (e.g., to settle lawsuits).
    We have been unable to issue shares of our common stock
    under our ESPP since February 1, 2005. The longer we are
    unable to issue shares of our common stock, the more likely our
    ESPP participants may elect to withdraw their accumulated cash
    contributions from the ESPP at rates higher than those we have
    historically experienced.
    We have limited availability under our 2005 Credit
    Facility to borrow additional amounts or issue additional
    letters of credit, and we may not be able to refinance our debt
    or to do so on favorable terms.
    and/or
 15




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Our 2005 Credit Facility imposes a number of restrictions
    on the way in which we operate our business and may negatively
    affect our ability to finance future needs, or do so on
    favorable terms. If we violate these restrictions, we will be in
    default under the 2005 Credit Facility, which may cross-default
    to our other indebtedness.
        If our operating performance is materially and adversely
    affected, we may not be able to service our indebtedness.
    We may be required to post collateral to support our
    obligations under our surety bonds, and we may be unable to
    obtain new surety bonds, letters of credit or bank guarantees in
    support of client engagements on acceptable terms.
   16




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Downgrades of our credit ratings may increase our
    borrowing costs and materially and adversely affect our
    financial condition.
        Our leverage may adversely affect our business and
    financial performance and may restrict our operating
    flexibility.
    
    limit cash flow available for general corporate purposes, such
    as capital expenditures;
    limit our ability to obtain, or obtain on favorable terms,
    additional debt financing in the future for working capital or
    capital expenditures;
    limit our flexibility in reacting to competitive and other
    changes in our industry and economic conditions generally;
    expose us to a risk that a substantial decrease in net operating
    cash flows due to economic developments or adverse developments
    in our business could make it difficult to meet debt service
    requirements; and
    expose us to risks inherent in interest rate fluctuations
    because borrowings may be at variable rates of interest, which
    could result in high interest expense in the event of increases
    in interest rates.  The holders of our debentures have the right, at their
    option, to require us to purchase some or all of their
    debentures upon certain dates or upon the occurrence of certain
    designated events, which could have a material adverse effect on
    our liquidity.
     17




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Risks
    that Relate to Our Common Stock
  The price of our common stock may decline due to the
    number of shares that may be available for sale in the
    future.
      Initial Per Share


TotalConversion


ApproximatePrice/Exercise


Number ofConvertible Debt and Warrants

Price


Shares$250.0 million 2.50%
    Series A Convertible Subordinated Debentures

$
10.50



23.8 million$200.0 million 2.75%
    Series B Convertible Subordinated Debentures

$
10.50



19.0 million$200.0 million
    5.0% Convertible Senior Subordinated Debentures

$
6.60



30.3 million$40.0 million
    0.50% Convertible Senior Subordinated Debentures

$
6.75



5.9 millionWarrants issued in connection with
    the July 2005 Senior Debentures

$
8.00



3.5 millionTotal






82.5 million       Number of Shares

Calendar Year559,454



2006
(remainder of 2006)2,304,843



2007844,836



2008     Number of Shares

Calendar Year0



20068,415,190



20073,455,382



2008    18




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There are significant limitations on the ability of any
    person or company to acquire the Company without the approval of
    our Board of Directors.
      
    our Board of Directors is classified into three classes, each of
    which will serve for staggered three-year terms;
    a director may be removed by our stockholders only for cause and
    then only by the affirmative vote of two-thirds of our voting
    stock;
    only our Board of Directors or the Chairman of our Board of
    Directors may call special meetings of our stockholders;
    our stockholders may not take action by written consent;
    our stockholders must comply with advance notice procedures in
    order to nominate candidates for election to our Board of
    Directors or to place stockholders proposals on the agenda
    for consideration at meetings of the stockholders;
    if stockholder approval is required by applicable law, any
    mergers, consolidations and sales of all or substantially all of
    our assets must be approved by the affirmative vote of at least
    two-thirds of our voting stock; and
    our stockholders may amend or repeal any of the foregoing
    provisions of our certificate of incorporation or our bylaws
    only by a vote of two-thirds of our voting stock.  Risks
    that Relate to Our Relationship with KPMG LLP
  The termination of services provided under the transition
    services agreement with KPMG LLP could involve significant
    expense, which could adversely affect our financial
    results.
    ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS   19




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ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS  Overview
    
    Claims and investigations arising from our continuing inability
    to timely file periodic reports under the Exchange Act, and the
    restatement of our financial statements for certain prior
    periods to correct accounting errors and departures from
    generally accepted accounting principles for those years
    (SEC Reporting Matters);
    Claims and investigations being conducted by agencies or
    officers of the U.S. Federal government and arising in
    connection with our provision of services under contracts with
    agencies of the U.S. Federal government (Government
    Contracting Matters); and
    Claims made in the ordinary course of business by clients
    seeking damages for alleged breaches of contract or failure of
    performance and by current or former employees seeking damages
    for alleged acts of wrongful termination or discrimination
    (Other Matters).    24-month
    SEC
    Reporting Matters
  2005 Class Action Suits. Rule 10b-5
 20




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2005 Shareholders Derivative Demand. Form 8-K,
  SEC Investigation. Form 8-K.
    Series B Debenture Suit. Form 10-K Form 10-Q
     21




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Government
    Contracting Matters
  Grand Jury SubpoenaCalifornia.
  Travel Rebate Investigation.
  Core Financial Logistics System.
  Other
    Matters
  Peregrine Litigation.
 22




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Ariko v. Moores Allocco v. Gardner Bains v. Moores Peregrine Litigation
    Trust v. KPMG LLP In re Peregrine Systems, Inc. Securities
    Litigation
  Allocco Ariko Bains Peregrine Litigation Trust Allocco, Ariko, Bains and
    the Peregrine Litigation Trust Allocco and Peregrine
    Litigation Trust
  In re Peregrine Systems, Inc.
    Securities Litigation. In
    re Peregrine Systems, Inc. Securities Litigation
    ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS    Executive
    Officers of the Company
    Judy A. Ethell
  Laurent C. Lutz,
  Roderick C. McGeary
 23




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Richard J. Roberts
  Harry L. You
       24




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PART II.
  ITEM 5.
    MARKET
    FOR THE REGISTRANTS COMMON STOCK, RELATED STOCKHOLDER
    MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES  Market
    Information
    Form 10-K Form 10-K. Form 10-K.
  Form 10-K Form 10-K Form 10-K Form 10-K. Form 10-K
      Price
    Range of Common Stock
  Price Range ofCommon StockHigh


LowFiscal Year 2006Fourth Quarter (through
    November 10, 2006)

$
8.80


$
7.44Third Quarter


9.00



7.36Second Quarter


9.59



7.55First Quarter


9.16



7.77Fiscal Year 2005Fourth Quarter


7.99



6.54Third Quarter


8.50



7.27Second Quarter


8.82



4.65First Quarter


8.89



7.34Fiscal Year 2004Fourth Quarter


9.98



7.29Third Quarter


9.25



7.22Second Quarter


11.00



8.03First Quarter


11.30



9.50  25




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Holders
    Dividends
    Issuer
    Purchases of Equity Securities
      Sales
    of Securities Not Registered Under the Securities
    Act
  2.50%
    Series A Convertible Subordinated Debentures and 2.75%
    Series B Convertible Subordinated Debentures due
    2024         26




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5.00% Convertible
    Senior Subordinated Debentures due 2025        0.50% Convertible
    Senior Subordinated Debentures         27




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ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K.
 28




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Statements
    of Operations
  Six MonthsYear Ended


Ended


Year EndedDecember 31,


December 31,


December 31,


June 30,


June 30,


June 30,2005


2004


2003


2003


2002


2001(unaudited)


(unaudited)(in thousands, except per share amounts)Revenue

$
3,388,900


$
3,375,782


$
1,522,503


$
3,157,898


$
2,383,099


$
2,805,464Costs of service:Costs of service


3,001,327



2,816,559



1,221,249



2,436,864



1,761,444



2,092,458Lease and facilities restructuring
    charge


29,581



11,699



61,436



17,283







Impairment charges


















23,914



7,827Total costs of service


3,030,908



2,828,258



1,282,685



2,454,147



1,785,358



2,100,285Gross profit


357,992



547,524



239,818



703,751



597,741



705,179Amortization of purchased
    intangible assets


2,266



3,457



10,212



45,127



3,014



Amortization of goodwill






















18,176Goodwill impairment charge (1)


166,415



397,065



127,326











Selling, general and administrative
    expenses


750,867



641,176



272,250



550,098



477,230



465,905Operating income (loss)


(561,556
)


(494,174
)


(169,970
)


108,526



117,497



221,098Interest / Other income (expense),
    net (2)


(37,966
)


(17,644
)


(1,773
)


(10,493
)


1,217



(16,119
)Loss on early extinguishment of debt






(22,617
)














Gain on sale of assets






















6,867Equity in losses of affiliate and
    loss on redemption of equity interest in affiliate






















(76,019
)Income (loss) before taxes and
    cumulative effect of change in accounting principle


(599,522
)


(534,435
)


(171,743
)


98,033



118,714



135,827Income tax expense (3)


122,121



11,791



4,872



65,342



80,263



102,798Income (loss) before cumulative
    effect of change in accounting principle


(721,643
)


(546,226
)


(176,615
)


32,691



38,451



33,029Cumulative effect of change in
    accounting principle, net of tax (4)


















(79,960
)


Net income (loss)


(721,643
)


(546,226
)


(176,615
)


32,691



(41,509
)


33,029Dividend on Series A Preferred
    Stock






















(31,672
)Preferred stock conversion discount






















(131,250
)Net income (loss) applicable to
    common stockholders

$
(721,643
)

$
(546,226
)

$
(176,615
)

$
32,691


$
(41,509
)

$
(129,893
)Earnings (loss) per
    sharebasic and diluted:Income (loss) before cumulative
    effect of change in accounting principle applicable to common
    stockholders

$
(3.59
)

$
(2.77
)

$
(0.91
)

$
0.18


$
0.24


$
(1.20
)Cumulative effect of change in
    accounting principle


















(0.50
)


Net income (loss) applicable to
    common stockholders

$
(3.59
)

$
(2.77
)

$
(0.91
)

$
0.18


$
(0.26
)

$
(1.20
)  29




---



##### 



Balance
    Sheet Data
  December 31,


December 31,


December 31,


June 30,


June 30,


June 30,2005


2004


2003


2003


2002


2001(unaudited)


(unaudited)(in thousands)Cash, cash equivalents, and
    restricted cash (5)

$
376,587


$
265,863


$
122,475


$
121,790


$
222,636


$
93,327Total assets


1,972,426



2,182,707



2,211,613



2,150,210



948,029



1,072,018Long-term liabilities


976,501



648,565



408,324



375,991



28,938



17,877Total debt


674,760



423,226



248,228



277,176



1,846



13,440Total liabilities


2,017,998



1,558,009



1,141,618



1,006,990



384,935



464,828Total stockholders equity
    (deficit)


(45,572
)


624,698



1,069,995



1,143,220



563,094



607,190     (1)
    
    During the years ended
    December 31, 2005 and 2004 and the six months ended
    December 31, 2003, we recorded goodwill impairment charges
    of $166.4 million, $397.1 million and
    $127.3 million, respectively. For additional information
    regarding these goodwill impairment charges and international
    acquisitions, see Note 5, Business Acquisitions,
    Goodwill and Other Intangible Assets, of the Notes to
    Consolidated Financial Statements.(2)
    
    During the year ended
    December 31, 2004, we recorded a change in accounting
    principle resulting in a charge of $0.5 million related to
    the elimination of a one-month lag in reporting for certain Asia
    Pacific subsidiaries, as well as a subsidiary within the EMEA
    region. While the elimination of the one-month lag is considered
    a change in accounting principle, the effect of the change is
    included in other income (expense) due to the immateriality of
    the change in relation to consolidated net loss.(3)
    
    During the year ended
    December 31, 2005, we recorded a valuation allowance of
    $55.3 million primarily against our U.S. deferred tax
    assets to reflect our conclusions that it is more likely than
    not that these tax benefits would not be realized. For
    additional information, see Note 13, Income
    Taxes, of the Notes to Consolidated Financial Statements.(4)
    
    During the year ended June 30,
    2002, we recognized a transitional impairment loss of
    $80.0 million as the cumulative effect of a change in
    accounting principle in connection with adopting Statement of
    Financial Accounting Standards No. 142, Goodwill and
    Other Intangible Assets.(5)
    
    Restricted cash amounts at
    December 31, 2005 and December 31, 2004 were
    $121.2 million and $21.1 million, respectively. 30




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##### 



ITEM 7.
    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
    Consolidated Financial Statements and the Notes to Consolidated
    Financial Statements included elsewhere in this Annual Report.
    This Annual Report contains forward-looking statements that
    involve risks and uncertainties. See the Disclosure
    Regarding Forward-Looking Statements. All references to
    years, unless otherwise noted, refer to our
    twelve-month fiscal year which, since July 1, 2003, ends on
    December 31. Prior to July 1, 2003, our fiscal year
    ended on June 30. As a result, any reference to
    2003 or fiscal 2003 means the
    twelve-month period that ended on June 30, 2003, and any
    reference to 2005 or 2004, or
    fiscal 2005 or fiscal 2004 means the
    twelve-month period that ended on December 31, 2005 or
    2004, respectively. All discussions of six-month periods
    specifically reference the applicable six-month period.
  This MD&A will: (i) compare the results of
    operations for the year ended December 31, 2005 to the
    results of operations for the year ended December 31, 2004;
    (ii) compare the results of operations for the year ended
    December 31, 2004 to the results of operations for the year
    ended June 30, 2003; (iii) compare the results of
    operations for the six months ended December 31, 2003 to
    the results of operations for the six months ended
    December 31, 2002; and (iv) discuss our liquidity and
    capital resources as of December 31, 2005. The results of
    operations for the six months ended December 31, 2002 are
    unaudited and, in the opinion of management, have been prepared
    in accordance with accounting principles generally accepted in
    the United States and reflect all adjustments which are, in the
    opinion of management, necessary for a fair presentation of
    results for this period.
  Overview
      Economic and Industry Factors
     31




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##### 



Revenue and Income Drivers
    out-of-pocket
      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.
    Information regarding our new bookings should not be compared
    to, or substituted for, an analysis of our revenue over time.
    There are no third-party standards or requirements governing the
    calculation of bookings. New contract bookings are recorded
    using then existing currency exchange rates and are not
    subsequently adjusted for currency fluctuations. These amounts
    represent our estimate at contract signing of the net revenue
    expected over the term of that contract and involve estimates
    and judgments regarding new contracts as well as renewals,
    extensions and additions to existing contracts. Subsequent
    cancellations, extensions and other matters may affect the
    amount of bookings previously reported. Bookings do not include
    potential revenue that could be earned from a client
    relationship as a result of future expansion of service
    offerings to that client, nor does it reflect option years under
    contracts that are subject to client discretion. Although our
    level of bookings provides some an indication of how our
    business is performing, we do not characterize our bookings, or
    our engagement contracts associated with new bookings, as
    backlog because our engagements generally can be cancelled or
    terminated on short notice or without notice. 32




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##### 




    Revenue Growth. Unlike bookings, which provide only a
    general sense of future expectations,
    period-over-period
    comparisons of revenue provide a meaningful depiction of how
    successful we have been in growing our business over time.
    Gross Margin (gross profit as a percentage of revenue).
    Gross margin is a meaningful tool for monitoring our ability to
    control costs. Analysis of the various cost elements, including
    foreign currency translation adjustments 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
    executing our business model. 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.
    Utilization. Utilization represents the percentage of
    time our consultants are performing work that is chargeable to a
    client, and is defined as total hours charged to client
    engagements divided by total available hours for any specific
    time period. In 2006, we modified the calculation to include the
    available hours of employees working on non-chargeable internal
    projects that had a general relationship to client matters,
    which will have the effect of lowering our reported utilization
    figure by an insignificant amount. We also plan to further
    modify this calculation in 2006 by excluding the holiday and
    paid vacation time for our employees from the available hours
    figure. This will have the effect of raising the utilization
    rate but will make our reporting of this metric more consistent
    with how we believe our industry peer group measures utilization.
    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 divided 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
    the Companys 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. Previously, we had provided attrition figures for our
    billable employees and did not take into account our
    non-consultant employees. Starting in 2006, we intend to provide
    attrition figures for all of our employees, which we believe
    provides metrics that are more compatible with, and comparable
    to, those of our competitors.    Fiscal
    2005 Highlights
   33




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##### 




    New contract bookings for fiscal 2005 were
    $3,130.7 million, a slight increase over new contract
    bookings of $3,105.6 million for fiscal 2004. New contract
    bookings increased in all three industry groups in North
    America, driven primarily by strong bookings in our Financial
    Services industry group, which offset decreased bookings in the
    EMEA, Asia Pacific and Latin America regions. New contract
    bookings for the nine months ended September 30, 2006 were
    approximately $2,429.2 million, compared with new contract
    bookings of $2,428.3 million for the nine months ended
    September 30, 2005.
    Our revenue for fiscal 2005 was $3,388.9 million,
    representing an increase of $13.1 million, or 0.4%, over
    fiscal 2004 revenue of $3,375.8 million.
    Our gross profit for fiscal 2005 was $358.0 million
    compared to $547.5 million for fiscal 2004. Gross profit as
    a percentage of revenue decreased to 10.6% during fiscal 2005
    from 16.2% during fiscal 2004. This decrease was primarily
    attributable to compensation expense of $76.2 million
    related to the vesting of certain restricted stock units and a
    $113.3 million loss recognized on the HT Contract, each of
    which is described below.
    We have a significant contract (the HT Contract)
    with Hawaiian Telcom Communications, Inc., a telecommunications
    industry client, under which we were engaged to design, build
    and operate various information technology systems for the
    client. We incurred losses of $113.3 million under this
    contract in fiscal 2005. The HT Contract has experienced delays
    in its build and deployment phases and contractual milestones
    have been missed. The client has alleged that we are responsible
    under the HT Contract to compensate it for certain costs and
    other damages incurred as a result of these delays and other
    alleged failures. We believe the clients nonperformance of
    its responsibilities under the HT Contract caused delays in the
    project and impacted our ability to perform, thereby causing us
    to incur significant damages. We also believe the terms of the
    HT Contract limit the clients ability to recover certain
    of their claimed damages. We are negotiating with the client to
    resolve these issues, apportion financial responsibility for
    these costs and alleged damages, and transition remaining work
    under the HT Contract to others, as requested by the client.
    During these negotiations, we are maintaining all of our
    options, including disputing the clients claims and
    asserting our own claims in litigation. At this time we cannot
    predict the likelihood that we will be able to resolve this
    dispute or the outcome of any litigation that might ensue if we
    are unable to resolve the dispute. Even if resolved, we could
    incur substantial additional losses under the HT Contract or
    agree to pay additional amounts to facilitate termination of the
    HT Contract. The incurrence of additional losses or the payment
    of additional amounts to the client could materially and
    adversely affect our profitability, results of operations or
    cash flow over the near term.
    For fiscal 2005, all of the material weaknesses in our internal
    control over financial reporting cited for fiscal 2004 remain.
    For information on the developments and progress made in fiscal
    2005, please see Item 9A, Controls and
    ProceduresRemediation of Material Weaknesses in Internal
    Control over Financing Reporting.
    We incurred selling, general and administrative expenses of
    $750.9 million in 2005, primarily attributable to our
    Finance & Accounting department. The primary
    contributor for the increase in this amount over fiscal 2004
    were costs for sub-contracted labor and other costs directly
    related to the issuance of our financial statements for fiscal
    years 2004 and 2005.
    Due to the continuing material weaknesses in our internal
    control over financial reporting, we continue to experience
    significant delays in completing our consolidated financial
    statements and filing periodic reports with the SEC on a timely
    basis. Consequently, we continue to devote substantial
    additional internal and external resources, and incur
    significantly higher than expected fees for audit services, in
    connection with completing our consolidated financial statements
    and restating our consolidated financial statements for prior
    years. During fiscal 2005, we incurred external costs related to
    these efforts of approximately $94.6 million, compared to
    approximately $30.0 million for fiscal 2004. We expect our
    costs for fiscal 2006 (through December 31,
    2006) related to these efforts to be approximately
    $127.4 million.
    In fiscal 2005, we realized a net loss of $721.6 million,
    or a loss of $3.59 per share, compared to a net loss of
    $546.2 million, or a loss of $2.77 per share, in
    fiscal 2004. Included in our results for fiscal 2005 were a
    $166.4 million goodwill impairment charge,
    $113.3 million of operating losses 34




---



##### 



related to the HT Contract, $81.8 million of non-cash
    compensation expense related to the vesting of RSUs, a
    $55.3 million increase in the valuation allowance primarily
    against our U.S. deferred tax assets, and
    $29.6 million of lease and facilities restructuring charges.  
    During fiscal 2005, we benefited from the continued improvement
    of key economic conditions in North America and increased
    spending on consulting services in strategically important
    markets, particularly within our Public Services and Financial
    Services industry groups. We also saw stabilization
    and/or
    improvement in key economic indicators in our international
    markets as well, particularly in Europe.
    Utilization for fiscal 2005 was 67.7%, as compared with 67.4% in
    fiscal 2004. We believe that utilization levels in fiscal 2005
    were affected, in part, by the demands placed on many of our
    consulting professionals to assist in preparing contracts to
    determine appropriate revenue recognition in light of the
    Companys material weaknesses relating to revenue
    recognition processes. Utilization for the nine months ended
    September 30, 2006 (based on the same method of calculation
    utilized for fiscal 2005) was 68.6%.
    In partial response to lower utilization rates, we rebalanced
    our workforce and recorded $33.4 million in charges for
    severance and termination benefits.
    At December 31, 2005, our DSOs stood at 94 days,
    representing a decrease of 9 days, or 9%, from our DSOs at
    December 31, 2004. Given our ongoing systems issues related
    to financial accounting for our North American operations, we
    are currently unable to calculate DSOs for dates later than
    December 31, 2005. We continue to focus on this metric
    during 2006 as we believe we are at a DSO level that is higher
    than the industry average, resulting in a suboptimal use of our
    cash.
    Free cash flow for fiscal 2005 was ($153.9) million. Net
    cash used in operating activities in fiscal 2005 was
    ($113.1) million. Purchases of property and equipment in
    2005 were ($40.8) million. When this amount is subtracted
    from net cash used in operating activities, the result is
    ($153.9) million, which is free cash flow. 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 (used in) operating activities. Given
    our ongoing systems issues related to financial accounting for
    our North American operations, we currently are unable to
    calculate free cash flow for dates later than December 31,
    2005. We expect our operating activities to use, rather than
    provide a source of, cash in fiscal 2006. We have also budgeted
    up to $65 million for purchases of property and equipment
    in fiscal 2006 which, if utilized, will place further demands on
    our cash. Our estimated cash balance (net of float) as of
    September 30, 2006 was approximately $274 million,
    which includes approximately $23 million of accumulated
    contributions under the ESPP.
    In 2005, we made great efforts to retain our best people in the
    face of the turbulence surrounding the restatement of certain of
    our prior years financial statements, publicity regarding
    changes in our management, issues surrounding our financial
    reporting and material weaknesses in our internal controls.
    During fiscal 2005, we granted approximately 13.4 million
    Retention RSUs (net of forfeitures) under our LTIP to our
    managing directors and other key employees. These grants were
    made to better align the interests of these employees with our
    shareholders and to enhance the retention of our managing
    directors. In fiscal 2005 we recorded non-cash stock
    compensation expense of $81.8 million related to the
    vesting of Retention RSUs, which significantly impacted both our
    gross profit and operating income for that fiscal year. For more
    information on these programs, see Managements
    Discussion and Analysis of Financial Condition and Results of
    OperationsOverview and Note 12,
    Stockholders Equity, of the Notes to
    Consolidated Financial Statements.
    As of December 31, 2005, we had approximately
    17,600 full-time employees, including approximately 15,400
    consulting professionals, which represented an increase in our
    billable headcount of approximately 5.5% over fiscal 2004. As of
    September 30, 2006, we had approximately
    17,400 full-time employees, including approximately 15,300
    consulting professionals.
    Our voluntary, annualized attrition rate for fiscal 2005 was
    25.3%, compared to 21.6% for fiscal 2004. We believe that
    attrition levels in fiscal 2005 were affected, in part, by the
    demands placed on many of our consulting professionals to assist
    in preparing contracts for review in connection with our
    financial closing process. While we expect the volume of these
    demands to decrease in fiscal 35




---



##### 



2006, we need to improve how we support this effort without
    placing undue burdens on our consulting professionals. Our
    voluntary, annualized attrition rate for the nine months ended
    September 30, 2006 was 26.7%.  
    Since February 2005, our management team has been significantly
    restructured, with 11 of 16 members having been replaced,
    including the Chief Executive Officer, Chief Financial Officer
    and General Counsel.
    In a highly competitive market, we believe client satisfaction
    is an important indicator of a companys ability to sustain
    strong relationships with key accounts. Each year, Forrester
    Research, Inc. conducts a survey of end users regarding their IT
    services buying plans, including client satisfaction. In
    Forresters July 2005 IT Services Scorecard for
    U.S. business and IT decision-makers, we led in terms of
    customer satisfaction among the 11 consulting and systems
    integration firms mentioned with a score of 3.07 (based on a
    scale of 1 to 4). In its May 2006 report, we continued to score
    positively with the end users of IT services with a score of
    3.00.
    In May 2006, the U.S. Defense Contract Audit Agency
    (DCAA) issued a report on its audit of our control
    environment and overall accounting systems controls, which audit
    began in fiscal 2005. The DCAA report concluded that our
    accounting system was inadequate in part, meaning
    that our system is adequate for government contracting, with the
    exception of certain items known as condition
    statements. The DCAA report contained four condition
    statements, the most material of which related to our failure to
    timely file our periodic reports with the SEC. The remaining
    three condition statements have been significantly or completely
    remediated. DCAA audits are periodic and ongoing. We expect that
    after the filing of this Annual Report on
    Form 10-K,
    the DCAA will audit our controls again and review the previously
    cited condition statements.
    During fiscal 2005, we completed a number of private securities
    offerings in an effort to improve our overall liquidity. We
    issued an additional $25.0 million aggregate principal
    amount of our Series A Debentures and $25.0 million
    aggregate principal amount of our Series B Debentures. We
    also issued an aggregate principal amount of $200.0 million
    of our April 2005 Senior Debentures and an aggregate principal
    amount of $40.0 million of our July 2005 Senior Debentures.
    In total, we received approximately $280.3 million in net
    proceeds from all of these offerings. For additional information
    regarding our debt restructuring, see Liquidity and
    Capital Resources and Note 6,
    Notes Payable, of the Notes to Consolidated
    Financial Statements.
    On October 6, 2006, Moodys downgraded our corporate
    family rating to B2 from B1 and the ratings for two of our
    subordinated convertible bonds series to B3 from B2, and placed
    our ratings on review for further downgrade. Separately, on
    April 22, 2005, Standard & Poors downgraded
    our senior unsecured rating to B− from BB with negative
    implications. These downgrades by Moodys and
    Standard & Poors followed downgrades by each of
    the rating agencies on December 15, 2004 and March 18
    and 21, 2005.  Principal
    Business Goals and Challenges for 2006 and Beyond
    Financial Reporting and Processes. Form 10-K Forms 10-Q.
   36




---



##### 



Strengthen our Business Model.
  
    Improving our service offerings and
    go-to-market
    strategy. We will continue to increase our investment in the
    development of superior solutions and insights, while working to
    improve our relationships with more senior and influential
    decision makers. In fiscal 2005, we established the BearingPoint
    Institute for Executive Insight to advance our thought
    leadership and facilitate the development of premium,
    higher-margin services. In fiscal 2006, we have started focusing
    our efforts and our resources devoted to developing, capturing
    and protecting re-usable intellectual property, methodologies
    and tools in a more disciplined fashion that will bring more
    value to our clients and increase our earnings from these
    important assets.
    Focusing on reducing our DSOs and improving operating cash
    flow. In order to achieve a meaningful reduction in DSOs, we
    have focused on this metric at all leadership levels of the
    Company and are working to increase the functionality of and
    training on financial systems to aid in the prompt generation of
    client invoices and account aging schedules. We have also
    modified the compensation structure of our senior managers and
    managing directors to include DSOs as a measure of performance.
    Reducing DSOs will improve our operating cash flow which will
    help to improve our credit rating, reduce our reliance on
    external borrowings and, potentially, increase our capacity to
    obtain performance and surety bonds and letters of credit needed
    to support our state and local contracting practices within our
    Public Services industry group. Given our ongoing systems issues
    related to financial accounting for our North American
    operations, we are currently unable to compute DSOs for dates
    later than December 31, 2005. Recognizing that our DSO
    levels are higher than industry averages, each of our business
    units has assembled teams of senior personnel who will
    specifically focus on accelerating the collection of each
    business units largest outstanding client balances in an
    effort to further reduce our DSOs for fiscal 2006.
    Improving engagement profitability. Early in fiscal 2005,
    we conducted a comprehensive portfolio review to assess the
    profitability of our services across our global business. Based
    on the results of this work, in fiscal 2006:  
    We are increasing our focus on projects that are larger and more
    profitable in nature and standardizing our approach to smaller
    projects so as to either increase their profitability or avoid
    adding them to our portfolio. Winning larger, more complex
    projects generally requires more business development costs and
    time. In the near-term, our interest in pursuing more larger,
    complex projects and relatively fewer smaller ones could impact
    our utilization and selling, general and administrative expenses.
    We are continuing efforts, begun in fiscal 2005, to reduce our
    presence
    and/or
    rationalize our operations in certain non-core and
    under-performing business areas.
    We are devoting significant attention to developing clear and
    specific operations procedures to be utilized within our
    industry groups and reinforcing deal review procedures to review 37




---



##### 



significant proposals and contracts for a number of factors,
    including profitability and engagement risk.  
    Improving the management of projects and reducing the cost of
    delivery. We are leveraging our workforce more effectively
    by improving the managing director to staff ratio on projects,
    while increasing the use of lower cost resources both offshore
    (China and India) and domestically (Hattiesburg, Mississippi) to
    support engagement work. We are implementing stricter criteria
    concerning the use of subcontractors in an effort to reduce our
    use of subcontractors and drive greater utilization of internal
    resources.
    Reducing the cost and improving the quality of our corporate
    services. In an effort to reduce our SG&A costs and
    improve service levels, in fiscal 2005 we launched a
    comprehensive review of all corporate services, including our
    finance support, real estate and occupancy, information
    technology, human resources, marketing and other functions. We
    are aggressively exploring cost reduction opportunities to move
    non-core administrative activities offshore, and we continue to
    make progress against our previously announced office space
    reduction program in order to reduce real estate costs. In early
    fiscal 2005, we essentially completed the transition of
    infrastructure and support services that were provided by KPMG.
    See Note 11, Commitments and Contingencies, and
    Note 14, Related Party Transactions, of the
    Notes to Consolidated Financial Statements.  Human Resources.
  People
    Initiatives  
    We are taking actions to raise the quality of our managing
    directors and are implementing a new compensation structure tied
    to new metrics to better evaluate managing director performance
    and to link rewards and advancement to accountability and
    corporate performance. Historically, our business model has
    rewarded revenue growth and utilization rather than
    profitability and we believe we must change this approach if we
    are to be successful, particularly among our managing directors.
    We want to continue to encourage non-managing director employee
    stock ownership and raise our levels of employee ownership to
    more appropriately align the interests of our employees with
    those of our shareholders. Our inability to issue freely
    tradable shares of our common stock under our ESPP continues to
    hinder these goals. However, we estimate that issuances of RSUs
    in fiscal years 2005 and 2006 will eventually raise the levels
    of employee ownership from approximately 2% to approximately 13%
    of our total shares outstanding when and if all of these RSUs
    vest. During fiscal 2006, we granted approximately
    6.9 million RSUs (net of forfeitures). However, the
    near-term value of our equity incentives remains uncertain, as
    we have not settled any RSUs or completed any stock purchases
    under our ESPP and will not, until we are current in our SEC
    filings. As of September 30, 2006, we had only
    9.9 million shares remaining available for award under our
    LTIP. Upon reaching that limit, we will be unable to make
    further equity awards until we have first obtained the consent
    of our shareholders at an annual meeting of our shareholders.
    For more information on these RSU grants and our BE an
    Owner program, see BusinessEmployees.  Structural
    Challenges  
    We learned, through a comprehensive review of corporate services
    and project management initiatives conducted in fiscal 2005,
    that we must become more efficient and coordinated in our
    efforts to recruit, train and utilize our professional services
    staff. Historically, we have faced challenges associated with
    transitioning employees from completed projects to new
    engagements, forecasting demand for our services, maintaining an
    appropriately balanced and sized workforce, and managing
    attrition. Our current staffing and, hence, recruiting efforts
    are managed on an industry group basis. We must continue to
    focus on improving both the processes and systems surrounding
    recruiting individuals with the right skill sets and globally
    staffing client engagements in the most efficient manner. We are
    beginning to implement firm-wide systems and procedures to
    provide better and more accurate knowledge of the demand for our
    skills and our ability to recruit and staff this demand
    efficiently by more closely aligning our senior personnel
    worldwide with our three industry- 38




---



##### 



specific industry groups. When combined with more robust
    training opportunities and venues for our employees, a goal we
    have established for fiscal 2007, we hope these efforts will
    improve both our utilization and workforce retention levels.  
    While we have made significant progress in more efficiently
    restructuring the composition of our employee workforce and
    delivery models, we must expand these efforts beyond 2006 to
    cover our operations in the Asia Pacific and EMEA regions. The
    speed with which we can complete these efforts will be affected
    by the existence of rigid labor and employment law regimes,
    particularly in several significant European markets.  Strengthen Our Compliance Framework.
    Segments
      Year
    Ended December 31, 2005 Compared to Year Ended
    December 31, 2004
  Revenue.
 39




---



##### 



Year Ended December 31,2005


2004


$ Change


% ChangeRevenuePublic Services

$
1,293,390


$
1,343,670


$
(50,280
)


(3.7
%)Commercial Services


663,797



654,022



9,775



1.5
%Financial Services


379,592



326,452



53,140



16.3
%EMEA


662,020



642,686



19,334



3.0
%Asia Pacific


312,190



328,338



(16,148
)


(4.9
%)Latin America


75,664



79,302



(3,638
)


(4.6
%)Corporate/Other


2,247



1,312



935



n/mTotal

$
3,388,900


$
3,375,782


$
13,118



0.4
%    Impact of


Revenue growthcurrency


(decline), net offluctuations


currency impact


TotalRevenuePublic Services


0.0
%


(3.7
%)


(3.7
%)Commercial Services


0.0
%


1.5
%


1.5
%Financial Services


0.0
%


16.3
%


16.3
%EMEA


0.1
%


2.9
%


3.0
%Asia Pacific


1.1
%


(6.0
%)


(4.9
%)Latin America


12.9
%


(17.5
%)


(4.6
%)Corporate/Other


n/m



n/m



n/mTotal


0.4
%


0.0
%


0.4
%     n/m = not meaningful
  
    Public Servicesrevenue decreased in fiscal 2005,
    primarily attributable to expected reductions of
    $33.8 million in revenue derived from our subcontractors
    and resales of procured materials (which we must bill our
    clients, thereby increasing our revenue) and revenue reductions
    of $10.0 million associated with two loss contracts, both
    of which more than offset increases in headcount and chargeable
    hours resulting from our expanding use of employees at lower
    average bill rates.
    Commercial Servicesrevenue increased in fiscal 2005,
    primarily driven by revenue growth with transportation clients
    and a significant contract with Hawaiian Telcom Communications,
    Inc., which was partially offset by revenue declines from
    certain of our clients in the manufacturing and high-tech
    industries.
    Financial Servicesrevenue increased in fiscal 2005,
    primarily due to revenue growth in all sectors, with especially
    strong growth in the Insurance and Global Market sectors.
    Revenue growth was principally due to an increase in demand for
    our services. Our average billing rates improved slightly
    year-over-year,
    as our ability to obtain higher rates per hour on certain of our
    market offerings offset the increasing use of lower-priced
    offshore personnel as a component of our overall pricing model.
    EMEArevenue increased in fiscal 2005, primarily due to
    combined revenue growth in France and the United Kingdom of
    $53.6 million, partially offset by a $29.8 million
    revenue decline in Germany. Our business in France experienced a
    significant shift into systems integration work, while revenue
    growth in the United Kingdom was driven by our continued
    expansion in that region. Revenue for Germany declined as a
    result of decreasing utilization caused by continued
    deterioration of market conditions in Germany which,
    consequently, led us to lower billable headcount. 40




---



##### 




    Asia Pacificrevenue decreased in fiscal 2005, driven
    primarily by decreasing demand for services in Japan and China
    and the planned elimination of subcontractor usage in the
    region, which more than offset the improved billing rates
    achieved across the region in fiscal 2005 due to significantly
    lower revenue write-offs during the year. Limited opportunities
    in Japan and China led to significant staff reductions and lower
    utilization rates in those countries.
    Latin Americarevenue increased in fiscal 2005, primarily
    as a function of the weakening of the U.S. dollar against
    local currencies in Latin America (particularly the Brazilian
    Real). The combined impact of these foreign currency
    fluctuations and modest revenue growth in Brazil offset
    significant declines in revenue in all other countries in which
    we operate in the region.
    Corporate/Other: Our Corporate/Other segment does not
    contribute significantly to our revenue.  Gross Profit.
  
    Professional compensation expense increased as a percentage of
    revenue to 52.2% for fiscal 2005, compared to 45.4% for fiscal
    2004. We experienced a net increase in professional compensation
    expense of $238.0 million, or 15.5%, to
    $1,770.4 million for fiscal 2005 from $1,532.4 million
    for fiscal 2004. The increase in professional compensation
    expense was primarily the result of hiring additional billable
    employees in response to overall market demand for our services.
    Additionally, $74.9 million of this amount was related to
    the vesting of Retention RSUs.
    Other direct contract expenses decreased as a percentage of
    revenue to 28.7% for fiscal 2005 compared to 29.4% for fiscal
    2004. We experienced a net decrease in other direct contract
    expenses of $18.7 million, or 1.9%, to $972.8 million
    for fiscal 2005 from $991.5 million for fiscal 2004. The
    change was driven primarily by reduced subcontractor expenses as
    a result of the increased use of internal resources.
    Other costs of service as a percentage of revenue decreased to
    7.6% for fiscal 2005 from 8.7% for fiscal 2004. We experienced a
    net decrease in other costs of service of $34.5 million, or
    11.8%, to $258.1 million for fiscal 2005 from
    $292.6 million for fiscal 2004. The decrease in fiscal 2005
    from fiscal 2004 was primarily due to the settlement costs of
    $36.9 million involving or related to certain legal actions
    involving Peregrine Systems, Inc. (see Item 3, Legal
    Proceedings,) included in our fiscal 2004 results.
    In fiscal 2005 we recorded, within the Corporate/Other operating
    segment, a charge of $29.6 million for lease and facilities
    restructuring costs, compared to an $11.7 million charge
    for lease and facilities restructuring costs in fiscal 2004.
    These costs for fiscal 2005 related to our previously announced
    reduction in office space primarily within the North America,
    EMEA and Asia Pacific regions. 41




---



##### 



Gross Profit by Segment.
  Year Ended December 31,2005


2004


$ Change


% ChangeGross ProfitPublic Services

$
238,904


$
290,582


$
(51,678
)


(17.8
%)Commercial Services


(11,142
)


129,784



(140,926
)


(108.6
%)Financial Services


110,602



101,075



9,527



9.4
%EMEA


87,702



96,236



(8,534
)


(8.9
%)Asia Pacific


53,636



31,063



22,573



72.7
%Latin America


4,321



13,454



(9,133
)


(67.9
%)Corporate/Other


(126,031
)


(114,670
)


(11,361
)


n/mTotal

$
357,992


$
547,524


$
(189,532
)


(34.6
%)   Year Ended December 31,2005


2004Gross Profit as a % of
    revenuePublic Services


18.5
%


21.6
%Commercial Services


(1.7
%)


19.8
%Financial Services


29.1
%


31.0
%EMEA


13.2
%


15.0
%Asia Pacific


17.2
%


9.5
%Latin America


5.7
%


17.0
%Corporate/Other


n/m



n/mTotal


10.6
%


16.2
%    n/m = not meaningful
    
    Public Servicesgross profit decreased in fiscal 2005, in
    large measure due to a $97.9 million increase in
    compensation expense (including non-cash compensation expense of
    $25.5 million relating to the vesting of Retention RSUs)
    and the $50.3 million reduction in gross revenue, which on
    a combined basis, more than offset significant reductions of
    $65.7 million in other direct contract expenses and
    $30.8 million in other costs of services.
    Commercial Servicesgross profit decreased in fiscal
    2005, as significantly higher gross revenue was eroded by
    significant cost overruns and loss accruals, most notably
    $113.3 million on the previously described HT Contract,
    which included increases in subcontractor expense accruals and
    hardware and software purchases that collectively increased our
    other direct contract expenses by $66.6 million which are
    substantially not recoverable. Significant increases in
    compensation expense, including non-cash compensation expense
    relating to the vesting of Retention RSUs, also contributed to
    the decrease in gross profit.
    Financial Servicesgross profit increased in fiscal 2005,
    as higher revenue across all sectors more than offset
    significant incremental increases in compensation expense
    related to a substantial increase in headcount, non-cash
    compensation expense relating to the vesting of Retention RSUs
    ($7.5 million) and additional cash bonuses
    ($3.0 million).
    EMEAgross profit decreased in fiscal 2005, as
    incremental increases in compensation expense due to severance
    costs associated with workforce realignments in Germany, France
    and Spain ($27.0 million) and non-cash compensation expense
    related to the vesting of the Retention RSUs
    ($13.8 million) more than offset increases in revenue. 42




---



##### 




    Asia Pacificgross profit increased substantially in
    fiscal 2005, despite a decrease in revenue due, in large
    measure, to significant demonstrated improvements in cost
    management and realization of contract revenue.
    Latin Americagross profit decreased in fiscal 2005, as
    increases in other direct contract expenses and compensation
    expense attributable to fringe benefits, non-cash compensation
    expense related to Retention RSUs and workforce realignments
    offset modest revenue growth in the region.
    Corporate/Otherconsists primarily of rent expense and
    other facilities related charges, which increased in fiscal 2005
    primarily due to the lease and facilities restructuring charges
    discussed above.  Amortization of Purchased Intangible Assets.
  Goodwill Impairment Charges.
  Selling, General and Administrative Expenses.
  Interest Income.
  Interest Expense.
  Loss on Early Extinguishment of Debt.
  Other Expense, net.
  Income Tax Expense.
  Net Income (Loss).
 43




---



##### 



Fiscal
    Year Ended December 31, 2004 Compared to Fiscal Year Ended
    June 30, 2003
  Revenue.
  Year Ended


Year EndedDecember 31,


June 30,2004


2003


$ Change


% ChangeRevenuePublic Services

$
1,343,670


$
1,099,619


$
244,051



22.2
%Commercial Services


654,022



887,527



(233,505
)


(26.3
%)Financial Services


326,452



240,791



85,661



35.6
%EMEA


642,686



567,880



74,806



13.2
%Asia Pacific


328,338



291,353



36,985



12.7
%Latin America


79,302



72,335



6,967



9.6
%Corporate/Other


1,312



(1,607
)


2,919



n/mTotal

$
3,375,782


$
3,157,898


$
217,884



6.9
%   Impact of


Revenue growthcurrency


(decline), net offluctuations


currency impact


TotalRevenuePublic Services


0.0
%


22.2
%


22.2
%Commercial Services


0.0
%


(26.3
%)


(26.3
%)Financial Services


0.0
%


35.6
%


35.6
%EMEA


17.8
%


(4.6
%)


13.2
%Asia Pacific


12.3
%


0.4
%


12.7
%Latin America


4.6
%


5.0
%


9.6
%Corporate/Other


n/m



n/m



n/mTotal


4.4
%


2.5
%


6.9
%    n/m = not meaningful
  
    Public Servicesrevenue increased in fiscal 2004,
    predominantly as a result of growth in the U.S. Federal
    business sector, driven by success on international engagements.
    Overall, our Public Services business unit experienced an
    increased demand for our services, despite client-driven and
    competitor-driven pricing pressures.
    Commercial Servicesrevenue decreased in fiscal 2004,
    primarily as result of the completion of several large contracts
    involving testing related to compliance with the 1996
    Telecommunications Act, a decline in technology spending, and
    increased pricing pressures.
    Financial Servicesrevenue increased in fiscal 2004,
    principally due to an increase in demand for our services,
    despite pricing pressures and a change in the business mix
    toward more technology-driven projects. 44




---



##### 




    EMEArevenue increased in fiscal 2004, primarily as a
    result of the favorable impact of the strengthening of foreign
    currencies (primarily the Euro) against the U.S. dollar.
    Local currency revenue growth suffered due to overcapacity in
    the marketplace and write-offs related to loss contracts.
    Asia Pacificrevenue increased in fiscal 2004, primarily
    as a result of the favorable impact of the strengthening of
    foreign currencies (primarily the Japanese Yen) against the
    U.S. dollar. Local currency revenue growth was flat, due to
    a number of fixed fee engagements that involved greater time and
    effort to deliver under our contractual arrangements than was
    initially planned.
    Latin Americarevenue increased in fiscal 2004, primarily
    due to an increase in demand for our services, partially offset
    by market pressures lowering our average billing rates,
    primarily in Mexico and Brazil. In addition, Latin America
    revenue was affected favorably in fiscal 2004 by the
    strengthening of foreign currencies against the U.S. dollar.
    Corporate/Other: Our Corporate/Other segment does not
    contribute significantly to our revenue.  Gross Profit.
  
    We experienced a net increase in professional compensation
    expense of $103.2 million to $1,532.4 million for
    fiscal 2004 from $1,429.2 million for fiscal 2003, in part
    as a result of an increase in headcount in response to overall
    market demand for our services.
    We experienced a net increase in other direct contract expenses
    of $248.4 million to $991.5 million for fiscal 2004
    from $743.1 million for fiscal 2003. This increase was
    mainly attributable to our increased use of subcontractors,
    particularly in the Public Services industry group and EMEA
    region.
    We experienced a net increase in other costs of service of
    $28.0 million to $292.6 million for fiscal 2004 from
    $264.6 million for fiscal 2003. The increase in dollar
    terms was primarily attributable to an increase in costs
    associated with the overall growth of our business over the
    period, net of savings achieved from our office space reduction
    efforts.
    During fiscal 2004, we recorded, within our Corporate/Other
    segment, a charge of $11.7 million for lease and facilities
    restructuring costs related to our previously announced
    reduction in office space, primarily within the North America,
    EMEA and Asia Pacific regions. During fiscal 2003, we recorded a
    $17.3 million charge for lease and facilities restructuring
    costs.  Gross Profit by Segment.
  Year Ended


Year EndedDecember 31,


June 30,2004


2003


$ Change


% ChangeGross ProfitPublic Services

$
290,582


$
348,187


$
(57,605
)


(16.5
%)Commercial Services


129,784



252,745



(122,961
)


(48.7
%)Financial Services


101,075



68,625



32,450



47.3
%EMEA


96,236



109,279



(13,043
)


(11.9
%)Asia Pacific


31,063



44,308



(13,245
)


(29.9
%)Latin America


13,454



21,211



(7,757
)


(36.6
%)Corporate/Other


(114,670
)


(140,604
)


25,934



n/mTotal

$
547,524


$
703,751


$
(156,227
)


(22.2
%)  45




---



##### 



Year Ended


Year EndedDecember 31,


June 30,2004


2003Gross Profit as a % of
    revenuePublic Services


21.6
%


31.7
%Commercial Services


19.8
%


28.5
%Financial Services


31.0
%


28.5
%EMEA


15.0
%


19.2
%Asia Pacific


9.5
%


15.2
%Latin America


17.0
%


29.3
%Corporate/Other


n/m



n/mTotal


16.2
%


22.3
%        
    Public Servicesgross profit decreased, principally due
    to the adverse impact of $35.9 million recorded in fiscal
    2004 in connection with expected settlements of various matters
    involving or related to Peregrine Systems, Inc. (see
    Item 3, Legal Proceedings,) and, to a lesser
    extent, write-offs on loss contracts. In addition, the increase
    in other direct contract expenses, which includes subcontractors
    and materials procurement relating to specific contracts,
    negatively impacted gross profit margin. Gross profit also
    decreased due to an increase in professional compensation as a
    percentage of net revenue.
    Financial Servicesgross profit increased, principally
    due to an increase in fiscal 2004 revenue of $85.7 million,
    or 35.6%, over fiscal 2003. In addition, other direct contract
    expenses decreased slightly to 17.0% as a percentage of revenue
    during fiscal 2004 from 18.0% as a percentage of revenue during
    fiscal 2003.
    Commercial Servicesgross profit decreased, principally
    due to a decline in revenue of $233.5 million resulting
    primarily from challenging economic conditions during the first
    six months of fiscal 2004 coupled with the completion of several
    large contracts involving testing related to compliance with the
    1996 Telecommunications Act.
    EMEAgross profit and gross profit decreased, primarily a
    result of an increase in professional compensation expense as a
    percentage of revenue in fiscal 2004 along with an increase in
    other direct contract expenses.
    Asia Pacificgross profit decreased, primarily as a
    result of lower than expected revenue in fiscal 2004 due to a
    decrease in our average billing rates, coupled with increases in
    both other direct contract expenses and professional
    compensation expense. Other direct contract expenses and
    professional compensation expense increased, mainly due to the
    overall growth of our business throughout the region, which
    caused an increase in the use of subcontractors and overall
    headcount when compared to fiscal 2003.
    Latin Americagross profit decreased, primarily due to a
    decrease in revenue during fiscal 2004 resulting from increased
    market pressures impacting our billing rates in Mexico and
    Brazil, which was offset by a reduction in our use of
    subcontractors during the last six months of fiscal 2004.  Amortization of Purchased Intangible Assets.
 46




---



##### 



Goodwill Impairment Charge.
  Selling, General and Administrative Expenses.
  Loss on Early Extinguishment of Debt.
  Income Tax Expense.
  Net Income (Loss).
  Six
    Months Ended December 31, 2003 Compared to Six Months Ended
    December 31, 2002
  Revenue.
 47




---



##### 



Six Months Ended


Six Months EndedDecember 31,


December 31,2003


2002


$ Change


% ChangeRevenuePublic Services

$
562,372


$
540,048


$
22,324



4.1
%Commercial Services


343,407



463,315



(119,908
)


(25.9
%)Financial Services


118,528



118,199



329



0.3
%EMEA


288,994



271,023



17,971



6.6
%Asia Pacific


159,482



127,290



32,192



25.3
%Latin America


46,593



29,842



16,751



56.1
%Corporate/Other


3,127



546



2,581



n/mTotal

$
1,522,503


$
1,550,263


$
(27,760
)


(1.8
%)   Revenue growthImpact of currency


(decline), net offluctuations


currency impact


TotalRevenuePublic Services


0.0
%


4.1%



4.1%Commercial Services


0.0
%


(25.9%
)


(25.9%
)Financial Services


0.0
%


0.3%



0.3%EMEA


15.3
%


(8.7%
)


6.6%Asia Pacific


10.5
%


14.8%



25.3%Latin America


8.8
%


47.3%



56.1%Corporate/Other


n/m



n/m



n/mTotal


3.7
%


(5.5%
)


(1.8%
)     
    Public Servicesrevenue increased during the six months
    ended December 31, 2003, predominantly as a result of
    growth in the U.S. Federal business sector, driven by
    success on international engagements undertaken for
    U.S. government agencies. Revenue for our State,
    Local & Education (SLED) business sector decreased due
    to the impact of state budget and spending constraints. Overall,
    our Public Services business unit experienced increases in both
    engagement hours and billing rates despite both client-driven
    and competitor-driven pricing pressures.
    Commercial Servicesrevenue decreased during the six
    months ended December 31, 2003, primarily as a result of
    challenging economic conditions that led to a decrease in
    technology spending as well as the completion of several large
    contracts involving testing related to compliance with the 1996
    Telecommunications Act and the cancellation of two of our larger
    accounts. While engaged on compliance testing contracts, certain
    clients decided to curtail our involvement in non-compliance
    related projects. In addition, pricing pressures within the
    Commercial Services industry resulted in a decrease in billing
    rates.
    Financial Servicesrevenue increased during the six
    months ended December 31, 2003, principally due to an
    increase in engagement hours, despite a decline in billing
    rates. We experienced a decline in our Global Markets sector,
    which was offset by significant growth in our Banking &
    Insurance sector.
    EMEArevenue increased during the six months ended
    December 31, 2003, due to a strengthening of foreign
    currencies (primarily the Euro) against the U.S. dollar.
    Local currency revenue decreased as a result of adverse changes
    in the business climate within certain of our EMEA operations.
    In response to this trend, we completed a reduction in workforce
    during the six months ended December 31, 48




---



##### 



2003, resulting in an increase in utilization of approximately
    5.6% for the six months ended December 31, 2003 when
    compared to the six months ended December 31, 2002.  
    Asia Pacificrevenue increased during the six months
    ended December 31, 2003, primarily driven by strong
    bookings in Japan, the strengthening of foreign currencies
    against the U.S. dollar and the continued integration of
    acquisitions made during the six months ended December 31,
    2002 throughout the region. We experienced improvement in our
    performance within Greater China, and continued to focus on the
    emerging economies of Southeast Asia such as Thailand, Malaysia
    and Singapore. Revenue for Korea, Australia and New Zealand for
    the six months ended December 31, 2003 remained consistent
    with revenue for the six months ended December 31, 2002 due
    to difficult market conditions within those countries, which
    negatively impacted IT spending.
    Latin Americarevenue (in U.S. dollars) increased
    during the six months ended December 31, 2003, primarily
    due to the positive impact of the acquisitions made during the
    first quarter of fiscal 2003, as well as increased volume within
    Mexico and Brazil. This increase was reflected in a strong
    growth in engagement hours, while our utilization improved
    slightly and our billing rate per hour in the region increased
    modestly, despite increased pricing pressure within this market.
    Currency exchange-rate fluctuations had a moderately positive
    impact on our Latin America operations during the six months
    ended December 31, 2003 as compared to the six months ended
    December 31, 2002.
    Corporate/Other: Our Corporate/Other segment does not
    contribute significantly to our revenue.  Gross Profit.
  
    We experienced a net increase in professional compensation of
    $3.8 million to $694.9 million for the six months
    ended December 31, 2003, from $691.1 million for the
    six months ended December 31, 2002. Professional
    compensation expense for the six months ended December 31,
    2003 included a $13.6 million charge related to a reduction
    in workforce recorded during the period, which was significantly
    offset by savings achieved through our workforce reduction
    actions.
    We experienced a net increase in other direct contract expenses
    of $44.6 million to $396.4 million for the six months
    ended December 31, 2003 from $351.8 million for the
    six months ended December 31, 2002. The $44.6 million
    increase in other direct contract expenses was mainly
    attributable to our increased use of subcontractors and higher
    levels of materials procurement, particularly in both the Public
    Services and EMEA business units. The increase in other direct
    contract expenses, including the cost of subcontractors, has
    negatively impacted our gross profit, as the cost of
    subcontractors is generally more expensive than the cost of our
    own workforce. We are focused on limiting the use of
    subcontractors whenever possible, working to increase our
    margins by complementing our solutions offerings with greater
    offshore capabilities and increasing our hiring in order to
    balance our skill base with the market demand for our services.
    We experienced a net decrease in other costs of service of
    $8.7 million to $130.0 million for the six months
    ended December 31, 2003 from $138.7 million for the
    six months ended December 31, 2002. This decrease was
    primarily attributable to savings achieved as a result of our
    office space reduction efforts.
    During the six months ended December 31, 2003, we recorded,
    within the Corporate/Other operating segment, a charge of
    $61.4 million for lease and facilities restructuring costs
    related to our previously announced reduction in office space,
    primarily within the North America, EMEA and Asia Pacific
    regions. We reduced our overall office space in an effort to
    eliminate excess capacity and to align our office space usage
    with our current workforce and the needs of the business. The
    $61.4 million lease and facilities restructuring charge
    included $46.3 million related to the fair value of future
    lease obligations (net of estimated sublease income),
    $7.4 million representing the unamortized cost of fixed
    assets and $7.7 million in other costs associated with
    exiting facilities. 49




---



##### 



Gross Profit by Segment.
  Six Months Ended


Six Months EndedDecember 31,


December 31,2003


2002


$ Change


% ChangeGross ProfitPublic Services

$
176,207


$
178,372


$
(2,165
)


(1.2
%)Commercial Services


83,718



133,776



(50,058
)


(37.4
%)Financial Services


34,827



34,042



785



2.3
%EMEA


28,380



67,189



(38,809
)


(57.8
%)Asia Pacific


31,420



17,206



14,214



82.6
%Latin America


8,001



8,670



(669
)


(7.7
%)Corporate/Other


(122,735
)


(72,829
)


(49,906
)


n/mTotal

$
239,818


$
366,426


$
(126,608
)


(34.6
%)   Six Months Ended


Six Months EndedDecember 31,


December 31,2003


2002Gross Profit as a % of
    revenuePublic Services


31.3
%


33.0
%Commercial Services


24.4
%


28.9
%Financial Services


29.4
%


28.8
%EMEA


9.8
%


24.8
%Asia Pacific


19.7
%


13.5
%Latin America


17.2
%


29.1
%Corporate/Other


n/m



n/mTotal


15.8
%


23.6
%       
    Public Servicesgross profit decreased during the six
    months ended December 31, 2003, principally due to a
    $33.8 million increase in other direct contract expenses as
    a result of our increased use of subcontractors and materials
    procurement relating to specific engagements, coupled with a
    $2.8 million increase in compensation expense, which included a
    $1.0 million reduction in workforce charge. Although we
    require subcontractors to handle specific requirements on some
    engagements, the majority of our use of subcontractors is not a
    skill-set issue, as many times clients mandate the use of
    certain contractors.
    Commercial Servicesgross profit decreased during the six
    months ended December 31, 2003, principally due to the
    completion in 2002 of several large contracts that involved
    testing related to compliance with the 1996 Telecommunications
    Act. The decline in gross profit was also due to the decrease in
    revenue resulting from the challenging economic conditions and
    cautious IT spending as mentioned above. In addition, gross
    profit for the six months ended December 31, 2003 was
    impacted by a $4.6 million charge related to our reduction
    in workforce.
    Financial Servicesgross profit increased during the six
    months ended December 31, 2003, principally due to a
    $0.6 million increase in professional compensation expense,
    which included a $0.4 million charge related to our
    reduction in workforce.
    EMEAgross profit decreased during the six months ended
    December 31, 2003, primarily a result of an increase in
    other direct contract expenses due to increased use of
    subcontractors and a $4.4 million charge related to our
    reduction in workforce during the six months ended
    December 31, 2003. The 50




---



##### 



increase in our use of subcontractors was a result of our need
    to contract for certain types of skills in order to meet client
    requirements.  
    Asia Pacificgross profit increased during the six months
    ended December 31, 2003, primarily as a result of several
    factors including the improvement in utilization of our
    personnel resulting in a reduction in professional compensation
    expense as a percentage of revenue and a reduction in other
    costs of services due to tight spending controls imposed during
    the six months ended December 31, 2003. This improvement
    was partially offset by a $0.5 million workforce reduction
    charge recorded in the six months ended December 31, 2003.
    Latin Americagross profit decreased during the six
    months ended December 31, 2003, primarily as a result of
    our increased use of subcontractors at key clients to satisfy
    the demands resulting from our revenue growth discussed above.
    In addition, a $0.3 million workforce reduction charge
    recorded in the six months ended December 31, 2003
    negatively impacted gross profit.  Amortization of Purchased Intangible Assets.
  Goodwill Impairment Charge.
  Selling, General and Administrative Expenses.
  Income Tax Expense.
  Net Income (Loss).
 51




---



##### 



Obligations
    and Commitments
    Payment due by periodLess than








AfterContractual Obligations

Total


1 year


1-3 years


3-5 years


5 yearsLong-term debt (1)

$
1,173,419


$
31,064


$
49,584


$
89,271


$
1,003,500Operating leases


388,202



84,519



134,234



98,593



70,856Unconditional purchase obligations
    (2)


115,720



52,590



61,651



1,479



Obligations under the pension and
    postretirement medical plans


48,051



3,173



10,462



6,748



27,668Reduction in workforce


345



345











Total

$
1,725,737


$
171,691


$
255,931


$
196,091


$
1,102,024   (1)
    
    Long-term debt includes both
    principal and interest scheduled payment obligations.(2)
    
    Unconditional purchase obligations
    include material agreements to purchase goods or services,
    principally software and telecommunications services, that are
    enforceable and legally binding and that specify all significant
    terms, including: fixed or minimum quantities to be purchased;
    fixed, minimum or variable price provisions; and the approximate
    timing of the transaction. Unconditional purchase obligations
    exclude agreements that are cancelable without penalty.  Liquidity
    and Capital Resources
    Year ended December 31,


2005 to 20042005


2004


2003


ChangeNet cash provided by (used in):Operating activities

$
(113,071
)

$
48,265


$
159,875


$
(161,336
)Investing activities


(141,043
)


(109,387
)


(103,055
)


(31,656
)Financing activities


274,152



176,538



(24,428
)


97,614Effect of exchange rate changes on
    cash and cash equivalents


(9,508
)


6,919



6,616



(16,427
)Net increase in cash and cash
    equivalents

$
10,530


$
122,335


$
39,008


$
(111,805
)   Operating Activities.
    Investing Activities.
 52




---



##### 



Financing Activities.
    Additional
    Cash Flow Information
  Fiscal 2006.
     53




---



##### 



Outlook.
      and/or
 54




---



##### 



Debt
    Obligations
    Balance





Discounts on








BalanceDecember 31,





Senior








December 31,2004


Borrowings


Debentures (a)


Repayments


Other (b)


2005Convertible debentures

$
400,000


$
290,000


$
(23,361
)

$



$
1,415


$
668,054Yen-denominated term loan
    (January 31, 2003)


9,724











(6,089
)


(832
)


2,803Yen-denominated term loan
    (June 30, 2003)


4,863











(2,891
)


(570
)


1,402Yen-denominated line of
    credit (c)


7,795











(6,796
)


(999
)


Other


844



2,874







(1,209
)


(8
)


2,501Total notes payable

$
423,226


$
292,874


$
(23,361
)

$
(16,985
)

$
(994
)

$
674,760   Balance











BalanceDecember 31,











December 31,2003


Borrowings


Repayments


Other (b)


2004Convertible subordinated debentures

$



$
400,000


$



$



$
400,000PNC revolving line of credit


4,000



1,122,650



(1,126,650
)






Senior notes


220,000







(220,000
)






Yen-denominated term loan
    (January 31, 2003)


15,538







(6,230
)


416



9,724Yen-denominated term loan
    (June 30, 2003)


7,769







(3,115
)


209



4,863Yen-denominated line of
    credit (c)






9,190



(1,890
)


495



7,795Other


921



9



(86
)






844Total notes payable

$
248,228


$
1,531,849


$
(1,357,971
)

$
1,120


$
423,226    (a)
    
    Amount represents a discount to the
    $40,000 principal amount of the July 2005 Senior Debentures(b)
    
    Other changes in notes payable
    consist of amortization of notes payable discount and foreign
    currency translation adjustments.(c)
    
    Yen-denominated line of credit was
    terminated on December 16, 2005.    
    On January 5, 2005, we issued an additional
    $25.0 million of our Series A Debentures and an
    additional $25.0 million of our Series B Debentures
    upon the exercise in full of the option granted to the initial
    purchasers of the Subordinated Debentures. The net proceeds from
    the sale of these Subordinated Debentures were approximately
    $48.6 million. We used the net proceeds from the offering
    for general corporate purposes.
    On April 27, 2005, we issued $200.0 million in
    aggregate principal amount of our April 2005 Senior Debentures.
    The net proceeds from the sale of these debentures were
    approximately $192.8 million. We used the net proceeds from
    the offering to replace the working capital used to
    collateralize letters of credit under our 2004 credit facility,
    which has been discontinued, to support letters of credit and
    surety bonds otherwise relating to our state and local business,
    and for general corporate purposes.
    On July 15, 2005, we issued $40.0 million in aggregate
    principal amount of our July 2005 Senior Debentures due July
    2010 and the July 2005 Warrants to purchase up to
    3.5 million shares of our common stock. The net proceeds
    from the sale of these debentures and warrants were
    approximately $38.9 million. We used the net proceeds from
    the offering for general corporate purposes.   55




---



##### 



Debt
    Ratings
      2005
    Credit Facility
         56




---



##### 




    The financial covenantsinclude: (i) a minimum
    U.S. cash collections covenant and (ii) a maximum
    trailing twelve-month capital expenditures covenant; and
    (iii) if we do not maintain a certain amount of minimum
    borrowing availability, a quarterly increasing minimum trailing
    twelve-month EBITDA covenant and a decreasing maximum leverage
    ratio.
    The affirmative covenantsinclude:    
    this Annual Report on
    Form 10-K
    by November 30, 2006;
    the
    Forms 10-Q
    for the quarters ended March 31, June 30, and
    September 30, 2005 by the earlier of two months after the
    date we file this Annual Report on
    Form 10-K
    and January 31, 2007;
    the
    Forms 10-Q
    for the quarters ended March 31 and June 30, 2006 by
    February 28, 2007;
    the
    Form 10-Q
    for the quarter ended September 30, 2006 to March 31,
    2007; and  i.e.
  
    The negative covenantsrestrict certain of our corporate
    activities, including, among other things, our ability to make
    acquisitions or investments, make capital expenditures, repay
    other indebtedness, merge or consolidate with other entities,
    dispose of assets, incur additional indebtedness, pay dividends,
    create liens, make investments (including limitations on loans
    to our foreign subsidiaries) settle litigation and engage in
    certain transactions with affiliates.
    The events of defaultinclude, among others, defaults
    based on: certain bankruptcy and insolvency events; nonpayment;
    cross-defaults to other debt; payments in respect of judgments
    against us in excess of $18.0 million; breach of specified
    covenants; change of control; termination of trading of our
    stock; material inaccuracy of representations and warranties;
    failure to timely deliver audited financial statements;
    inaccuracy of the borrowing base; the prohibition on restraint
    on our or any loan party from conducting its business in any
    manner that has or could reasonably be expected to result in a
    material adverse effect because of any ruling, decision or order
    of a court or governmental authority; and indictment, conviction
    or the commencement of criminal proceedings of or against us or
    any subsidiary pursuant to which (a) either damages or
    penalties could be in excess of $5.0 million or
    (b) such indictment could reasonably be expected to result
    in a material adverse effect.     57




---



##### 



Discontinued
    Credit Facilities
       58




---



##### 



Guarantees
    and Indemnification Obligations
    Critical
    Accounting Policies and Estimates
      Basis
    of Presentation and Consolidation
      Revenue
    Recognition
   59




---



##### 



time-and-materials,
  percentage-of-completion (SOP 81-1). percentage-of-completion percentage-of-completion percentage-of-completion percentage-of-completion
    Issue 00-21, percentage-of-completion SOP 81-1, and/or
  out-of-pocket
   60




---



##### 



Valuation
    of Accounts Receivable
    Valuation
    of Goodwill
           61




---



##### 



Accounting
    for Income Taxes
     62




---



##### 



Valuation
    of Long-Lived Assets
    Accounting
    for Leases
   63




---



##### 



Restructuring
    Charges
  and/or
  Legal
    Contingencies
    Retirement
    Benefits
     64




---



##### 



Accounting
    for Stock Based Compensation
      Accounting
    for Intercompany Loans
    Accounting
    for Employee Global Mobility and Tax Equalization
    Recently
    Issued Accounting Pronouncements
   65




---



##### 



66




---



##### 



ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    Interest
    Rate Risk
      Expected Maturity DateYear ended December 31,(In thousands U.S. Dollars, except interest rates)2006


2007


2008

2009

2010


Thereafter


Total


Fair ValueJapanese Yen Functional CurrencyThird party Japanese Yen
    denominated debtvariable rate


4,205





















4,205



4,205Average interest rate


1.50
%




















1.50
%Euro Functional
    CurrencyGermany


989





















989



989Average fixed interest rate


2.25
%




















2.25
%U.S. Dollar Functional CurrencySeries A Convertible
    Subordinated Debentures




















250,000



250,000



231,250Average fixed interest rate




















3.00
%


3.00
%U.S. Dollar Functional CurrencySeries B Convertible
    Subordinated Debentures




















200,000



200,000



186,500Average fixed interest rate




















3.25
%


3.25
%U.S. Dollar Functional CurrencySeries C Convertible
    Subordinated Debentures




















200,000



200,000



267,000Average fixed interest rate




















5.25
%


5.25
%U.S. Dollar Functional CurrencyConvertible Senior Subordinated
    Debentures
















18,054







18,054



46,636Average fixed interest rate
















0.75
%






0.75
%U.S. Dollar Functional Currency


1,199



313

















1,512



1,512Average fixed interest rate


5.60
%


5.60
%
















5.60
%  67




---



##### 



Foreign
    Currency Exchange Risk
    non-U.S. dollars
  ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  Page F-1,
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE    ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Form 10-K, Rules 13a-15(e) 15d-15(e)
 68




---



##### 



Form 10-K
  re-performance
  Form 10-K.
  Form 10-K
  Managements
    Report on Internal Control over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
  Form 10-K. Internal
    ControlIntegrated Framework
   69




---



##### 



1.
  
    Senior management did not establish and maintain a proper tone
    as to internal control over financial reporting. Specifically,
    senior management did not emphasize, through consistent
    communication, the importance of internal control over financial
    reporting and adherence to the code of business conduct and
    ethics.
    We did not maintain a sufficient complement of personnel, either
    in our corporate offices or foreign locations with an
    appropriate level of knowledge, experience and training in the
    application of GAAP and in internal control over financial
    reporting commensurate with our financial reporting requirements.
    We did not maintain and communicate sufficient formalized and
    consistent finance and accounting policies and procedures. We
    also did not maintain effective controls designed to prevent or
    detect instances of non-compliance with established policies and
    procedures specifically with respect to the application of
    accounting policies at foreign locations.
    We did not enforce the consistent performance of manual controls
    designed to complement system controls over our North American
    financial accounting system. As a result, transactions and data
    were not completely and accurately recorded, processed and
    reported in the financial statements.
    We did not maintain adequate controls to ensure that employees
    could report actual or perceived violations of our policies and
    procedures. In addition, we did not have sufficient procedures
    to ensure the appropriate notification, investigation,
    resolution and remediation procedures were applied to reported
    violations.    2.
  
    We did not maintain formal, written policies and procedures
    governing the financial close and reporting process.
    We did not maintain effective controls to ensure that management
    oversight and review procedures were properly performed over the
    accounts and disclosures in our financial statements. In
    addition, we did not maintain effective controls to ensure
    adequate management reporting information was available to
    monitor financial statement accounts and disclosures.
    We did not maintain effective controls over the recording of
    recurring and non-recurring journal entries. Specifically,
    effective controls were not designed and in place to provide
    reasonable assurance that journal entries were prepared with
    sufficient supporting documentation and reviewed and approved to
    ensure the completeness and accuracy of the entries recorded.
    We did not maintain effective controls to provide reasonable
    assurance that accounts were complete and accurate and agreed to
    detailed support and that reconciliations of accounts were
    properly performed, reviewed and approved.
    We did not maintain effective controls to provide reasonable
    assurance that foreign currency translation amounts resulting
    from intercompany loans were accurately recorded and reported in
    the consolidated financial statements.   70




---



##### 



3.
  
    We did not design and maintain effective controls to provide
    reasonable assurance over the initiation, recording, processing,
    and reporting of customer contracts, including the existence of
    and adherence to policies and procedures, adequate segregation
    of duties and adequate monitoring by management.
    We did not design and maintain effective controls to provide
    reasonable assurance that contract costs, such as engagement
    subcontractor costs, were completely and accurately accumulated.
    We did not design and maintain effective controls to provide
    reasonable assurance that we adequately evaluated customer
    contracts to identify and provide reasonable assurance regarding
    the proper application of the appropriate method of revenue
    recognition in accordance with GAAP.
    We did not design and maintain effective controls to provide
    reasonable assurance regarding the completeness of information
    recorded in the financial accounting system. Specifically, we
    did not design and have in place effective controls to provide
    reasonable assurance that invoices issued outside of the
    financial accounting system were appropriately recorded in the
    general ledger. As a result, we did not ensure that cash
    received was applied to the correct accounts in the appropriate
    accounting period.  4.
  5.
  6.
  7.
  8.
 71




---



##### 



9.
  
    We did not design and maintain effective controls over the
    accuracy and completeness of the components of our income tax
    provision calculations and related reconciliation of our income
    tax payable and of differences between the tax and financial
    reporting basis of our assets and liabilities with our deferred
    income tax assets and liabilities. We also did not maintain
    effective controls to identify and determine permanent
    differences between our income for tax and financial reporting
    income purposes.
    We did not maintain effective controls, including monitoring,
    over the calculation and recording of foreign income taxes,
    including tax reserves, acquired tax contingencies associated
    with business combinations and the income tax impact of foreign
    debt recapitalization. In addition, we did not maintain
    effective controls over determining the correct foreign
    jurisdictions or tax treatment of certain foreign subsidiaries
    for United States tax purposes.
    We did not design and maintain effective controls over
    withholding taxes associated with interest payable on
    intercompany loans and intercompany trade payables between
    various tax jurisdictions.    Internal ControlIntegrated Framework
  Form 10-K.
  Remediation
    of Material Weaknesses in Internal Control over Financial
    Reporting
    
    We significantly strengthened our executive management team,
    including the appointment of a GAAP Policy Group
    (Q4 05), Corporate Tax Director (Q1 06) &
    Assistant Corporate Tax Director (Q1 06), General Counsel
    (Q2 06), Treasurer (Q2 06), Director of Internal Audit
    (Q2 06), Chief Risk Officer (Q2 06), Chief Compliance
    Officer (Q2 06), and Chief Information Officer
    (Q2 06). We also hired a Senior Controller within our
    Public Service line of business (Q1 06). Additionally, we
    replaced the regional and certain country-level leaders in our
    Asia Pacific region.
    We have strengthened our ongoing communication by senior
    management of the importance of adherence to internal controls
    and company policies. We established a worldwide
    policies & procedures program management office in
    September 2005. This function is housed within the Office of the
    Chief Compliance Officer, as a component of the Companys
    overall remediation 72




---



##### 



efforts. It is designed to govern policies and procedures across
    the Company and to increase employee understanding of and
    compliance with policies and procedures. We have established a
    policy management methodology. We are also standardizing global
    policies and developing a library and supporting technology to
    provide employees a single access point for all Company policies
    and procedures, and we are striving to achieve improved
    operational efficiencies and compliance with those established
    policies and procedures.  
    During the second quarter of fiscal 2006 we began to implement
    certain initiatives in relation to the identification and
    monitoring of employees working away from their principal
    residence for extended periods of time. We commenced planning,
    designing and implementing new processes, adding new people,
    training employees, and building/buying new technology all of
    which is expected to assist in this initiative. In addition
    these actions will allow for the improved accuracy of the
    related compensation expense and income tax liability
    attributable to both the individual employee and the Company.
    During the second quarter of fiscal 2005 and continuing into
    fiscal 2006, we began implementing a finance transformation
    program. This program is designed to develop and implement
    remediation strategies to address the material weaknesses,
    improve operational performance of our finance and accounting
    processes and underlying information systems, establish greater
    organizational accountability and lines of approval, and develop
    an organizational model that better supports our redesigned
    processes and operations. In the second quarter of fiscal 2006,
    we began designing and implementing a revised closing procedure.
    The procedures are designed to improve the closing process in an
    effort to allow us to meet our filing requirements on a timely
    basis, as well as improve the accuracy of the financial
    information.
    During fiscal 2005, we substantially improved our compliance
    hotline. Specifically, we continue to improve our investigative
    procedures surrounding the detection and resolution of internal
    control overrides. Third-party legal and accounting resources
    have also been retained to perform in depth reviews of issues in
    a timely manner. Additionally, remediation activities have been
    undertaken in response to senior management and Audit Committee
    investigations of internal control overrides.
    We continue to dedicate substantial resources (employees and
    outside accounting professionals and consultants) to our
    finance, accounting and tax departments. The number of resources
    in this area has substantially increased during the first three
    quarters of fiscal 2006. We continue to recognize the changing
    requirements of our business and the regulatory environment. We
    continue to manage the required competencies through staff
    increases and executive management involvement in the day to day
    operations of the Company.
    During the fourth quarter of fiscal 2005 we began to implement,
    and throughout fiscal 2006 the Company deployed, a significant
    Program Control function, currently consisting of approximately
    200 professionals, designed to support the completeness and
    accuracy of project accounting details in North America. This
    function is comprised of individuals with a mix of experience in
    accounting, government contracting, auditing, and controlling
    functions. This function will actively support the proper and
    timely evaluation of contracts using comprehensive revenue
    recognition guidance checklists with additional support provided
    by the Companys GAAP Policy group for complex evaluations.
    The Program Control function will also support the timely
    assembly and review of revenue and other cost elements as part
    of the Companys quarterly update of each contracts
    estimate to complete, estimate at complete, revenue, accounts
    receivable, unbilled revenue, and deferred revenue.
    During the first quarter of fiscal 2006, the Company completed
    the design and development of an application to automate the
    comprehensive review of contract and project
    set-up data
    within the accounting system. The application is undergoing user
    acceptance testing and will be deployed thereafter. Combined
    with other process changes, enhanced controls, workflow and
    reporting this application will improve the overall accuracy and
    timely update of contract and project data in North America.
    During fiscal 2005, we provided additional training materials to
    certain US employees regarding the estimate to complete
    process. Our Public Services Business Unit also continues to
    conduct government compliance training for all employees
    including timekeeping certification.
    During the first quarter of fiscal 2006, the Company began to
    design, develop, and deploy an application referred to as the
    Project Control Workbench. Combined with other
    process changes, enhanced 73




---



##### 



controls, and reporting, this application will improve the
    accuracy and timeliness of submission of project accounting data
    needed for
    estimate-to-complete,
    and revenue recognition in North America.  
    In the third quarter of fiscal 2006, we implemented an
    Engagement Financial Management Toolkit. This web-based
    initiative is designed to provide North America employees with
    key forms, policies, training, and reference materials to assist
    in both compliance with standard policies and procedures.
    During the third quarter of fiscal 2006 we implemented on a
    pilot basis, and will fully implement in the fourth quarter of
    fiscal 2006, an
    E-Invoicing
    system for supplier billing in North America in order to
    systematically receive supplier invoices, track, process, and
    record amounts due to vendors, including subcontractors. The
    application will enable the timely recording, tracking, and
    processing of outstanding supplier obligations in North America.    Changes
    in Internal Control over Financial Reporting
    ITEM 9B.
    OTHER INFORMATION
  Form 8-K
       74




---



##### 



not
   75




---



##### 



PART III.
  ITEM 10.
    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    Directors
    Whose Terms Would Have Expired in 2005
  Wolfgang Kemna
  Albert L. Lord
  J. Terry Strange
  Directors
    Whose Terms Expire in 2006
  Roderick C. McGeary
  Alice M. Rivlin
  Harry L. You
 76




---



##### 



Directors
    Whose Terms Expire in 2007
  Douglas C. Allred
  Betsy J. Bernard
  Spencer C. Fleischer
    Director
    Independence
     77




---



##### 



Presiding
    Director of Executive Sessions of Non-Management
    Directors
    Audit
    Committee
    Communications
    with Board of Directors
          1-800-206-4081 240-864-0229
  Section 16(a)
    Beneficial Ownership Reporting Compliance
    Code
    of Ethics
  www.bearingpoint.com.
 78




---



##### 



Committee
    Charters
  www.bearingpoint.com.
  Annual
    Certifications
    ITEM 11.
    EXECUTIVE COMPENSATION
  Summary
    Compensation Table
    Long-Term CompensationAnnual Compensation


Restricted


SecuritiesFiscal








Other


Stock Unit


Underlying


All OtherName

Year


Salary (1)


Bonus (1)


Compensation


Awards (2)


Options (#) (2)


CompensationHarry L. You (3)


2005


$
585,938


$
1,000,000


$
178,481


$
6,555,500



2,000,000


$
2,099,999Chief Executive Officer


2004























2003
(4)






















2003























Roderick C. McGeary (5)


2005



750,000



















Chairman of the Board and


2004



102,273



















Former Chief Executive


2003
(4)






















Officer


2003























David W. Black (6)


2005



450,000











383,987







Former Executive Vice


2004



601,709















20,000



3,075
(9)President, General Counsel


2003
(4)


325,000















100,000



and Secretary


2003



650,000















100,000



1,200
(9)Judy A. Ethell (7)


2005



250,000



750,000







2,137,440



600,000



Chief Financial Officer,


2004























Executive Vice President,


2003
(4)






















Finance and Chief Accounting Officer


2003























Richard J. Roberts (8)


2005



650,000











594,000







Executive Vice President and


2004



725,000















60,000



Chief Operating Officer


2003
(4)


365,833















125,000



2003



640,000



70,000











81,611



   (1)
    
    Amounts reported under
    Salary and Bonus are payable under and
    in accordance with our annual compensation plan and are intended
    to reward the executive for current performance relating to the
    relevant fiscal period.(2)
    
    Except as otherwise noted, amounts
    reported under Long-Term Compensation consist of
    stock options and RSUs granted in accordance with our LTIP. If
    dividends are declared on our common stock while any RSUs are
    outstanding, the number of shares to be granted upon settlement
    of the RSUs will be adjusted to reflect the payment of such
    dividends.(3)
    
    Mr. You was appointed as our
    Chief Executive Officer on March 21, 2005. Mr. You also
    served as the Companys Interim Chief Financial Officer
    from July 2005 until October 2006. Mr. Yous base
    annual salary for fiscal 2005 was $750,000. In fiscal 2005,
    Mr. You received $585,938 of base compensation, a signing
    bonus of $1 million, $3,622 for transitional housing
    expenses and $174,859 to cover all applicable taxes. In
    addition, Mr. You was paid approximately $2.1 million
    in respect of restricted share units of Accenture Ltd that he
    forfeited in connection with becoming Chief Executive Officer of
    the Company. Mr. You also received a grant of 750,000 RSUs
    which vest as 79




---



##### 



follows: 62,500 shares on
    March 21, 2007, 125,000 shares on March 21, 2008,
    187,500 shares on each of March 21, 2009 and 2010,
    125,000 shares on March 21, 2011 and
    62,500 shares on March 21, 2012. Any unvested RSUs
    will immediately vest upon a change or control of the Company or
    a termination of Mr. Yous employment due to death or
    disability. At December 31, 2005, the value of
    Mr. Yous RSU award was $5.9 million, based on
    the last reported price of our common stock on that date.
    Mr. Yous RSU award and stock options were granted
    outside of the LTIP. For information on Mr. Yous
    stock option grant, see Option Grants During Fiscal
    2005.(4)
    
    Consists of salary paid during the
    six-month period ended December 31, 2003.(5)
    
    Until the appointment of Harry L.
    You as our Chief Executive Officer, Mr. McGeary served as
    our Chief Executive Officer and Chairman of the Board of
    Directors. Mr. McGeary was paid a base annual salary of
    $750,000 for his services as our Chief Executive Officer. Since
    March 2005, Mr. McGeary continues to serve the Company in a
    full-time capacity, focusing on clients, employees and business
    partners. In connection with such service, he will be paid an
    annual salary of $650,160. Mr. McGeary continues to serve
    as the Chairman of the Board.(6)
    
    In fiscal 2005, Mr. Black
    received four grants of Retention RSUs as follows: 19,756 RSUs
    on April 12, 2005, 5,681 RSUs on April 21, 2005,
    24,999 RSUs on December 8, 2005. The April 12 and April 21
    RSU grants became fully vested on January 1, 2006. The
    December RSU grant was fully vested as of the date of grant.
    None of these RSUs have yet settled. At December 31, 2005,
    the aggregate value of Mr. Blacks RSU awards was
    $3.0 million, based on the last reported price of our
    common stock on that date. On a Form 4 filed on behalf of
    David Black on April 14, 2005, Mr. Black reported that
    as of April 12, 2005, he was no longer an executive officer
    of the Company. Mr. Black ceased to serve as Executive Vice
    President, General Counsel and Secretary of the Company as of
    January 31, 2006.(7)
    
    Ms. Ethell was appointed as
    our Executive Vice PresidentFinance and Chief Accounting
    Officer on July 1, 2005, and as our Chief Financial Officer
    on October 17, 2006. Her annual base salary for fiscal 2005
    was $500,000. In fiscal 2005 Ms. Ethell received $250,000
    of base compensation and a signing bonus of $750,000. The
    aggregate amount of Ms. Ethells perquisites and other
    personal benefits, securities or property received in fiscal
    2005 did not exceed $10,000. In addition, Ms. Ethell
    received a grant of 292,000 RSUs which vest as follows:
    175,200 shares on January 1, 2006 and, subject to the
    achievement of certain performance criteria relating to the
    filing of SEC reports and the development of a world
    class Finance & Accounting team,
    29,200 shares on each of July 1, 2006, 2007, 2008 and
    2009. At December 30, 2005, the value of
    Ms. Ethells award was $2.3 million, based upon
    the last reported price of our common stock on that date. For
    information on Ms. Ethells stock option grant, see
    Option Grants During Fiscal 2005. On
    October 3, 2006, the Company and Judy Ethell entered into a
    letter agreement, pursuant to which the grants of nonqualified
    stock options and RSUs made to her in July 2005 (the 2005
    Awards) in connection with her employment as the
    Companys Executive Vice PresidentFinance and Chief
    Accounting Officer were rescinded. The Compensation Committee of
    the Board approved subsequent grants to Ms. Ethell,
    effective as of September 19, 2006 (the 2006
    Awards). In accordance with the letter agreement,
    Ms. Ethell and the Company have agreed that the 2005 Awards
    will be replaced by the 2006 Awards. For a description of the
    2006 Awards, see Employment and Change of Control
    AgreementsEmployment Agreements with Certain Executive
    OfficersJudy A. Ethell.(8)
    
    During fiscal 2005,
    Mr. Roberts received a grant of 72,439 RSUs which became
    fully vested on January 1, 2006. These RSUs have not yet
    settled. At December 30, 2005, the value of
    Mr. Roberts award was $569,370, based upon the last
    reported price of our common stock on that date.(9)
    
    Constitutes matching contributions
    under our 401(k) Savings Plan.  Options
    Grants During Fiscal 2005
  Individual GrantsNumber of


% of Total Options


Exercise or





Grant DateSecurities Underlying


Granted to Employees


Base Price


Expiration


PresentName

Options Granted


During the Period


($/Share)


Date


Value (3)Harry L. You (1)


2,000,000



45.50
%

$
7.55



3/18/2015


$
10,575,000Roderick C. McGeary


















David W. Black


















Judy A. Ethell (2)


600,000



13.65
%


7.33



7/01/2015



2,594,100Richard J. Roberts


















    (1)
    
    Consists of a stock option granted
    on March 18, 2005, which vests in four equal installments
    starting on March 18, 2006. All unvested options will
    immediately vest upon a change in control of the
    Company or a termination of employment due to death or
    disability. If Mr. Yous employment is terminated by
    the Company without cause or by Mr. You for good reason,
    the portion of his options scheduled to vest on the next
    anniversary of the grant date following the termination date
    will vest on the termination date.(2)
    
    Consists of a stock option granted
    on July 1, 2005, which vests in four equal installments
    starting on July 1, 2006. All unvested options will
    immediately vest upon a change of control of the
    Company or a termination of employment due to death or
    disability. If Ms. Ethells employment is terminated
    by the Company without cause or by Ms. Ethell for good
    reason, the portion of her options scheduled to vest on the next
    anniversary of the grant date following the termination date
    will vest on the termination date. On October 3, 2006, the
    Company and Judy Ethell 80




---



##### 



entered into a letter agreement,
    pursuant to which the grants of nonqualified stock options and
    RSUs made to her in July 2005 (the 2005 Awards) in
    connection with her employment as the Companys Executive
    Vice PresidentFinance and Chief Accounting Officer were
    rescinded. The Compensation Committee of the Board approved
    subsequent grants to Ms. Ethell, effective as of
    September 19, 2006 (the 2006 Awards). In
    accordance with the letter agreement, Ms. Ethell and the
    Company have agreed that the 2005 Awards will be replaced by the
    2006 Awards. For a description of the 2006 Awards, see
    Employment and Change of Control
    AgreementsEmployment Agreements with Current Executive
    OfficersJudy A. Ethell.  (3)
    
    The values for the grants are based
    on the Black-Scholes option pricing model. For
    Mr. Yous stock option, based on an interest rate of
    4.25% based on a
    5-year
    Treasury note rate, stock price volatility of 59.65%, no
    dividend yield and option exercises occurring after 6 years
    are assumed, the model produces a per option share value of
    $5.29. For Ms. Ethells stock option, assuming an
    interest rate of 4.02% based on a
    5-year
    Treasury note rate, stock price volatility of 59.77%, no
    dividend yield and option exercises occurring after
    6 years, the model produces a per option share value of
    $4.32.  Aggregated
    Option Exercises in Fiscal Year 2005 and Fiscal Year-End Option
    Values
  Number of Securities


Value of UnexercisedShares





Underlying Unexercised


In-The-Money Options (1)Acquired on


Value


Options at Period End


at Period End ($)Name

Exercise (#)


Realized ($)


Exercisable


Unexercisable


Exercisable


UnexercisableHarry L. You










0



2,000,000


$
0


$
318,000Roderick C. McGeary










247,928



225,000



0



0David W. Black










395,224



71,668



0



0Judy A. Ethell










0



600,000



0



620,000Richard J. Roberts










282,541



99,167



0



0   (1)
    
    An
    in-the-money
    stock option is an option for which the market price, on
    December 31, 2005, of our common stock underlying the
    option exceeds the exercise price (i.e., the market price of our
    common stock when the option was granted). The value shown
    reflects stock price appreciation since the grant date of the
    option.  Compensation
    Committee Interlocks and Insider Participation
    Employment
    and Change of Control Agreements
  Managing
    Director Agreements     81




---



##### 



Special
    Termination Agreements      Change in
    Control Provisions Under the LTIP    Employment
    Arrangements with Certain Executive Officers  Harry L. You.
  
    Employment Agreement.  
    Compensation. Information regarding Mr. Yous
    annual base and bonus compensation can be found in the
    Summary Compensation Table and the Option
    Grants During Fiscal 2005 table above. Mr. Yous
    target annual bonus is at least 100% of his base salary. In
    accordance with Mr. Yous employment agreement, which
    included an indemnity obligation, we paid Mr. You
    $2.1 million in respect of the restricted stock units of
    Accenture Ltd that Mr. You forfeited in connection with his
    appointment as Chief Executive Officer.
    Benefits/Long-Term Incentives. Mr. You is entitled
    to participate in all employee benefit (including long-term
    incentives), fringe and perquisite plans, practices, programs,
    policies and arrangements generally provided to senior
    executives of the Company at a level commensurate with his
    position.
    Relocation. Mr. You will be reimbursed for
    reasonable relocation and transitional housing and travel
    expenses, including a tax
    gross-up
    payment to cover all applicable taxes, and the Company will
    provide assistance in connection with the sale of his residences.
    Termination Payment. Upon termination of
    Mr. Yous employment by the Company without cause or
    by Mr. You for good reason, within 30 days after the
    Companys receipt of a fully 82




---



##### 



executed release, the Company will pay to Mr. You a lump
    sum cash amount equal to two times the sum of
    (i) Mr. Yous annual base salary and
    (ii) his target bonus, or, if the target bonus has not been
    established, the prior years actual bonus. Upon a Change
    of Control (as defined in the Special Termination Agreement
    (described below)), in lieu of the payments described above,
    Mr. You will receive payments he is entitled to under the
    Special Termination Agreement.  
    Indemnification. We agreed to indemnify Mr. You with
    respect to his activities on behalf of the Company, for any
    failure of the Company to comply with Section 409A of the
    Internal Revenue Code of 1986, as amended, and for certain other
    matters.  
    Managing Director Agreement. The Company and Mr. You
    have entered into a Managing Director Agreement, dated as of
    March 21, 2005. Pursuant to his Managing Director
    Agreement, the Company provides three months pay for
    certain terminations of his employment by the Company; provided,
    however, that Mr. You is not entitled to receive severance
    under the Managing Director Agreement if he is entitled to
    receive severance under the Employment Agreement or the Special
    Termination Agreement. In addition, the Managing Director
    Agreement contains non-competition and non-solicitation
    provisions for a period of two years after his termination or
    resignation.
    Special Termination Agreement. The Company and
    Mr. You have entered into a Special Termination Agreement,
    dated as of March 21, 2005. The term of the Special
    Termination Agreement is three years (subject to potential
    one-year extensions) or, if later, two years after a Change of
    Control. The protective provisions of the Special Termination
    Agreement become operative only upon a Change of Control or, in
    certain circumstances, in anticipation of a Change of Control.
    In addition, if within six months prior to a Change of Control,
    Mr. Yous employment is terminated except for cause or
    he terminates for good reason, all stock awards will immediately
    vest. If, after a Change of Control and during the term of the
    Special Termination Agreement, we terminate Mr. Yous
    employment other than for Cause (as defined in the Special
    Termination Agreement) or if he terminates his employment for
    specified reasons (including if his responsibilities have been
    materially reduced or adversely modified or his compensation has
    been reduced), Mr. You is entitled to certain benefits,
    including the payment of approximately three years
    compensation (based on salary plus bonus as specified in the
    Special Termination Agreement).  Judy A. Ethell.
  
    Employment Agreement.  
    Compensation. Information regarding
    Ms. Ethells annual base and bonus compensation can be
    found in the Summary Compensation Table and the
    Option Grants During Fiscal 2005 table above.
    Ms. Ethells target bonus is at least 100% of her base
    salary.
    Benefits/Long-Term Incentives. Ms. Ethell is
    entitled to participate in all employee benefit (including
    long-term incentives), fringe and perquisite plans, practices,
    programs, policies and arrangements generally provided to senior
    executives of the Company at a level commensurate with her
    position.
    Relocation. Ms. Ethell will be reimbursed for
    reasonable relocation and transitional housing and travel
    expenses, including a tax
    gross-up
    payment to cover all applicable taxes, and the Company will
    provide assistance in connection with the sale of her principal
    residence.
    Termination Payment. Upon termination of
    Ms. Ethells employment by the Company without cause
    or by Ms. Ethell for good reason, within 30 days after
    the Companys receipt of a fully executed release, the
    Company would pay to Ms. Ethell a lump sum cash amount
    equal to the sum of (i) Ms. Ethells annual base
    salary and (ii) her target bonus, or, if the target bonus
    has not been established, the prior years actual bonus.
    Upon a Change of Control (as defined in the Special Termination
    Agreement (described below)), in lieu of the payments described
    above, Ms. Ethell will receive payments she is entitled to
    under the Special Termination Agreement.
    Indemnification. We agreed to indemnify Ms. Ethell
    with respect to her activities on behalf of the Company, for any
    failure of the Company to comply with Section 409A of the
    Internal Revenue Code of 1986, as amended, and for certain other
    matters. 83




---



##### 




    Managing Director Agreement. The Company and
    Ms. Ethell have entered into a Managing Director Agreement,
    dated as of July 1, 2005. Pursuant to the Managing Director
    Agreement, the Company provides three months notice or pay
    in lieu of notice for certain terminations of her employment by
    the Company; provided, however, that Ms. Ethell is not
    entitled to receive severance under the Managing Director
    Agreement if she is entitled to receive severance under the
    Employment Agreement or the Special Termination Agreement. In
    addition, the Managing Director Agreement contains
    non-competition and non-solicitation provisions for a period of
    two years after her termination or resignation.
    Special Termination Agreement. The Company and
    Ms. Ethell entered into a Special Termination Agreement,
    dated as of July 1, 2005. The term of the Special
    Termination Agreement is three years (subject to potential
    one-year extensions) or, if later, two years after a Change of
    Control. The term of the Special Termination Agreement is three
    years (subject to potential one-year extensions) or, if later,
    two years after a Change of Control. The protective provisions
    of the Special Termination Agreement become operative only upon
    a Change of Control or, in certain circumstances, in
    anticipation of a Change of Control. In addition, if within six
    months prior to a Change of Control, Ms. Ethells
    employment is terminated except for cause or she terminates for
    good reason, all stock awards will immediately vest. If, after a
    Change of Control and during the term of the Special Termination
    Agreement, we terminate Ms. Ethells employment other
    than for Cause (as defined in the Special Termination Agreement)
    or if she terminates her employment for specified reasons
    (including if her responsibilities have been materially reduced
    or adversely modified or her compensation has been reduced),
    Ms. Ethell is entitled to certain benefits, including the
    payment of approximately three years compensation (based
    on salary plus bonus as specified in the Special Termination
    Agreement).      
    RSUs (the 2006 RSU Awards):  
    An initial grant of 292,000 RSUs, of which 204,400 fully vested
    on September 19, 2006, the date of grant, and, subject to
    the achievement of certain performance criteria an additional
    29,200 shares will vest on July 1 in each of 2007,
    2008 and 2009.
    An additional grant of 94,000 RSUs, of which 25% was fully
    vested on the September 19, 2006 date of grant, and,
    subject to the achievement of certain performance criteria, an
    additional 25% will vest on July 1 in each of 2007, 2008
    and 2009.
    For the 2006 RSU Awards, all unvested RSUs will immediately vest
    upon a Change of Control of the Company. If
    Ms. Ethells employment is terminated by the Company
    without cause or by Ms. Ethell for
    good reason, the portion of her RSUs scheduled to
    vest on the next anniversary of her hire date following the
    termination date will vest as of the termination date.  
    Stock Options: An initial grant of stock options to
    purchase 600,000 shares at an exercise price of
    $8.70 per share, the closing price of the Companys
    common stock on the September 19, 2006 grant date. The
    stock options vest as follows: 25% was fully vested on the date
    of grant, and, subject to the achievement of certain performance
    criteria, will vest on July 1 in each of 2007, 2008 and
    2009. All unvested options will immediately vest upon a
    Change of Control of the Company or a termination 84




---



##### 



of employment due to death or disability. If
    Ms. Ethells employment is terminated by the Company
    without cause or by Ms. Ethell for good
    reason, the portion of her options scheduled to vest on
    the next anniversary of her hire date following the termination
    date will vest as of the termination date.  Laurent C. Lutz.
  
    Employment Agreement.  
    Compensation.  
    Mr. Lutzs annual base salary is $500,000 and he is
    eligible for an annual bonus with a target amount of 100% of his
    base salary upon achievement of pre-established performance
    goals (for fiscal 2006, Mr. Lutzs performance goals
    are based on his achieving certain individual performance
    ratings).
    Mr. Lutz was paid a signing bonus of $900,000 and he is
    also eligible for retention bonuses of $375,000 to be paid on
    each of the first and second anniversaries of his effective date
    of employment.
    On the earlier of: (i) the date an effective registration
    statement on
    Form S-8
    is filed or is on file and (ii) the date, if any, we cease
    to be a reporting company under the Exchange Act, we will grant
    to Mr. Lutz RSUs having an aggregated value of
    $1.75 million, subject to the following terms and
    conditions:  
    On June 30, 2006 and on December 31 in each of 2007,
    2008, 2009 and 2010, if RSUs have been granted as of such date,
    a portion of the grant will vest, depending on the date of the
    grant; and
    If RSUs have not been granted, subject to certain conditions,
    Mr. Lutz will receive cash payments (which will reduce the
    value of any RSUs to be granted) of $525,000 on July 1,
    2006 (which was paid), $525,000 on June 30, 2007 and
    $175,000 on December 31 in each of 2007, 2008, 2009 and
    2010.  
    Upon a Change in Control (as such term is defined in the LTIP),
    all unvested, restricted stock units will immediately vest, or,
    if the RSU award described above has not been granted, all
    unvested cash award payments described above will become
    immediately due and payable, subject to certain conditions.
    Upon the termination of Mr. Lutzs employment by the
    Company without cause or by Mr. Lutz for good reason, the
    portion of his RSUs (or corresponding cash award payment)
    scheduled to vest on the next vesting date following the
    termination date (or, in the case of a cash award payment
    related to a termination occurring prior to July 1, 2007,
    the next 2 vesting dates) will vest as of the termination date.  
    Benefits/Long-Term Incentives. Mr. Lutz is entitled
    to participate in all employee benefit (including long-term
    incentives), fringe and perquisite plans, practices, programs,
    policies and arrangements generally provided to senior
    executives of the Company at a level commensurate with his
    position.
    Legal Fees and 409A Gross-Up. Under the employment
    agreement, we reimburse Mr. Lutz for reasonable legal fees
    in connection with the negotiation and drafting of his
    employment arrangements. In addition, Mr. Lutz is entitled
    to receive a gross up for any payment to him under any of his
    agreements that would be subject to a surtax imposed by
    Section 409A of the Internal Revenue Code or for any
    interest or penalties thereon.
    Severance. Upon termination of Mr. Lutzs
    employment by the Company without cause or by Mr. Lutz for
    good reason, within 30 days after the Companys
    receipt of a fully executed release, the Company would pay to
    Mr. Lutz a lump sum cash amount equal to the sum of
    (i) Mr. Lutzs annual base salary (or, if
    Mr. Lutz terminates for good reason, one and one-half times
    his annual salary) and (ii) his then current target bonus.
    Upon a Change of Control (as defined in the Special Termination 85




---



##### 



Agreement (described below)), in lieu of the payments described
    above, Mr. Lutz will receive payments he is entitled to
    under the Special Termination Agreement.  
    Indemnification. We agreed to indemnify Mr. Lutz in
    the event that any activity he undertakes on behalf of the
    Company is challenged as being in violation of any agreement he
    may have with a prior employer and for certain other matters.  
    Managing Director Agreement. The Company and
    Mr. Lutz have entered into a Managing Director Agreement,
    dated as of February 24, 2006. Pursuant to his Managing
    Director Agreement, the Company provides three months pay
    for certain terminations of his employment by the Company;
    provided, however, that Mr. Lutz is not entitled to receive
    severance under the Managing Director Agreement if he is
    entitled to receive severance under the Employment Agreement or
    the Special Termination Agreement. In addition, the Managing
    Director Agreement contains non-competition and non-solicitation
    provisions for a period of two years after his termination or
    resignation.
    Special Termination Agreement. The Company and
    Mr. Lutz have entered into a Special Termination Agreement,
    dated as of February 24, 2006. The term of the Special
    Termination Agreement is three years (subject to potential
    one-year extensions) or, if later, two years after a Change of
    Control. The protective provisions of the Special Termination
    Agreement become operative only upon a Change of Control or, in
    certain circumstances, in anticipation of a Change of Control.
    In addition, if within six months prior to a Change of Control,
    Mr. Lutzs employment is terminated except for cause
    or he terminates for good reason, all stock awards will
    immediately vest. If, after a Change of Control and during the
    term of the Special Termination Agreement, we terminate
    Mr. Lutzs employment other than for Cause (as defined
    in the Special Termination Agreement) or if he terminates his
    employment for specified reasons (including if his
    responsibilities have been materially reduced or adversely
    modified or his compensation has been reduced), Mr. Lutz is
    entitled to certain benefits, including the payment of
    approximately three years compensation (based on salary
    plus bonus as specified in the Special Termination Agreement).  Roderick C. McGeary.
  Managing
    Director Compensation Plan    Overview.
 86




---



##### 



Eligibility and Participation.
  Compensation Components.
  
    RSUs. The MD Compensation Plan provides for managing
    directors to be awarded RSUs.
    Target Cash Compensation. The MD Compensation Plan will
    provide that each participating managing director will receive a
    target compensation amount equal to the number of target
    compensation units assigned to that managing director (as
    determined by his or her performance manager and other
    appropriate approvals) multiplied by the unit value assigned by
    the Chairman of the Board and the Chief Executive Officer,
    except that each executive officers target compensation
    will be determined by the Compensation Committee. Target
    compensation will be divided into base units and reserve units.
    Base units will be paid in cash on our normal payroll schedule.
    After we have become current in our SEC filings, reserve units
    will be paid on a two-quarter lag, provided that (i) the
    managing director is employed on the payment date (subject to
    limited exceptions), (ii) the managing director achieves a
    minimum required performance rating, and (iii) the Company
    achieves certain business objectives.
    Performance Units. If a managing director achieves a high
    performance rating and we achieve certain business objectives,
    the managing director may also be awarded performance units,
    expressed as a percentage of the managing directors target
    compensation units. In assigning a performance rating, we
    consider factors including the managing directors core
    professional values, contribution to our performance, teamwork,
    initiative and client satisfaction. 50% of a managing
    directors performance units will be paid in the year
    following the performance year and the remaining 50% will be
    paid one year later. For the 2006 performance year, however,
    two-thirds of performance units will be paid in 2007 and
    one-third will be paid in 2008.
    Breakthrough Awards. The executive committee, in its sole
    discretion, may allocate additional awards to reward a managing
    director for breakthrough innovation that substantially benefits
    the Company. These awards may be made in the form of
    (i) cash (ii) units, or (iii) other equity
    awards. Breakthrough awards may not exceed 10% of the total
    managing director target compensation pool for the applicable
    year.  Deferred
    Compensation Plans      Eligibility.
 87




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##### 



Elective Contributions.
  Matching Contributions.
  Trusts.
  Distributions.
  Change in Control.
  Other
    Equity Plan Information
    Director
    Compensation
    5,000-share
 88




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##### 



ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS  Beneficial
    Ownership of More Than Five Percent
    Common StockPercentage ofName and Address of 5% Holders of Common Stock

Number of Shares


Shares OutstandingAriel Capital Management,
    LLC (1)


29,350,008



14.6
%200 E. Randolph Drive,
    Suite 2900
    Chicago, IL 60601Hotchkis and Wiley Capital
    Management, LLC (2)


16,396,900



8.1
%725 South Figueroa Street,
    39th Floor 
    Los Angeles, CA
    90017-5439Goldman Sachs Asset Management,
    L.P. (3)


16,038,327



8.0
%32 Old Slip
    New York, NY 10005Glenview Capital Management,
    LLC (4)


14,508,888



7.2
%3939 Park Avenue, Floor 39
    New York, NY 10022Franklin Resources, Inc. (5)


13,334,622



6.6
%One Franklin Parkway
    San Mateo, CA
    94403-1906   (1)
    
    Represents shares beneficially held by Ariel Capital Management,
    LLC (Ariel), as reported on a Schedule 13G
    filed on February 13, 2006. Ariel has sole voting power
    with respect to 25,940,058 shares and sole dispositive
    power with respect to 29,338,208 shares. These shares are
    beneficially owned by investment advisory clients of Ariel.(2)
    
    Represents shares beneficially held by Hotchkis and Wiley
    Capital Management, LLC (Hotchkis), as reported on a
    Schedule 13G filed on February 14, 2006. Hotchkis has
    sole voting power with respect to 14,418,600 shares and
    sole dispositive power with respect to 16,396,900 shares.(3)
    
    Represents shares beneficially held by Goldman Sachs Asset
    Management, L.P. (Goldman Sachs), as reported on a
    Schedule 13G filed on February 3, 2006. Goldman Sachs
    has sole voting power with respect to 15,664,530 shares and
    sole dispositive power with respect to 16,038,327 shares.(4)
    
    Represents shares beneficially held by Glenview Capital
    Management, LLC (Glenview), Glenview Capital GP, LLC
    (Glenview GP) and Lawrence M. Robbins, as reported
    on a Schedule 13G filed on February 14, 2006. Glenview
    serves as investment manager to various entities and as such may
    be deemed to have voting and dispositive power of such shares.
    Glenview GP is a general partner of, and serves as the sponsor
    of, various funds and as such, may be deemed to have voting and
    dispositive power over such shares. Mr. Robbins is the
    Chief Executive Officer of Glenview and Glenview GP.(5)
    
    Represents shares beneficially held by Franklin Resources, Inc.
    (FRI), Charles B. Johnson, Rupert H.
    Johnson, Jr. and Franklin Advisers, Inc., as reported on a
    Schedule 13G filed on January 10, 2006. The shares are
    beneficially owned by one or more open or closed-end investment
    companies or other managed accounts that are investment advisory
    clients of investment advisors that are direct and indirect
    subsidiaries of FRI, with such investment advisory subsidiaries
    having investment
    and/or
    voting power of such shares. Charles B. Johnson and Rupert H.
    Johnson each own in excess of 10% of the outstanding common
    stock of FRI and may be deemed to be beneficial owners of such
    shares for purposes of
    Rule 13d-3
    of the Exchange Act. FRI, Messrs. Johnson and Johnson and
    each adviser subsidiary disclaim any economic interest or
    beneficial ownership in such shares.  Security
    Ownership of Directors and Executive Officers
   89




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##### 



Rule 13d-3
  Common StockPercentage ofName and Address (1)

Number of Shares


Shares OutstandingHarry L. You (2)


510,000



*Roderick C. McGeary (3)


565,857



*Douglas C. Allred (4)


35,000



*Betsy J. Bernard (5)


23,000



*Judy A. Ethell (6)


377,900



*Spencer Fleischer (7)


15,000



*Wolfgang Kemna (8)


35,000



*Albert L. Lord (9)


42,600



*Alice M. Rivlin (10)


40,000



*Richard J. Roberts (11)


535,408



*J. Terry Strange (12)


41,000



*All executive officers and
    directors as a group (12 persons) (13)


2,220,765



*   *
    
    Less than 1% of our common stock
    outstanding.(1)
    
    The address for all persons listed
    is c/o BearingPoint, Inc., 1676 International Drive,
    McLean, Virginia 22102 USA.(2)
    
    Includes 500,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(3)
    
    Includes 472,928 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(4)
    
    Includes 15,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(5)
    
    Includes 15,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(6)
    
    Includes 150,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(7)
    
    Consists of 15,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.
    Mr. Fleischer is a senior managing member of Friedman
    Fleischer & Lowe GP II, LLC, a Delaware limited
    liability company (FFL GP). FFL GP is the general
    partner of Friedman Fleischer & Lowe GP II, L.P.,
    which is the general partner of each of Friedman
    Fleischer & Lowe Capital Partners II, L.P.
    (FFL Capital Partners), FFL Parallel Fund II,
    L.P. (FFL Parallel Fund) and FFL Executive
    Partners II, L.P. (FFL Executive Partners, and
    together with FFL Capital Partners and FFL Parallel Fund, the
    FFL Funds). The FFL Funds are the owners of record
    of $40,000,000 of initial principal amount of
    0.50% Convertible Senior Subordinated Debentures due July
    2010. Mr. Fleischer disclaims any beneficial ownership of
    the securities owned by the FFL Funds, except to the extent of
    his pecuniary interest therein, if any.(8)
    
    Includes 15,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(9)
    
    Includes 15,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(10)
    
    Includes 20,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(11)
    
    Includes 4,301 shares held
    through a family trust, 149,782 vested RSUs with a settlement
    date of January 1, 2006 that have not yet been settled and
    282,541 shares of common stock that may be acquired through
    the exercise of stock options within 60 days of
    September 15, 2006.(12)
    
    Includes 20,000 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006.(13)
    
    Includes 1,599,636 shares of
    common stock that may be acquired through the exercise of stock
    options within 60 days of September 15, 2006 and
    149,782 vested RSUs with a settlement date of January 1,
    2006 that have not yet been settled. 90




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##### 



Equity
    Compensation Plan Information
    (as of December 31, 2005)
  (a)


(b)


(c)Number of securitiesremaining availableNumber of securities


Weighted-average


for future issuanceto be issued upon


exercise price of


under equityexercise of


outstanding


compensation plansoutstanding options,


options, warrants


(excluding securitiesPlan Category

warrants and rights


and rights


reflected in column (a))Equity Compensation Plans Approved
    by Security Holders


56,377,019


$
11.50



25,242,619
(1)(2)Equity Compensation Plans Not
    Approved by Security Holders










Total


56,377,019


$
11.50



25,242,619   (1)
    
    Includes 7,539,483 shares of
    common stock available for grants of stock options, restricted
    stock, stock appreciation rights and other stock-based awards
    under our LTIP and 17,703,136 shares of common stock
    available for issuance under our ESPP.(2)
    
    Under our LTIP, the number of
    shares of common stock authorized for grants or awards under the
    plan adjusts automatically based upon the following formula:
    authorized shares is equal to the greater of
    (i) 35,084,158 shares of common stock and
    (ii) 25% of the sum of (x) the number of issued and
    outstanding shares of common stock and (y) the number of
    authorized shares. Under our ESPP, the number of shares of our
    common stock that may be purchased is 3,766,096 shares,
    plus an annual increase on the first day of each of our fiscal
    years beginning on July 1, 2002 and ending on June 30,
    2026 equal to the lesser of (i) 5,946,467 shares,
    (ii) three percent of the shares outstanding on the last
    day of the immediately preceding fiscal year or (iii) a
    lesser number of shares as determined by our Board or the
    Compensation Committee of the Board. 91




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##### 



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS  Friedman
    Fleischer & Lowe, LLC / Spencer C.
    Fleischer
    Judy
    Ethell / Robert Glatz
    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES  Audit
    Committee Pre-Approval Policies
  Rule 2-01 Regulation S-X.
 92




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##### 



Independent
    Registered Public Accountants Fees
    Fiscal Year Ended,Type of Fee

December 31, 2005


December 31, 2004Audit Fees (1)

$
33,900,000


$
26,678,900Audit Related Fees (2)


159,300



229,600Tax Fees (3)


1,956,800



1,761,600All Other Fees (4)


33,000



Total

$
36,049,100


$
28,670,100   (1)
    
    Audit fees include audits of
    consolidated financial statements, reviews of unaudited
    quarterly financial statements and services that are normally
    provided by independent auditors in connection with statutory
    and regulatory filings.(2)
    
    Audit related fees include
    assurance and related services provided by our independent
    auditors that are reasonably related to the performance of the
    audit or review of our consolidated financial statements and are
    not included above under Audit Fees. These services
    principally include audits of employee benefit plans, accounting
    consultations, and other services in connection with regulatory
    reporting requirements.(3)
    
    Tax services principally include
    consultation in connection with tax compliance, tax
    consultations and tax planning.(4)
    
    All other fees include licenses to
    technical accounting research software. 93




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##### 



PART IV.
  Item 15.
    EXHIBITS        Exhibit No.

Description3.1


Amended and Restated Certificate
    of Incorporation, dated as of February 7, 2001, which is
    incorporated herein by reference to Exhibit 3.1 from the
    Companys
    Form 10-Q
    for the quarter ending March 31, 2001.3.2


Amended and Restated Bylaws,
    amended and restated as of May 5, 2004, which is
    incorporated herein by reference to Exhibit 3.1 from the
    Companys
    Form 10-Q
    for the quarter ending March 31, 2004.3.3


Certificate of Ownership and
    Merger merging Bones Holding into the Company, dated
    October 2, 2002, which is incorporated herein by reference
    to Exhibit 3.3 from the Companys
    Form 10-Q
    for the quarter ended September 30, 2002.4.1


Rights Agreement, dated as of
    October 2, 2001, between the Company and EquiServe Trust
    Company, N.A., which is incorporated herein by reference to
    Exhibit 1.1 from the Companys Registration Statement
    on
    Form 8-A
    dated October 3, 2001.4.2


Certificate of Designation of
    Series A Junior Participating Preferred Stock, which is
    incorporated herein by reference to Exhibit 1.2 from the
    Companys Registration Statement on
    Form 8-A
    dated October 3, 2001.4.3


Amendment No. 1 to the Rights
    Agreement between the Company and EquiServe Trust Company, N.A.,
    which is incorporated herein by reference to Exhibit 99.1
    from the Companys
    Form 8-K
    filed on September 6, 2002.10.1


Amended and Restated Separation
    Agreement, dated as of February 13, 2001, among KPMG LLP,
    KPMG Consulting, LLC and the Company, which is incorporated
    herein by reference to Exhibit 10.1 from the Companys
    Form 10-Q
    for the quarter ending March 31, 2001.10.2


Transition Services Agreement,
    dated as of February 13, 2001, among KPMG LLP, KPMG
    Consulting, LLC and the Company, which is incorporated herein by
    reference to Exhibit 10.3 from the Companys
    Form 10-Q
    for the quarter ending March 31, 2001.10.3


Non-Competition Agreement, dated
    as of February 13, 2001, among KPMG LLP, KPMG Consulting,
    LLC and the Company, which is incorporated herein by reference
    to Exhibit 10.4 from the Companys
    Form 10-Q
    for the quarter ending March 31, 2001.10.4


Form of Member Distribution
    Agreement for KPMG Consulting Qualified Employees, which is
    incorporated herein by reference to Exhibit 10.6 from the
    Companys
    Form S-1.10.5


Form of Member Distribution
    Agreement for KPMG Consulting Non-Qualified Employees, which is
    incorporated herein by reference to Exhibit 10.7 from the
    Companys
    Form S-1.10.6


Form of Member Agreement for KPMG
    Consulting Non-Eligible Employees, which is incorporated herein
    by reference to Exhibit 10.8 from the Companys
    Form S-1.10.7


Form of Managing Director
    Agreement, which is incorporated herein by reference to
    Exhibit 10.8 from the Companys
    Form 10-K
    for the year ended June 30, 2003.10.8


Form of Amendment to the Managing
    Director Agreement, dated as of January 31, 2005, between
    the Company and David W. Black and certain executive officers,
    which is incorporated by reference to Exhibit 10.8 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004. 94




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##### 



Exhibit No.

Description10.9


Form of Amended Managing Director
    Agreement, which is incorporated by reference to
    Exhibit 10.9 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.10


Stock Purchase Agreement dated as
    of December 29, 1999, between Cisco Systems, Inc. and the
    Company, which is incorporated herein by reference to
    Exhibit 10.11 from the Companys
    Form S-1.10.11


Investor Rights Agreement dated as
    of January 31, 2000, among KPMG LLP, Cisco Systems, Inc.
    and the Company, which is incorporated herein by reference to
    Exhibit 10.12 from the Companys
    Form S-1.10.12


Irrevocable Waiver, dated
    May 17, 2004, by Cisco Systems, Inc. with respect to the
    Investor Rights Agreement, dated January 31, 2000 and the
    Stock Purchase Agreement, dated December 29, 1999, which is
    incorporated herein by reference to Exhibit 10.49 of the
    Companys
    Form S-1/A
    (Registration
    No. 333-100199).10.13


Alliance Agreement, dated as of
    December 29, 1999, between Cisco Systems, Inc. and KPMG LLP
    and related amendment, which is incorporated herein by reference
    to Exhibit 10.13 from the Companys
    Form S-1.10.14


Amendment No. 1 to Alliance
    Agreement, dated as of December 1, 2000, between Cisco
    Systems, Inc. and the Company, which is incorporated herein by
    reference to Exhibit 10.12 from the Companys
    Form 10-K
    for the year ended June 30, 2001.10.15


Amendment No. 2 to Alliance
    Agreement, dated March 4, 2002, between Cisco Systems, Inc.
    and the Company, which is incorporated herein by reference to
    Exhibit 10.7 from the Companys
    Form 10-Q
    for the quarter ended March 31, 2002.10.16


Oracle Partnernetwork Worldwide
    Agreement, dated as of May 30, 2002, between the Company
    and Oracle Corporation, which is incorporated herein by
    reference to Exhibit 10.14 from the Companys
    Form 10-K
    for the year ended June 30, 2003.10.17


Amendment One to the Oracle
    Partnernetwork Worldwide Agreement, dated May 30, 2002,
    between the Company and Oracle Corporation, which is
    incorporated herein by reference to Exhibit 10.15 from the
    Companys
    Form 10-K
    for the year ended June 30, 2003.10.18


SAP Global Partner-Services
    Agreement dated March 8, 2003, between the Company and SAP
    AG, which is incorporated herein by reference to
    Exhibit 10.16 from the Companys
    Form 10-K
    for the year ended June 30, 2003.10.19


Amended and Restated 2000
    Long-Term Incentive Plan, effective November 4, 2003, which
    is incorporated herein by reference to Exhibit 10.17 from
    the Companys
    Form S-1/A
    (Registration
    No. 333-100199).10.20


Employee Stock Purchase Plan, as
    amended and restated December 9, 2005, which is
    incorporated by reference to Exhibit 10.21 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.21


Amended and Restated 401(k) Plan
    dated August 21, 2003, which is incorporated herein by
    reference to Exhibit 10.19 from the Companys
    Form 10-K
    for the year ended June 30, 2003.10.22


Amendment No. 1 to Amended
    and Restated 401(k) Plan dated April 29, 2004, which is
    incorporated herein by reference to Exhibit 10.20 from the
    Companys
    Form S-1/A
    (Registration
    No. 333-100199).10.23


Amendment No. 2 to Amended
    and Restated 401(k) Plan dated June 24, 2005, which is
    incorporated by reference to Exhibit 10.24 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.24


Amendment No. 3 to Amended
    and Restated 401(k) Plan dated August 22, 2005, which is
    incorporated by reference to Exhibit 10.25 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004. 95




---



##### 



Exhibit No.

Description10.25


Amendment No. 4 to Amended
    and Restated 401(k) Plan dated November 1, 2005, which is
    incorporated by reference to Exhibit 10.26 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.26


Deferred Compensation Plan, as
    amended and restated as of August 1, 2003, which is
    incorporated herein by reference to Exhibit 10.20 from the
    Companys
    Form 10-K
    for the year ended June 30, 2003.10.27


Amendment to Deferred Compensation
    Plan effective as of December 31, 2004, which is
    incorporated by reference to Exhibit 10.28 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.28


Amended and Restated BearingPoint,
    Inc. Managing Directors Deferred Compensation Plan dated
    January 1, 2006, which is incorporated by reference to
    Exhibit 10.30 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.29


Strategic Alliance Agreement dated
    as of December 27, 2000 among Qwest Communications
    International, Inc., KPMG Consulting, LLC, Softline
    Consulting & Integrators, Inc. and Qwest
    Cyber.Solutions LLC, which is incorporated herein by reference
    to Exhibit 10.26 from the Companys
    Form S-1.10.30


Amendment No. 2 to Amended
    and Restated Receivables Purchase Agreement, dated as of
    May 21, 2004, between KCI Funding Corporation,
    BearingPoint, Inc. and PNC Bank, National Association, as
    Administrator, which is incorporated herein by reference to
    Exhibit 10.2 from the Companys
    Form 10-Q
    for the quarter ended June 30, 2004.10.31


Purchase and Sale Agreement, dated
    as of May 22, 2000, between the Company and KCI Funding
    Corporation, which is incorporated herein by reference to
    Exhibit 10.5 from the Companys Amendment No. 1
    to
    Form S-3
    filed on March 15, 2002.10.32


Sale Agreement, dated as of
    May 22, 2000, between KPMG Consulting, LLC and the Company,
    which is incorporated herein by reference to Exhibit 10.6
    from the Companys Amendment No. 1 to
    Form S-3
    filed on March 15, 2002.10.33


Waiver and First Amendment to
    Credit Agreement, dated as of August 20, 2002, by and among
    the Company, the Guarantors, the Banks, and PNC Bank, National
    Association, as Administrative Agent, which is incorporated
    herein by reference to Exhibit 10.3 from the Companys
    Form 10-Q
    for the quarter ended September 30, 2002.10.34


Second Amendment to Credit
    Facility Agreement, dated November 14, 2002, by and among
    the Company, the Guarantors, the Banks, and PNC Bank, National
    Association, as Administrative Agent, which is incorporated
    herein by reference to Exhibit 10.6 from the Companys
    Form 8-K
    filed on November 27, 2002.10.35


Third Amendment to Credit Facility
    Agreement, dated May 13, 2003, by and among the Company,
    the Guarantors, the Banks, and PNC Bank, National Association,
    as Administrative Agent, which is incorporated herein by
    reference to Exhibit 10.37 from the Companys
    Form 10-K
    for the year ended June 30, 2003.10.36


Fourth Amendment to Credit
    Facility Agreement, dated November 25, 2003, by and among
    the Company, the Guarantors, the Banks, and PNC Bank, National
    Association, as Administrative Agent, which is incorporated
    herein by reference to Exhibit 10.30 of the Companys
    Form 10-K
    for the transition period from July 1, 2003 to
    December 31, 2003.10.37


Fifth Amendment to Credit Facility
    Agreement, dated March 19, 2004, by and among the Company,
    the Guarantors, the Banks, and PNC Bank, National Association,
    as Administrative Agent, which is incorporated herein by
    reference to Exhibit 10.31 of the Companys
    Form 10-K
    for the transition period from July 1, 2003 to
    December 31, 2003. 96




---



##### 



Exhibit No.

Description10.38


Sixth Amendment to Credit Facility
    Agreement, dated September 13, 2004, by and among the
    Company, the Guarantors, the Banks, and PNC Bank, National
    Association, as Administrative Agent, which is incorporated
    herein by reference to Exhibit 99.1 from the Companys
    Form 8-K
    filed on September 17, 2004.10.39


Credit Agreement, dated as of
    December 17, 2004, among the Company, Bank of America,
    N.A., as Administrative Agent, Swing Line Lender and L/C Issuer,
    JPMorgan Chase Bank, N.A. as Syndication Agent and L/C Issuer,
    and the Lenders party thereto, which is incorporated by
    reference to Exhibit 10.44 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.40


Amendment No. 1 to the Credit
    Agreement, dated as of March 17, 2005 by and among the
    Company, each of the Guarantors, each Lender signatory thereto,
    and Bank of America, N.A., as the administrative agent for the
    Lenders, Swing Line Lender and an L/C Issuer, which is
    incorporated by reference to Exhibit 10.45 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.41


Amendment No. 2 to the Credit
    Agreement, dated as of March 24, 2005, by and among the
    Company, each of the Guarantors, each Lender signatory thereto,
    and Bank of America, N.A., as the administrative agent for the
    Lenders, Swing Line Lender and an L/C Issuer, which is
    incorporated by reference to Exhibit 10.46 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.42


Securities Pledge Agreement, dated
    as of December 23, 2004, by BearingPoint, Inc., each
    domestic subsidiary of the Borrower and Bank of America, N.A.,
    as Administrative Agent, which is incorporated by reference to
    Exhibit 10.47 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.43


Security Agreement, dated as of
    December 23, 2004, among the Company, the Guarantors and
    Bank of America, N.A., as Administrative Agent, which is
    incorporated by reference to Exhibit 10.48 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.44


Amendment No. 1 to Security
    Agreement, dated as of April 26, 2005, among the Company,
    the Guarantors and Bank of America, N.A., as Administrative
    Agent, which is incorporated by reference to Exhibit 10.49
    from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.45


Guaranty Agreement, dated as of
    December 23, 2004, among the Company, the Guarantors and
    Bank of America, N.A., as Administrative Agent, which is
    incorporated by reference to Exhibit 10.50 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.46


Amendment No. 1 to Guaranty
    Agreement, dated as of April 26, 2005, among the Company,
    the Guarantors and Bank of America, N.A., as Administrative
    Agent, which is incorporated by reference to Exhibit 10.51
    from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.47


Letter of Credit Cash Collateral
    Agreement, dated as of April 26, 2005, by and among
    BearingPoint, Inc., the Administrative Agent and each of Bank of
    America, N.A. and JPMorgan Chase Bank, N.A., which is
    incorporated by reference to Exhibit 10.52 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.48


Amended and Restated Letter of
    Credit Cash Collateral Agreement, dated as of July 19,
    2005, by and among BearingPoint, Inc., the Administrative Agent
    and each of Bank of America, N.A. and JPMorgan Chase Bank, N.A.,
    which is incorporated by reference to Exhibit 10.53 from
    the Companys
    Form 10-K
    for the year ended December 31, 2004. 97




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##### 



Exhibit No.

Description10.49


Credit Agreement, dated as of
    July 19, 2005, among the Company, BearingPoint, LLC, UBS
    Securities LLC, as Lead Arranger, UBS AG, Stamford Branch, as
    Issuing Bank and Administrative Agent and UBS Loan Finance
    LLC, as Swingline Lender, and the Lenders and Guarantors party
    thereto, which is incorporated by reference to
    Exhibit 10.54 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.50


First Amendment to Credit
    Agreement, dated as of December 21, 2005 among the Company,
    BearingPoint, LLC, UBS Securities LLC, as Lead Arranger, UBS AG,
    Stamford Branch, as Issuing Bank and Administrative Agent and
    UBS Loan Finance LLC, as Swingline Lender, and the Lenders and
    Guarantors party thereto, which is incorporated by reference to
    Exhibit 10.55 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.51


Second Amendment to Credit
    Agreement, dated as of March 30, 2006, among the Company,
    BearingPoint, LLC, the guarantors thereto, the lenders thereto,
    and UBS AG, Stamford Branch, as administrative agent, which is
    incorporated by reference to Exhibit 99.1 from the
    Companys
    Form 8-K
    filed on March 31, 2006.10.52


Third Amendment to Credit
    Agreement, dated as of July 19, 2006, among the Company,
    BearingPoint, LLC, the guarantors thereto, the lenders thereto,
    and UBS AG, Stamford Branch, as administrative agent, which is
    incorporated by reference to Exhibit 99.1 from the
    Companys
    Form 8-K
    filed on July 25, 2006.10.53


Fourth Amendment to Credit
    Agreement, dated as of September 29, 2006, among
    BearingPoint, Inc., BearingPoint, LLC, the guarantors thereto,
    the lenders thereto, and UBS AG, Stamford Branch, as
    administrative agent, which is incorporated by reference to
    Exhibit 99.1 from the Companys
    Form 8-K
    filed on October 5, 2006.10.54


Fifth Amendment to Credit
    Agreement, dated as of October 31, 2006, among
    BearingPoint, Inc., BearingPoint, LLC, the guarantors thereto,
    the lenders thereto, and UBS AG, Stamford Branch, as
    administrative agent, which is incorporated by reference to
    Exhibit 99.1 from the Companys
    Form 8-K
    filed on November 3, 2006.10.55


Security Agreement, dated as of
    July 19, 2005, among the Company and BearingPoint, LLC, the
    guarantors party thereto and UBS AG, Stamford Branch, as
    Administrative Agent, which is incorporated by reference to
    Exhibit 10.56 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.56


Form of Revolving Note under the
    Credit Agreement, dated as of July 19, 2005, which is
    incorporated by reference to Exhibit 10.57 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.57


Form of Swingline Note under the
    Credit Agreement, dated as of July 19, 2005, which is
    incorporated by reference to Exhibit 10.58 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.58


Promissory Note, dated as of
    October 1, 2001, executed by David W. Black, which is
    incorporated herein by reference to Exhibit 10.35 from the
    Companys
    Form 10-K
    for the year ended June 30, 2002.10.59


Form of Special Termination
    Agreement, made as of November 7, 2001, between the Company
    and Certain Executive Officers, which is incorporated herein by
    reference to Exhibit 10.1 from the Companys
    Form 10-Q
    for the quarter ended December 31, 2001.10.60


Form of Amended and Restated
    Special Termination Agreement, which is incorporated by
    reference to Exhibit 10.64 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.61


Form of Special Termination
    Agreement, made as of November 7, 2001, between the Company
    and Certain Executive Officers and Other Key Executives, which
    is incorporated herein by reference to Exhibit 10.2 from
    the Companys
    Form 10-Q
    for the quarter ended December 31, 2001. 98




---



##### 



Exhibit No.

Description10.62


Form of 2.50% Series A
    Convertible Subordinated Debentures due 2024, which is
    incorporated by reference to Exhibit 10.66 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.63


Form of 2.75% Series B
    Convertible Subordinated Debentures due 2024, which is
    incorporated by reference to Exhibit 10.67 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.64


Purchase Agreement, dated as of
    December 16, 2004, among the Company and the Initial
    Purchasers named therein, which is incorporated by reference to
    Exhibit 10.68 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.65


Indenture, dated as of
    December 22, 2004, by and between the Company and The Bank
    of New York, as trustee, which is incorporated by reference to
    Exhibit 99.1 from the Companys
    Form 8-K
    filed on March 10, 2006.10.66


First Supplemental Indenture,
    dated as of November 7, 2006, between BearingPoint, Inc.
    and The Bank of New York, as trustee under the Indenture, dated
    as of December 22, 2004, which is incorporated by reference
    to Exhibit 99.1 from the Companys
    Form 8-K
    filed on November 8, 2006.10.67


Resale Registration Rights
    Agreement, dated December 22, 2004, between the Company and
    the Initial Purchasers, which is incorporated by reference to
    Exhibit 10.70 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.68


Form of 5.00% Convertible
    Senior Subordinated Debentures due 2025, which is incorporated
    by reference to Exhibit 10.71 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.69


Form of Securities Purchase
    Agreement, dated April 21, 2005, among the Company and the
    purchasers named therein, which is incorporated by reference to
    Exhibit 10.72 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.70


Indenture, dated as of
    April 27, 2005, by and between the Company and the Bank of
    New York, as trustee, which is incorporated by reference to
    Exhibit 99.1 from the Companys
    Form 8-K
    filed on March 10, 2006.10.71


First Supplemental Indenture,
    dated as of November 2, 2006, between BearingPoint, Inc.
    and The Bank of New York, as trustee under the Indenture, dated
    as of April 27, 2005, providing for the issuance of an
    aggregate principal amount of $200,000,000 of
    5.00% Convertible Senior Subordinated Debentures Due 2025,
    which is incorporated by reference to Exhibit 99.2 from the
    Companys
    Form 8-K
    filed on November 3, 2006.10.72


Registration Rights Agreement,
    dated April 27, 2005, between the Company and the placement
    agents, which is incorporated by reference to Exhibit 10.74
    from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.73


Securities Purchase Agreement,
    dated July 15, 2005, among the Company and certain
    affiliates of Friedman Fleischer & Lowe, LLC, which is
    incorporated by reference to Exhibit 10.75 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.74


Form of 0.50% Convertible
    Senior Subordinated Debentures due July 2010, which is
    incorporated by reference to Exhibit 10.76 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.75


Form of Warrant Certificate, dated
    July 15, 2005, which is incorporated by reference to
    Exhibit 10.77 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.76


Registration Rights Agreement,
    dated July 15, 2005, between the Company and Friedman
    Fleischer & Lowe, LLC, which is incorporated by
    reference to Exhibit 10.78 from the Companys
    Form 10-K
    for the year ended December 31, 2004. 99




---



##### 



Exhibit No.

Description10.77


Form of Restricted Stock Agreement
    with certain officers of the Company pursuant to the 2000
    Long-Term Incentive Plan, which is incorporated herein by
    reference to Exhibit 10.5 from the Companys
    Form 10-Q
    for the quarter ended September 30, 2002.10.78


Form of Restricted Stock Agreement
    with non-employee directors of the Company pursuant to the
    Amended and Restated Long-Term Incentive Plan, which is
    incorporated herein by reference to Exhibit 10.5 from the
    Companys
    Form 10-Q
    for the quarter ended December 31, 2002.10.79


Form of Restricted Stock Unit
    agreement under the Companys 2000 Long-Term Incentive Plan
    for managing directors and employees, which is incorporated by
    reference to Exhibit 10.81 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.80


Executive Compensation Program,
    effective as of November 10, 2004, between the Company and
    Roderick C. McGeary, which is incorporated by reference to
    Exhibit 10.83 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.81


Employment Letter, effective as of
    January 14, 2005, between the Company and Joseph Corbett,
    which is incorporated by reference to Exhibit 10.84 from
    the Companys
    Form 10-K
    for the year ended December 31, 2004.10.82


Independent Contractor Letter
    Agreement, dated May 24, 2005 between the Company and
    Joseph Corbett, which is incorporated by reference to
    Exhibit 10.85 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.83


Employment Letter, effective as of
    March 21, 2005, between the Company and Harry L. You, which
    is incorporated by reference to Exhibit 10.86 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.84


Managing Director Agreement, dated
    as of March 21, 2005, between the Company and Harry L. You,
    which is incorporated by reference to Exhibit 10.87 from
    the Companys
    Form 10-K
    for the year ended December 31, 2004.10.85


Restricted Stock Unit Agreement,
    dated March 21, 2005, between the Company and Harry L. You,
    which is incorporated by reference to Exhibit 10.88 from
    the Companys
    Form 10-K
    for the year ended December 31, 2004.10.86


Special Termination Agreement,
    dated as of March 21, 2005, between the Company and Harry
    L. You, which is incorporated by reference to Exhibit 10.89
    from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.87


Stock Option Agreement, between
    the Company and Harry L. You, which is incorporated by reference
    to Exhibit 10.90 from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.88


Employment Letter, effective as of
    July 1, 2005, between the Company and Judy A. Ethell, which
    is incorporated by reference to Exhibit 10.91 from the
    Companys
    Form 10-K
    for the year ended December 31, 2004.10.89


Restricted Stock Unit Agreement,
    dated July 1, 2005, between the Company and Judy A. Ethell,
    which is incorporated by reference to Exhibit 10.92 from
    the Companys
    Form 10-K
    for the year ended December 31, 2004.10.90


Special Termination Agreement,
    dated as of July 1, 2005, between the Company and Judy A.
    Ethell, which is incorporated by reference to Exhibit 10.93
    from the Companys
    Form 10-K
    for the year ended December 31, 2004.10.91


Employment Letter, effective as of
    February 24, 2006, between the Company and Laurent C. Lutz.10.92


Managing Director Agreement, dated
    as of February 24, 2006, between the Company and Laurent C.
    Lutz.10.93


Form of Special Termination
    Agreement. 100




---



##### 



Exhibit No.

Description10.94


Special Termination Agreement,
    dated as of February 24, 2006, between the Company and
    Laurent C. Lutz.10.95


Letter Agreement dated
    October 3, 2006, between the Company and Judy A. Ethell.10.96


Restricted Stock Unit Agreement
    for 292,000 restricted stock units, dated September 19,
    2006, between the Company and Judy A. Ethell.10.97


Restricted Stock Unit Agreement
    for 94,000 restricted stock units, dated September 19,
    2006, between the Company and Judy A. Ethell.14.1


Code of Business Conduct and
    Ethics, which is incorporated herein by reference to
    Exhibit 14.1 of the Companys
    Form 10-K
    for the transition period from July 1, 2003 to
    December 31, 2003.21.1


List of subsidiaries of the
    Registrant.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.  101




---



##### 



SIGNATURES
      Date: November 20, 2006

By:  /s/  Harry
    L. YouHarry
    L. You
    Chief Executive Officer     Signature

Title/s/  Harry
    L. YouHarry
    L. You

Director, Chief Executive Officer
    (principal executive officer)/s/  Judy
    A. EthellJudy
    A. Ethell

Chief Financial Officer, Executive
    Vice PresidentFinance and Chief Accounting Officer
    (principal financial and accounting officer)/s/  Roderick
    C. McGearyRoderick
    C. McGeary

Chairman of the Board of Directors/s/  Douglas
    C. AllredDouglas
    C. Allred

Director/s/  Betsy
    J. BernardBetsy
    J. Bernard

Director/s/  Spencer
    C.
    FleischerSpencer
    C. Fleischer

Director/s/  Wolfgang
    KemnaWolfgang
    Kemna

Director/s/  Albert
    L. LordAlbert
    L. Lord

Director/s/  Alice
    M. RivlinAlice
    M. Rivlin

Director/s/  J.
    Terry
    StrangeJ.
    Terry Strange

Director  102




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##### 



ITEM 8:
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  BEARINGPOINT,
    INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered
    Public Accounting Firm


F-2Consolidated Balance Sheets at
    December 31, 2005 and 2004


F-7Consolidated Statements of
    Operations for the years ended December 31, 2005 and 2004,
    the six months ended December 31, 2003 and the year ended
    June 30, 2003


F-8Consolidated Statements of Changes
    in Stockholders Equity (Deficit) for the years ended
    December 31, 2005 and 2004, the six months ended
    December 31, 2003 and the year ended June 30, 2003


F-9Consolidated Statements of Cash
    Flows for the years ended December 31, 2005 and 2004, the
    six months ended December 31, 2003 and the year ended
    June 30, 2003


F-11Notes to Consolidated Financial
    Statements


F-12  F-1




---



##### 



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      Consolidated
    financial statements
    Internal
    control over financial reporting
     F-2




---



##### 



1.
  
    Senior management did not establish and maintain a proper tone
    as to internal control over financial reporting. Specifically,
    senior management did not emphasize, through consistent
    communication, the importance of internal control over financial
    reporting and adherence to the code of business conduct and
    ethics.
    The Company did not maintain a sufficient complement of
    personnel, either in the corporate offices or foreign locations
    with an appropriate level of knowledge, experience and training
    in the application of generally accepted accounting principles
    and in internal control over financial reporting commensurate
    with financial reporting requirements.
    The Company did not maintain and communicate sufficient
    formalized and consistent finance and accounting policies and
    procedures. The Company also did not maintain effective controls
    designed to prevent or detect instances of non-compliance with
    established policies and procedures specifically with respect to
    the application of accounting policies at foreign locations.
    The Company did not enforce the consistent performance of manual
    controls designed to complement system controls over the North
    American financial accounting system. As a result, transactions
    and data were not completely and accurately recorded, processed
    and reported in the financial statements.
    The Company did not maintain adequate controls to ensure that
    employees could report actual or perceived violations of
    policies and procedures. In addition, the Company did not have
    sufficient procedures to ensure the appropriate notification,
    investigation, resolution and remediation procedures were
    applied to reported violations.   F-3




---



##### 



2.
  
    The Company did not maintain formal, written policies and
    procedures governing the financial close and reporting process.
    The Company did not maintain effective controls to ensure that
    management oversight and review procedures were properly
    performed over the accounts and disclosures in the financial
    statements. In addition, the Company did not maintain effective
    controls to ensure adequate management reporting information was
    available to monitor financial statement accounts and
    disclosures.
    The Company did not maintain effective controls over the
    recording of recurring and non-recurring journal entries.
    Specifically, effective controls were not designed and in place
    to provide reasonable assurance that journal entries were
    prepared with sufficient supporting documentation and reviewed
    and approved to ensure the completeness and accuracy of the
    entries recorded.
    The Company did not maintain effective controls to provide
    reasonable assurance that accounts were complete and accurate
    and agreed to detailed support and that reconciliations of
    accounts were properly performed, reviewed and approved.
    The Company did not maintain effective controls to provide
    reasonable assurance that foreign currency translation amounts
    resulting from intercompany loans were accurately recorded and
    reported in the consolidated financial statements.    3.
  
    The Company did not design and maintain effective controls to
    provide reasonable assurance over the initiation, recording,
    processing, and reporting of customer contracts, including the
    existence of and adherence to policies and procedures, adequate
    segregation of duties and adequate monitoring by management.
    The Company did not design and maintain effective controls to
    provide reasonable assurance that contract costs, such as
    engagement subcontractor costs, were completely and accurately
    accumulated.
    The Company did not design and maintain effective controls to
    provide reasonable assurance that the Company adequately
    evaluated customer contracts to identify and provide reasonable
    assurance regarding the proper application of the appropriate
    method of revenue recognition in accordance with generally
    accepted accounting principles.
    The Company did not design and maintain effective controls to
    provide reasonable assurance regarding the completeness of
    information recorded in the financial accounting system.
    Specifically, the Company did not design and have in place
    effective controls to provide reasonable assurance that invoices
    issued outside of the financial accounting system were
    appropriately recorded in the general ledger. As a result, the
    Company did not ensure that cash received was applied to the
    correct accounts in the appropriate accounting period.  4.
 F-4




---



##### 



5.
  6.
  7.
  8.
  9.
  
    The Company did not design and maintain effective controls over
    the accuracy and completeness of the components of income tax
    provision calculations and related reconciliation of income tax
    payable and of differences between the tax and financial
    reporting basis of assets and liabilities with deferred income
    tax assets and liabilities. The Company also did not maintain
    effective controls to identify and determine permanent
    differences between income for tax and financial reporting
    income purposes.
    The Company did not maintain effective controls, including
    monitoring, over the calculation and recording of foreign income
    taxes, including tax reserves, acquired tax contingencies
    associated with business combinations and the income tax impact
    of foreign debt recapitalization. In addition, the F-5




---



##### 



Company did not maintain effective controls over determining the
    correct foreign jurisdictions or tax treatment of certain
    foreign subsidiaries for United States tax purposes.  
    The Company did not design and maintain effective controls over
    withholding taxes associated with interest payable on
    intercompany loans and intercompany trade payables between
    various tax jurisdictions.    Internal
    ControlIntegrated Framework Internal ControlIntegrated Framework
     F-6




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##### 



BEARINGPOINT,
    INC.
  CONSOLIDATED
    BALANCE SHEETS
 (in
    thousands, except share amounts)
  December 31,


December 31,2005


2004ASSETSCurrent assets:Cash and cash equivalents

$
255,340


$
244,810Restricted cash (note 2)


121,247



21,053Accounts receivable, net of
    allowances of $9,326 at December 31, 2005 and $11,296 at
    December 31, 2004


432,415



400,285Unbilled revenue


355,137



381,681Income tax receivable


10,867



50,518Deferred income taxes


18,991



59,566Prepaid expenses


35,875



31,196Other current assets


40,345



33,038Total current assets


1,270,217



1,222,147Property and equipment, net


170,133



203,403Goodwill


427,688



656,877Other intangible assets, net


1,545



3,810Deferred income taxes, less current
    portion


20,915



20,522Other assets


81,928



75,948Total assets

$
1,972,426


$
2,182,707LIABILITIES AND
    STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of notes payable

$
6,393


$
17,558Accounts payable


286,273



306,325Accrued payroll and employee
    benefits


309,510



269,876Deferred revenue


166,647



107,308Income tax payable


41,839



33,927Current portion of accrued lease
    and facilities charge


12,515



22,956Deferred income taxes


10,095



16,750Other current liabilities


208,225



134,744Total current liabilities


1,041,497



909,444Notes payable, less current portion


668,367



405,668Accrued employee benefits


92,338



84,631Accrued lease and facilities
    charge, less current portion


38,082



27,386Deferred income taxes, less current
    portion


22,876



6,810Other liabilities


154,838



124,070Total liabilities


2,017,998



1,558,009Commitments and contingencies
    (notes 9, 10, 11)Stockholders equity (deficit):Preferred stock, $.01 par
    value 10,000,000 shares authorized






Common stock, $.01 par value
    1,000,000,000 shares authorized, 205,350,249 shares
    issued and 201,537,999 shares outstanding on
    December 31, 2005 and 203,132,716 shares issued and
    199,320,466 shares outstanding on December 31, 2004


2,044



2,022Additional paid-in capital


1,261,797



1,143,059Accumulated deficit


(1,484,199
)


(762,556
)Notes receivable from stockholders


(7,578
)


(8,055
)Accumulated other comprehensive
    income


218,091



285,955Treasury stock, at cost
    (3,812,250 shares)


(35,727
)


(35,727
)Total stockholders equity
    (deficit)


(45,572
)


624,698Total liabilities and
    stockholders equity (deficit)

$
1,972,426


$
2,182,707    F-7




---



##### 



BEARINGPOINT,
    INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (in
    thousands, except share and per share amounts)
  Year Ended


Six Months Ended


Year EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Revenue

$
3,388,900


$
3,375,782


$
1,522,503


$
3,157,898Costs of service:Professional compensation


1,770,405



1,532,423



694,859



1,429,192Other direct contract expenses


972,787



991,493



396,392



743,066Lease and facilities restructuring
    charge


29,581



11,699



61,436



17,283Other costs of service


258,135



292,643



129,998



264,606Total costs of service


3,030,908



2,828,258



1,282,685



2,454,147Gross profit


357,992



547,524



239,818



703,751Amortization of purchased
    intangible assets


2,266



3,457



10,212



45,127Goodwill impairment charge


166,415



397,065



127,326



Selling, general and
    administrative expenses


750,867



641,176



272,250



550,098Operating income (loss)


(561,556
)


(494,174
)


(169,970
)


108,526Interest income


9,049



1,441



646



2,346Interest expense


(33,385
)


(18,710
)


(8,611
)


(13,598
)Loss on early extinguishment of
    debt






(22,617
)






Other income (expense), net


(13,630
)


(375
)


6,192



759Income (loss) before taxes


(599,522
)


(534,435
)


(171,743
)


98,033Income tax expense


122,121



11,791



4,872



65,342Net income (loss)

$
(721,643
)

$
(546,226
)

$
(176,615
)

$
32,691Earnings (loss) per
    sharebasic and diluted:Net income (loss)

$
(3.59
)

$
(2.77
)

$
(0.91
)

$
0.18Weighted average sharesbasic


201,020,274



197,039,303



193,596,759



185,461,995Weighted average
    sharesdiluted


201,020,274



197,039,303



193,596,759



185,637,693    F-8




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##### 



BEARINGPOINT,
    INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 (in
    thousands)
  Notes


AccumulatedCommon stock


Additional





receivable


other


Treasury StockShares





paid-in


Accumulated


from


comprehensive








Comprehensiveissued


Amount


capital


deficit


stockholders


income (loss)


Shares


Amount


income (loss)


TotalBalance at June 30, 2002
    (unaudited)


161,478


$
1,605


$
680,142


$
(72,406
)

$
(9,160
)

$
(1,360
)


(3,812
)

$
(35,727
)





$
563,094Sale of common stock under Employee
    Stock Purchase Plan, including tax benefit of $804


3,548



35



27,695



























27,730Notes receivable from stockholders,
    including $72 in interest and repayment of loan


















24



















24Issuance of common stock in
    connection with acquisition of KPMG Consulting AG (BE Germany)


30,471



305



364,132



























364,437Restricted stock awards to Board of
    Directors


20







157



























157Compensation recognized for
    restricted stock, net of tax benefit of $16










1,546



























1,546Compensation recognized for stock
    awards related to transactions involving Andersen Business
    Consulting


8







13,531



























13,531Forfeiture of restricted stock


(50
)


































Comprehensive income:Net income














32,691


















$
32,691



32,691Derivative instruments, net of tax






















695











695



695Foreign currency translation
    adjustment, net of tax






















139,315











139,315



139,315Total comprehensive income

































$
172,701Balance at June 30,
    2003


195,475



1,945



1,087,203



(39,715
)


(9,136
)


138,650



(3,812
)


(35,727
)






1,143,220Exercise of stock options under
    Long-Term Incentive Plan, net of tax benefit of $7


9







67



























67Sale of common stock under Employee
    Stock Purchase Plan, net of tax benefit of $1,033


1,561



16



11,483



























11,499Notes receivable from stockholders,
    including $36 in interest and repayment of loan


















22



















22Restricted stock awards to Board of
    Directors


56







451



























451Compensation recognized for
    restricted stock, net of tax benefit of $28










698



























698Compensation recognized for stock
    awards related to transactions involving Andersen Business
    Consulting, net of tax of $928


1,232



12



5,729



























5,741Forfeiture of restricted stock


(10
)


































Forfeiture of Founders shares


(28
)


































Comprehensive income (loss):Net loss














(176,615
)

















$
(176,615
)


(176,615
)Derivative instruments, net of tax






















(79
)










(79
)


(79
)Foreign currency translation
    adjustment, net of tax






















84,991











84,991



84,991Total comprehensive loss

































$
(91,703
)Balance at December 31,
    2003


198,295



1,973



1,105,631



(216,330
)


(9,114
)


223,562



(3,812
)


(35,727
)






1,069,995    F-9




---



##### 



BEARINGPOINT,
    INC.
  CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    (DEFICIT)(Continued)
 (in
    thousands)
  Notes


AccumulatedCommon Stock


Additional





receivable


other


Treasury StockShares





paid-in


Accumulated


from


comprehensive








Comprehensiveissued


Amount


capital


deficit


stockholders


income (loss)


Shares


Amount


income (loss)


TotalBalance at December 31,
    2003


198,295



1,973



1,105,631



(216,330
)


(9,114
)


223,562



(3,812
)


(35,727
)






1,069,995Exercise of stock options under
    Long-Term Incentive Plan, including tax benefit of $210


284



3



2,416



























2,419Sale of common stock under Employee
    Stock Purchase Plan, including tax benefit of $1,649


3,642



36



26,309



























26,345Notes receivable from stockholders,
    including $58 in interest and repayment of loan


















1,059



















1,059Restricted stock awards to Board of
    Directors


56



1



452



























453Compensation recognized for
    restricted stock, net of tax benefit of $135










563



























563Compensation recognized for stock
    awards related to transactions involving Andersen Business
    Consulting, net of tax of $1,026


861



9



7,688



























7,697Forfeiture of Founders shares


(5
)


































Comprehensive income (loss):Net loss














(546,226
)

















$
(546,226
)


(546,226
)Derivative instruments, net of tax






















(616
)










(616
)


(616
)Foreign currency translation
    adjustment, net of tax






















63,009











63,009



63,009Total comprehensive loss

































$
(483,833
)Balance at December 31,
    2004


203,133



2,022



1,143,059



(762,556
)


(8,055
)


285,955



(3,812
)


(35,727
)






624,698Exercise of stock options under
    Long-Term Incentive Plan, including tax benefit of $75


164



1



1,200



























1,201Sale of common stock under Employee
    Stock Purchase Plan, including tax benefit of $520


2,053



21



14,269



























14,290Notes receivable from stockholders,
    including $6 in interest and forgiveness of loan


















477



















477Compensation recognized for stock
    options, restricted stock awards and restricted stock units










82,346



























82,346Payments in lieu of stock issuance
    related to transactions involving Andersen Business Consulting










(4,929
)


























(4,929
)Compensation recognized for stock
    awards related to transactions involving Andersen Business
    Consulting










3,491



























3,491Beneficial conversion feature
    relating to the July 2005 Senior Debentures










14,288



























14,288Fair value of the July 2005 Warrants










8,073



























8,073Comprehensive income (loss):Net loss














(721,643
)

















$
(721,643
)


(721,643
)Minimum pension liability






















(13,321
)










(13,321
)


(13,321
)Foreign currency translation
    adjustment, net of tax






















(54,543
)










(54,543
)


(54,543
)Total comprehensive loss

































$
(789,507
)Balance at December 31,
    2005


205,350


$
2,044


$
1,261,797


$
(1,484,199
)

$
(7,578
)

$
218,091



(3,812
)

$
(35,727
)





$
(45,572
)    F-10




---



##### 



BEARINGPOINT,
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (in
    thousands)
  Year Ended


Six Months Ended


Year EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Cash flows from operating
    activities:Net income (loss)

$
(721,643
)

$
(546,226
)

$
(176,615
)

$
32,691Adjustments to reconcile net income
    (loss) to net cash provided by (used in) operating activities:Deferred income taxes


49,211



39,332



(23,278
)


(35,321
)Provision (benefit) for doubtful
    accounts


5,334



(1,057
)


3,901



2,878Stock-based compensation


85,837



9,874



7,818



15,218Loss on extinguishment of debt






2,317







Impairment of goodwill


166,415



397,065



127,326



Depreciation and amortization of
    property and equipment


70,544



78,690



39,271



73,231Amortization of purchased
    intangible assets


2,266



3,457



10,212



45,127Lease and facilities restructuring
    charge


29,581



11,699



61,436



Amortization of debt issuance costs


12,396



2,106



518



708Other


11,597



3,072



(3,419
)


(779
)Changes in assets and liabilities:Accounts receivable


(52,196
)


(33,180
)


28,093



(1,684
)Unbilled revenue


20,492



(62,323
)


(65,882
)


(48,107
)Income tax receivable, prepaid
    expenses and other current assets


26,318



(38,581
)


(23,524
)


4,753Other assets


(10,025
)


(51,975
)


44,938



220Accrued payroll and employee
    benefits


47,018



47,574



(34,139
)


(25,825
)Accounts payable and other current
    liabilities


120,915



121,409



33,773



66,478Other liabilities


22,869



65,012



14,670



32,369Net cash provided by (used in)
    operating activities:


(113,071
)


48,265



45,099



161,957Cash flows from investing
    activities:Purchases of property and equipment


(40,849
)


(88,334
)


(36,618
)


(125,690
)Increase in restricted cash


(100,194
)


(21,053
)






Businesses acquired, net of cash
    acquired














(430,602
)Net cash used in investing
    activities


(141,043
)


(109,387
)


(36,618
)


(556,292
)Cash flows from financing
    activities:Proceeds from issuance of common
    stock


14,896



26,904



10,526



26,926Proceeds from issuance of notes
    payable


282,156



1,531,849



226,270



1,647,045Repayment of notes payable


(16,985
)


(1,360,288
)


(257,578
)


(1,380,595
)Increase (decrease) in book
    overdrafts


(980
)


(22,986
)


8,183



(2,447
)Payments made in lieu of stock
    issuance


(4,929
)










Payment on notes receivable from
    stockholders


(6
)


1,059



22



95Net cash provided by (used in)
    financing activities


274,152



176,538



(12,577
)


291,024Effect of exchange rate changes on
    cash and cash equivalents


(9,508
)


6,919



4,781



2,465Net increase (decrease) in cash and
    cash equivalents


10,530



122,335



685



(100,846
)Cash and cash
    equivalentsbeginning of period


244,810



122,475



121,790



222,636Cash and cash equivalentsend
    of period

$
255,340


$
244,810


$
122,475


$
121,790Supplementary cash flow information:Interest paid

$
17,547


$
20,480


$
10,127


$
15,355Taxes paid, net of refunds

$
(41,741
)

$
21,397


$
40,695


$
42,225Supplemental non-cash investing and
    financing activities:Issuance of common stock for
    business acquisition

$



$



$



$
364,437Beneficial conversion feature
    related to the July 2005 Debentures

$
14,288


$



$



$
Fair value of July 2005 Warrants

$
8,073


$



$



$
    F-11




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share amounts)
 1.
    Description
    of the Business, Liquidity and Basis of Presentation The
    Company      Liquidity    
    The Company has experienced significant recurring net losses. At
    December 31, 2005, the Company had an accumulated deficit
    of $1,484,199 and a total stockholders deficit of $45,572.
    The Companys business has not generated positive cash from
    operating activities in some recent periods during fiscal 2005
    and 2004.
    Due to the material weaknesses in its internal controls, the
    Company continues to experience significant delays in completing
    its consolidated financial statements and filing periodic
    reports with the SEC on a timely basis. Accordingly, the Company
    continues to devote substantial additional internal and external
    resources, and experience higher than expected fees for audit
    services.
    In fiscal 2005, the Company incurred losses of $113,257 under a
    significant contract with Hawaiian Telcom Communications, Inc.
    (HT), which consequently will result in
    significantly less cash from operating activities in future
    years.
    The Company currently is a party to a number of disputes which
    involve or may involve litigation or other legal or regulatory
    proceedings. See Note 11, Commitments and
    Contingencies.   F-12




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
      Basis of
    Presentation     F-13




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Twelve Months Ended


Six Months EndedDecember 31,


December 31,2004


2003


2003


2002(Unaudited)





(Unaudited)Revenue

$
3,375,782


$
3,130,139


$
1,522,503


$
1,550,263Costs of service:Professional compensation


1,532,423



1,432,958



694,859



691,092Other direct contract expenses


991,493



787,658



396,392



351,800Lease and facilities restructuring
    charge


11,699



76,454



61,436



2,265Other costs of service


292,643



255,924



129,998



138,680Total costs of service


2,828,258



2,552,994



1,282,685



1,183,837Gross profit


547,524



577,145



239,818



366,426Amortization of purchased
    intangible assets


3,457



35,861



10,212



19,479Goodwill impairment charge


397,065



127,326



127,326



Selling, general and
    administrative expenses


641,176



534,110



272,250



288,236Operating income (loss)


(494,174
)


(120,152
)


(169,970
)


58,711Loss on early extinguishment of
    debt


(22,617
)










Interest/other income (expense),
    net


(17,644
)


(8,853
)


(1,773
)


(3,415
)Income (loss) before taxes


(534,435
)


(129,005
)


(171,743
)


55,296Income tax expense


11,791



34,523



4,872



35,692Net income (loss)

$
(546,226
)

$
(163,528
)

$
(176,615
)

$
19,604Earnings (loss) per
    sharebasic and diluted

$
(2.77
)

$
(0.85
)

$
(0.91
)

$
0.11Weighted average sharesbasic


197,039,303



192,148,757



193,596,759



180,278,748Weighted average
    sharesdiluted


197,039,303



192,148,757



193,596,759



180,408,595  2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation    Use of
    Estimates   F-14




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Reclassifications    Revenue
    Recognition  time-and-materials,
  percentage-of-completion (SOP) 81-1, (SOP 81-1). percentage-of-completion percentage-of-completion percentage-of-completion
  time-and-materials
  (EITF) 00-21,
 F-15




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  (EITF 00-21). percentage-of-completion SOP 81-1, and/or
  out-of-pocket
    Costs of
    Service  out-of-pocket
  Selling,
    General and Administrative Expenses   F-16




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Cash,
    Cash Equivalents and Restricted Cash    Concentrations
    of Credit Risk and Fair Value of Financial Instruments      Valuation
    of Accounts Receivable   F-17




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Property
    and Equipment  SOP 98-1,
  Accounting
    for Leases    Asset
    Retirement Obligations    Goodwill
    and Other Intangible Assets     F-18




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
      Valuation
    of Long-Lived Assets    Foreign
    Currency        Accounting
    for Income Taxes   F-19




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Pension
    and Postretirement Benefits    Accounting
    for Employee Global Mobility and Tax Equalization    Stock-Based
    Compensation     F-20




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Stock Price


Risk-Free





ExpectedExpected


Interest


Expected


DividendVolatility


Rate


Life


YieldYear ended December 31, 2005


51.08
%


4.10
%


6



Year ended December 31, 2004


63.47
%


3.65
%


6



Six months ended December 31,
    2003


69.38
%


3.47
%


6



Year ended June 30, 2003


70.76
%


2.96
%


6



       Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Net income (loss)

$
(721,643
)

$
(546,226
)

$
(176,615
)

$
32,691Add back:Total stock based compensation
    expense recorded under intrinsic value method for all stock
    awards, net of tax effects


85,837



5,840



4,624



9,001Deduct:Total stock based compensation
    expense recorded under fair value method for all stock awards,
    net of tax effects


(173,134
)


(88,690
)


(51,106
)


(105,448
)Pro forma net loss

$
(808,940
)

$
(629,076
)

$
(223,097
)

$
(63,756
)Earnings (loss) per share:Basic and dilutedas reported

$
(3.59
)

$
(2.77
)

$
(0.91
)

$
0.18Basic and dilutedpro forma

$
(4.02
)

$
(3.19
)

$
(1.15
)

$
(0.34
)    F-21




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Derivative
    Financial Instruments  EITF 00-19, 98-5), EITF 00-27, No. 98-5
     F-22




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Comprehensive
    Income   December 31,2005


2004Foreign currency translation
    adjustment

$
231,412


$
285,955Minimum pension liability


(13,321
)


Total accumulated other
    comprehensive income

$
218,091


$
285,955   Recently
    Issued Accounting Pronouncements           F-23




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
       3.
    Earnings (Loss) per Share
      Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Net income (loss)

$
(721,643
)

$
(546,226
)

$
(176,615
)

$
32,691Weighted average shares
    outstandingbasic


201,020,274



197,039,303



193,596,759



185,461,995Employee stock options














175,698Weighted average shares
    outstandingdiluted


201,020,274



197,039,303



193,596,759



185,637,693Earnings (loss) per
    sharebasic and diluted

$
(3.59
)

$
(2.77
)

$
(0.91
)

$
0.18  F-24




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Employee stock options


44,920,037



38,416,819



53,313,249



40,898,281Restricted stock awards and
    restricted stock units


4,275,980



758,551



2,392,958



3,967,173Series A Convertible
    Subordinated Debentures


23,810,200



892,883







Series B Convertible
    Subordinated Debentures


19,048,160



694,464







April 2005 Convertible Senior
    Subordinated Debentures


18,939,388











July 2005 Convertible Senior
    Subordinated Debentures


2,716,049











Warrants issued in connection with
    the July 2005 Debentures


1,604,167











Softline acquisition obligation
    (note 9)


933,604



881,916



1,042,028



868,056Total


116,247,585



41,644,633



56,748,235



45,733,510  4.
    Property and Equipment
    December 31,2005


2004Property and equipment:Internal-use software

$
167,621


$
154,006Equipment


84,182



86,456Leasehold improvements


54,706



66,957Furniture


31,710



33,079Total property and equipment


338,219



340,498Accumulated depreciation and
    amortization:Internal-use software


(81,815
)


(49,352
)Equipment


(49,778
)


(47,094
)Leasehold improvements


(24,240
)


(27,702
)Furniture


(12,253
)


(12,947
)Total accumulated depreciation and
    amortization


(168,086
)


(137,095
)Property and equipment, net

$
170,133


$
203,403  F-25




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Year Ended


Six Months Ended


Year EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Amounts included in:Other costs of service

$
39,205


$
43,485


$
15,214


$
42,174Selling, general and
    administrative expenses


31,339



35,205



24,057



31,057$
70,544


$
78,690


$
39,271


$
73,231   5. Business
    Acquisitions, Goodwill and Other Intangible Assets
  Acquisition
    of KPMG Consulting AG  (13-month (2-year
      Acquisition
    of Andersen Business Consulting Practices   F-26




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    (12-month
       Goodwill
    and Other Intangible Assets    Balance








BalanceDecember 31,


Impairment





December 31,2004


Charge


Other (a)


2005Public Services

$
23,581


$



$



$
23,581Commercial Services


64,188



(64,188
)






Financial Services


9,210











9,210EMEA


485,401



(102,227
)


(57,912
)


325,262Asia Pacific


73,459







(4,897
)


68,562Latin America


836







35



871Corporate/Other


202











202Total

$
656,877


$
(166,415
)

$
(62,774
)

$
427,688   (a)
    
    Other changes in goodwill consist of foreign currency
    translation adjustments. F-27




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Balance








BalanceDecember 31,


Impairment





December 31,2003


Charge


Other (a)


2004Public Services

$
23,581


$



$



$
23,581Commercial Services


64,188











64,188Financial Services


9,210











9,210EMEA


821,649



(397,065
)


60,817



485,401Asia Pacific


71,717







1,742



73,459Latin America


800







36



836Corporate/Other


202











202Total

$
991,347


$
(397,065
)

$
62,595


$
656,877   (a)
    
    Other changes in goodwill consist of foreign currency
    translation adjustments.       F-28




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
       December 31,2005


2004Other intangible assets:Backlog, customer contracts and
    related customer relationships

$
1,309


$
1,306Market rights


10,297



10,297Total other intangibles


11,606



11,603Accumulated amortization:Backlog, customer contracts and
    related customer relationships


(1,309
)


(1,100
)Market rights


(8,752
)


(6,693
)Total accumulated amortization


(10,061
)


(7,793
)Other intangible assets, net

$
1,545


$
3,810    F-29




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  6.
    Notes Payable   December 31,2005

2004Current portion (a):Yen-denominated term loan
    (January 31, 2003)

$
2,803

$
6,509Yen-denominated term loan
    (June 30, 2003)


1,402


3,254Yen-denominated line of credit





7,795Other


2,188


Total current portion


6,393


17,558Long-term portion:Series A and Series B
    Convertible Debentures


450,000


400,000April 2005 Convertible Debentures


200,000


July 2005 Convertible Debentures
    (net of discount of $21,946)


18,054


Yen-denominated term loan
    (January 31, 2003)





3,215Yen-denominated term loan
    (June 30, 2003)





1,609Other


313


844Total long-term portion


668,367


405,668Total notes payable

$
674,760

$
423,226     (a)
    
    The weighted average interest rates on the current portion of
    notes payable as of December 31, 2005 and 2004 were 1.3%
    and 1.2%, respectively.    Year

Amount2006

$
6,3932007


3132008


2009


2010


18,054Thereafter


650,000Total

$
674,760   Series A
    and Series B Convertible Subordinated Debentures   F-30




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
           F-31




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Form 10-K Form 10-Q
       April
    2005 Convertible Senior Subordinated Debentures     F-32




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
              July 2005
    Convertible Senior Debentures   F-33




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
                 F-34




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
   EITF 98-5 EITF 00-27,
    2005
    Credit Facility       F-35




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
         
    The financial covenants include: (i) a minimum
    U.S. cash collections requirement of $125,000 monthly
    and $420,000 by the Company on a rolling three-month basis,
    (ii) a minimum trailing twelve-month EBITDA covenant which
    increases quarterly from $107,600 (for the quarter ending
    September 30, 2005) to $333,800 (for the quarter ending
    March 31, 2009 and thereafter) as of the end of the
    applicable quarter, (iii) a maximum leverage ratio which
    decreases from 7.7 to 1 (for the quarter ending
    September 30, 2005) to 2.4 to 1 (for the
    quarter ending March 31, 2009 and thereafter) as of the end
    of the applicable quarter and (iv) a maximum trailing
    twelve-month capital expenditures covenant which starts at
    $111,300 for the quarter ending September 30, 2005 and
    fluctuates thereafter, including reducing to $89,700 a year
    thereafter and ultimately remaining fixed at $94,100, starting
    with the quarter ending December 31, 2006.    
    The affirmative covenants include:      
    the Companys Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2005 (the 2005
    Form 10-K)
    by November 30, 2006;
    the
    Forms 10-Q
    for the quarters ended March 31, June 30, and
    September 30, 2005 by the earlier of two months after the
    date the Company files the 2005
    Form 10-K
    and January 31, 2007;
    the
    Forms 10-Q
    for the quarters ended March 31 and June 30, 2006 by
    February 28, 2007; and
    the
    Form 10-Q
    for the quarter ended September 30, 2006 by March 31,
    2007; and   F-36




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
        
    The negative covenants restrict certain of the Companys
    corporate activities, including, among other things, its ability
    to make acquisitions or investments, make capital expenditures,
    repay other indebtedness, merge or consolidate with other
    entities, dispose of assets, incur additional indebtedness, pay
    dividends, create liens, make investments (including limitations
    on loans to its foreign subsidiaries) settle litigation and
    engage in certain transactions with affiliates.
    The events of default include, among others, defaults based on:
    certain bankruptcy and insolvency events; nonpayment;
    cross-defaults to other debt; payments in respect of judgments
    against the Company in excess of $18,000; breach of specified
    covenants; change of control; termination of trading of Company
    stock; material inaccuracy of representations and warranties;
    failure to timely deliver audited financial statements;
    inaccuracy of the borrowing base; the prohibition or restraint
    on the Company or any loan party from conducting its business in
    any manner that has or could reasonably be expected to result in
    a material adverse effect because of any ruling, decision or
    order of a court or governmental authority; an indictment,
    conviction or the commencement of criminal proceedings of or
    against the Company or any subsidiary pursuant to which
    (a) either damages or penalties could be in excess of
    $5,000 or (b) such indictment could reasonably be expected
    to result in a material adverse effect.        Yen-Denominated
    Term Loans and Line of Credit   F-37




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
        Discontinued
    Credit Facilities    Form 10-K
   F-38




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Early
    Extinguishment of Senior Notes   7.
    Accrued
    Payroll and Employee Benefits   December 31,2005


2004Accrued compensated absences

$
91,587


$
91,978Payroll related taxes


38,089



57,582Employee mobility and tax
    equalization


82,482



67,639Other


97,352



52,677Total

$
309,510


$
269,876  8.
    Other
    Current Liabilities   December 31,2005


2004Acquisition obligation (see
    Note 9)

$
16,133


$
15,792Book overdrafts


810



1,790Accrual for loss contracts


77,920



19,453Accrued legal settlements


38,601



27,157Other


74,761



70,552Total

$
208,225


$
134,744   9.
    Acquisition
    Obligation   F-39




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    10.
    Collaboration
    Agreement    11.
    Commitments
    and Contingencies    
    Claims and investigations arising from its continuing 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 F-40




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  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 and by current or former employees seeking damages
    for alleged acts of wrongful termination or discrimination
    (Other Matters).  24-month
    SEC
    Reporting Matters
  2003
    Class Action Suits   Rule 10b-5
  2005
    Class Action Suits  Rule 10b-5
  2005 Shareholders
    Derivative Demand   F-41




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Form 8-K,
  Series B
    Debenture Suit  Form 10-K Form 10-Q
       F-42




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    SEC
    Investigation  Form 8-K.
    Government
    Contracting Matters
  Government
    Contracts     Grand
    Jury SubpoenaCalifornia   F-43




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Travel
    Rebate Investigation    Department
    of Interior    USAID
    Contract    Core
    Financial Logistics System   F-44




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    General
    Services Administration Audit      Other
    Matters
  Peregrine
    Litigation   Ariko v. Moores Allocco v. Gardner Bains v. Moores Peregrine Litigation
    Trust v. KPMG LLP In re Peregrine Systems, Inc. Securities
    Litigation
  Allocco,
    Ariko, Bains Peregrine Litigation Trust Allocco, Ariko, Bains and the Peregrine Litigation Trust Allocco Peregrine Litigation
    Trust
 F-45




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    In re Peregrine Systems, Inc.
    Securities Litigation. In
    re Peregrine Systems, Inc. Securities Litigation
    Hawaiian
    Telcom Communications, Inc.    Telecommunication
    Company    Michael
    Donahue   F-46




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Canon
    Australia    Transition
    Services Provided By KPMG LLP     F-47




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Operating
    Leases
      Year ending December 31:2006

$
84,5192007


69,7182008


64,5162009


56,6272010


41,966Thereafter


70,856Total minimum payments required

$
388,202     Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Rent expense

$
70,054


$
70,612


$
36,920


$
78,392Less: Sublease rentals


(5,320
)


(4,426
)


(1,447
)


(2,150
)Net rent expense

$
64,734


$
66,186


$
35,473


$
76,242   Other
    Commitments
   F-48




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
      12.
    Stockholders
    Equity  Long-Term
    Incentive Plan  10-year
   F-49




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Options/Shares


Options outstandingAvailable





Weighted Averagefor Grant


Number


Price per ShareBalance at June 30, 2002
    (unaudited)


21,134,306



30,791,934


$
17.17Additional shares authorized


11,541,474







Options granted


(23,987,908
)


23,987,908



9.71Options forfeited/canceled


6,776,989



(6,776,989
)


15.90Restricted stock awards, net of
    forfeitures


22,000







12.04Balance at June 30, 2003


15,486,861



48,002,853



13.78Additional shares authorized


951,965







Options granted


(13,361,885
)


13,361,885



8.28Options exercised






(9,149
)


6.55Options forfeited/canceled


3,705,833



(3,705,833
)


13.72Restricted stock awards, net of
    forfeitures


(1,278,387
)






11.71Balance at December 31, 2003


5,504,387



57,649,756



12.51Additional shares authorized


1,879,490







Options granted


(9,477,247
)


9,477,247



8.85Options exercised






(283,457
)


7.80Options forfeited/canceled


7,608,946



(7,608,946
)


12.29Restricted stock awards, net of
    forfeitures


(903,019
)






11.90Balance at December 31, 2004


4,612,557



59,234,600



11.97Additional shares authorized


230,018







Options granted (1)


(2,396,508
)


4,396,508



7.71Options exercised






(160,673
)


7.01Options forfeited/canceled


17,794,294



(17,794,294
)


12.63Restricted stock awards, net of
    forfeitures


(12,630,794
)






7.54Balance at December 31, 2005


7,609,567



45,676,141



11.50   (1)
    
    Options granted during the year
    ended December 31, 2005 include 2,000,000 non-statutory
    options issued outside of the LTIP.    Outstanding options


Options exercisableWeightedNumber


Average


Weighted


NumberOutstanding


Remaining


Average


ExercisableDecember 31,


Contractual


Exercise


December 31,


Weighted AverageRange of Exercise Price

2005


Life (Years)


Price


2005


Exercise Price$ 0.00-$ 5.54


300



6.7


$
5.46



225


$
5.46$ 5.55-$11.10


30,633,771



7.7


$
8.85



19,945,279


$
9.29$11.11-$16.64


6,862,466



5.7


$
13.26



6,775,253


$
13.26$16.65-$23.06


7,972,016



5.0


$
18.03



7,972,016


$
18.03$49.95-$55.50


207,588



4.1


$
55.50



207,588


$
55.5045,676,141



6.8


$
11.50



34,900,361


$
12.33  F-50




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
       out-of-the-money
  Restricted
    Stock Units      DeferredWeighted





RSUs




Stock


CompensationAverage





Forefeited




Compensation


Remaining atGrant





as of




Expense


December 31,Date Fair


RSUs


December 31,




Recognized


2005


SettlementAward Description

Grant Date(s)

Value


Granted


2005


Vesting Date

in 2005


(1)


DateMD Tranche 1

Various dates in 2005, beginning in
    Q2

$
7.30



5,276,106



379,235


January 1, 2006

$
35,770


$




(2
)MD Tranche 2

December 8, 2005

$
7.68



5,137,576



40,732


December 8, 2005


39,144







(3
)Other RSU awards (4)

Various dates in 2005, beginning in
    Q2

$
7.97



3,351,111



76,561


(5)


6,882



19,270



(5
)Total(6)



$
7.61



13,764,793



496,528




$
81,796


$
19,270   (1)
    
    Deferred compensation will be
    amortized in accordance with the respective employees
    vesting schedule, subject to the application of SFAS 123R
    in 2006.(2)
    
    MD Tranche 1 RSUs are expected
    to settle after the Company has become current in its SEC
    filings.(3)
    
    50% of the MD Tranche 2 RSUs
    are expected to settle on January 1, 2007, with the
    remainder settling on January 1, 2008. However, such RSUs
    cannot settle until the Company is current in its SEC filings.(4)
    
    Includes 750,000 RSUs granted
    outside of the LTIP to the Companys Chief Executive
    Officer in March 2005. Such RSUs vest and settle over seven
    years with 62,500 shares vesting in March 2007, 125,000
    vesting in March 2008, 187,500 vesting in March 2009 and 2010,
    125,000 vesting in March 2011, and 62,500 vesting in March 2012. F-51




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  (5)
    
    Except for the 750,000 RSUs granted
    outside of the LTIP to the Companys Chief Executive
    Officer in March 2005, vesting and settlement of Other RSU
    Awards occur on the same date. These RSUs generally either
    cliff vest and settle three years from the grant date or vest
    and settle over two to four years from the date of the
    grant. Certain of these RSUs have performance vesting criteria,
    which the Company has determined achievement to be probable.(6)
    
    Excludes awards to recipients in
    China of approximately 112,000 RSUs (net of forfeitures of
    approximately 25,000 RSUs) where local laws require a cash
    settlement.        Form S-8
    Restricted
    Stock Awards   F-52




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
        Employee
    Stock Purchase Plan  24-month 6-month 6-month
     F-53




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Notes Receivable
    from Stockholders      Common
    Stock Repurchase    Preferred
    Stock   F-54




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Shareholder
    Rights Plan        13.
    Income Taxes
   F-55




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Current:Federal

$
7,437


$
(33,988
)

$
13,114


$
56,777State and local


1,400



(11,669
)


1,773



13,391Foreign


58,335



14,062



10,837



34,997Total current


67,172



(31,595
)


25,724



105,165Deferred:Federal


40,242



8,930



(10,921
)


(7,844
)State and local


15,045



267



(3,106
)


(1,304
)Foreign


(338
)


34,189



(6,825
)


(30,675
)Total deferred


54,949



43,386



(20,852
)


(39,823
)Total

$
122,121


$
11,791


$
4,872


$
65,342     Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003U.S. Federal statutory income
    tax rate


35.0%



35.0%



35.0%



35.0%Nondeductible goodwill impairment


(6.9%
)


(25.3%
)


(25.5%
)


0.2%Change in valuation allowance


(37.2%
)


(4.6%
)


(10.6%
)


16.0%Foreign taxes


(2.3%
)


0.2%



3.8%



(3.3%
)Nondeductible meals and
    entertainment expense


(1.1%
)


(1.3%
)


(1.8%
)


5.8%State taxes, net of federal benefit


2.1%



1.0%



0.2%



9.1%Impact of foreign recapitalization


(5.5%
)


(3.6%
)


0.0%



0.0%Income tax reserve


(3.1%
)


(1.5%
)


(2.0%
)


6.2%Other, net


(1.4%
)


(2.1%
)


(1.9%
)


(2.3%
)Effective income tax rate


(20.4%
)


(2.2%
)


(2.8%
)


66.7%  F-56




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     December 31,


December 31,2005


2004Deferred tax assets:Net operating loss carryforwards

$
196,996


$
120,283Accrued compensation


32,297



24,605Lease and facilities charge


15,903



16,510Capital loss carryforward and
    foreign tax credits


9,654



8,230Reserve for claims


15,141



21,674Reserve for employee global
    mobility


13,961



6,102Revenue recognition


37,140



10,206Restricted stock units


26,821



Other


29,270



16,261Total gross deferred tax assets


377,183



223,871Less valuation allowance


(338,792
)


(114,775
)Total net deferred tax assets


38,391



109,096Deferred tax liabilities:Property and equipment


23,642



37,910Other


313



1,882Transaction costs






3,530Revenue






4,776Foreign currency translation


5,088



4,470Equity based compensation


2,413



Total deferred tax liabilities


31,456



52,568Net deferred tax assets

$
6,935


$
56,528     December 31,


December 31,2005


2004Current deferred tax assets

$
18,991


$
59,566Non-current deferred tax assets


20,915



20,522Current deferred tax liabilities


(10,095
)


(16,750
)Non-current deferred tax
    liabilities


(22,876
)


(6,810
)$
6,935


$
56,528    F-57




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
               F-58




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    14.
    Related Party Transactions
  KPMG
    LLP    Infrastructure Services.
     F-59




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     Six Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005(1)


2004


2003


2003Occupancy costs

$
2,760


$
23,772


$
12,838


$
25,902Other infrastructure service costs


3,236



52,391



39,752



96,544Total

$
5,996


$
76,163


$
52,590


$
122,446Amounts included in:Other costs of service

$
2,760


$
23,772


$
12,838


$
25,902Selling, general and
    administrative expenses


3,236



52,391



39,752



96,544$
5,996


$
76,163


$
52,590


$
122,446   (1)
    
    Decline in charges under the KPMG LLP infrastructure agreements
    from the year ended December 31, 2004 to the year ended
    December 31, 2005 is due to the expiration of these
    agreements during 2005.  2004 and Prior Periods Related Party Revenue and Costs of
    Service.
  Year


Six Months


YearEnded


Ended


EndedDecember 31,


December 31,


June 30,2004


2003


2003Total revenue

$
1,368


$
3,075


$
28,029Total costs of service

$
5,727


$
1,351


$
7,284     15.
    Employee Benefit Plans
  401(k)
    Plan    F-60




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Pension
    and Postretirement Benefits          Pension PlansSix Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Components of net periodic
    pension costService cost

$
6,362


$
5,670


$
2,189


$
2,372Interest cost


4,167



4,151



1,723



2,197Expected return on plan assets


(1,172
)


(1,055
)


(457
)


Amortization of loss


16



11



5



21Amortization of prior service cost


774



776



258



Curtailment (1)


(833
)










(1,285
)Settlement


(232
)










Net periodic pension cost

$
9,082


$
9,553


$
3,718


$
3,305  F-61




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Postretirement Medical PlanSix Months


YearYear Ended


Ended


EndedDecember 31,


December 31,


June 30,2005


2004


2003


2003Components of postretirement
    medical costService cost

$
1,257


$
1,082


$
495


$
900Interest cost


572



414



179



285Amortization of losses


73











Amortization of prior service cost


478



478



239



478Net periodic postretirement
    medical cost(1)

$
2,380


$
1,974


$
913


$
1,663   (1)
    
    Curtailment gains are the result of
    the fiscal years 2005 and 2003 workforce reduction programs. F-62




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  PostretirementPension


MedicalPlans


PlanYear Ended


Year EndedDecember 31,


December 31,2005


2004


2005


2004Change in projected benefit
    obligationBenefit obligation at beginning of
    year

$
114,233


$
88,856


$
9,986


$
6,919Service cost


6,362



5,670



1,257



1,082Interest cost


4,167



4,151



572



414Plan participants
    contributions


797



1,000



168



97Curtailment (1)


(1,851
)










Transfers in for ex-ABS members






1,496







Benefits paid


(1,465
)


(3,091
)


(207
)


(95
)Administrative expense


(146
)










Actuarial loss (2)


10,381



7,775



1,428



1,569Settlement (1)


(5,300
)


(215
)






Effect of exchange rate changes


(14,636
)


8,591







Projected benefit obligation at
    end of year

$
112,542


$
114,233


$
13,204


$
9,986Change in plan
    assetsFair value of plan assets at
    beginning of year

$
28,001


$
22,664


$



$
Actual return on plan assets


2,244



(283
)






Employer contributions


2,423



2,981



39



(2
)Employee contributions


798



1,000



168



97Benefits paid






(1,799
)


(207
)


(95
)Transfers in for ex-ABS members






1,197







Administrative expense


(145
)










Settlement (1)


(5,300
)










Effect of exchange rate changes


(3,689
)


2,241







Fair value of plan assets at end
    of year

$
24,332


$
28,001


$



$
Reconciliation of funded
    statusFunded status

$
(88,210
)

$
(86,232
)

$
(13,204
)

$
(9,986
)Unrecognized loss


18,533



10,825



3,408



2,053Unamortized prior service cost


6,683



9,623



2,504



2,982Net amount recognized

$
(62,994
)

$
(65,784
)

$
(7,292
)

$
(4,951
)Amounts recognized in the
    Consolidated Balance
    SheetsAccrued benefit cost

$
(79,947
)

$
(74,831
)

$
(7,292
)

$
(4,951
)Additional minimum liability


13,321











Intangible assets


3,632



9,047







Net amount recognized

$
(62,994
)

$
(65,784
)

$
(7,292
)

$
(4,951
)Accumulated benefit obligation

$
98,087


$
98,355


$
13,204


$
9,986   (1)
    
    The settlement and curtailment
    related to a decrease in participants in the Switzerland Plan
    due to a reduction in workforce.(2)
    
    The increase noted in the actuarial
    loss for the years ended December 31, 2005 and 2004 for
    pension and postretirement medical plans is related to the
    higher benefit obligation resulting from the lower discount rate
    used to value the obligation, as described below. F-63




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     PostretirementPension


medicalplans


planYear Ended


Year EndedDecember 31,


December 31,2005


2004


2005


2004Weighted-average assumptions
    used to determine benefit obligationsDiscount rate


4.0
%


4.4
%


5.6
%


5.8
%Rate of compensation increase


3.0
%


2.7
%






Weighted-average assumptions
    used to determine net periodic benefit costDiscount rate


4.0
%


4.7
%


5.6
%


5.8
%Expected long-term return on plan
    assets


4.5
%


4.3
%






Rate of compensation increase


3.0
%


2.7
%






     Pension PlanDecember 31,


December 31,2005


2004Asset
    categoryBonds


47.0
%


48.5
%Equities


30.0



31.0Real estate


13.0



13.0Other


10.0



7.5Total


100.0
%


100.0
%     Pension


Postretirementplans


medical plan2006

$
3,031


$
1422007


6,009



2512008


3,786



4162009


3,695



6402010


1,518



895Years
    2011-2015


19,058



8,610  F-64




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
     December 31,


December 31,2005


2004Health care cost trend rate
    assumed for next year


10.0
%


10.0
%Rate to which the cost trend rate
    is assumed to decline (the ultimate trend rate)


5.0
%


5.0
%Year that the rate reaches the
    ultimate trend rate


2011



2010     1%-Point


1%-PointIncrease


DecreaseEffect on total service and
    interest cost

$
292


$
(245
)     Deferred
    Compensation Plan  EITF 97-14,
       F-65




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
   16.
    Restructuring
    Activities  Reduction
    in Workforce       Lease,
    Facilities and Other Exit Activities         F-66




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
      Lease andSeverance


Facilities


TotalBalance at June 30, 2002
    (unaudited)

$
1,162


$



$
1,162Acquisition related restructuring
    charges


39,150







39,150Charges to operations


17,824



17,283



35,107Payments


(50,336
)


(7,671
)


(58,007
)Other (a)


4,106



267



4,373Balance at June 30, 2003


11,906



9,879



21,785Charges to operations


13,559



61,436



74,995Payments


(22,039
)


(15,246
)


(37,285
)Other (a)


(1,088
)


(171
)


(1,259
)Balance at December 31, 2003


2,338



55,898



58,236Charges to operations






11,699



11,699Payments


(1,627
)


(19,329
)


(20,956
)Other (a)


(179
)


2,074



1,895Balance at December 31, 2004


532



50,342



50,874Charges to operations






29,581



29,581Payments


(154
)


(28,315
)


(28,469
)Other (a)


(33
)


(1,011
)


(1,044
)Balance at December 31, 2005

$
345


$
50,597


$
50,942   (a)
    
    Other changes in restructuring accrual consist primarily of
    foreign currency translation adjustments.  17.
    Segment
    Information   F-67




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
    Year ended December 31, 2005Financial


Commercial











Corporate/Public Services


Services


Services (1)


EMEA (2)


Asia Pacific


Latin America


Other (3)


TotalRevenues

$
1,293,390


$
379,592


$
663,797


$
662,020


$
312,190


$
75,664


$
2,247


$
3,388,900Operating income (loss)


195,204



84,926



(117,376
)


(47,917
)


39,098



(213
)


(715,278
)


(561,556
)Depreciation and amortization


11,042



1,027



879



6,856



4,328



732



47,946



72,810Interest expense (4)


27,443



5,610



9,430



1,208



8,107



2,807



(21,220
)


33,385Total assets (5)


469,205



94,781



166,331



515,606



127,757



16,674



582,072



1,972,426   Year ended December 31, 2004Financial


Commercial











Corporate/Public Services


Services


Services


EMEA (2)


Asia Pacific


Latin America


Other (3)


TotalRevenues

$
1,343,670


$
326,452


$
654,022


$
642,686


$
328,338


$
79,302


$
1,312


$
3,375,782Operating income (loss)


243,770



79,443



86,142



(317,864
)


12,767



10,264



(608,696
)


(494,174
)Depreciation and amortization


10,499



1,636



3,224



10,071



4,238



554



51,925



82,147Interest expense (4)


29,779



4,839



9,927



233



5,698



1,520



(33,286
)


18,710Total assets (5)


462,681



96,186



217,575



701,582



149,627



21,920



533,136



2,182,707   Six months ended December 31, 2003Financial


Commercial











Corporate/Public Services


Services


Services


EMEA (2)


Asia Pacific


Latin America


Other (3)


TotalRevenues

$
562,372


$
118,528


$
343,407


$
288,994


$
159,482


$
46,593


$
3,127


$
1,522,503Operating income (loss)


157,854



27,546



65,711



(116,362
)


22,395



6,381



(333,495
)


(169,970
)Depreciation and amortization


4,508



763



1,379



13,161



2,799



320



26,553



49,483Interest expense (4)


9,515



1,212



3,820



1,200



2,356



1,165



(10,657
)


8,611Total assets (5)


365,162



58,045



195,593



1,031,321



182,215



39,566



339,711



2,211,613   Year ended June 30, 2003Financial


Commercial











Corporate/Public Services


Services


Services


EMEA


Asia Pacific


Latin America


Other (3)


TotalRevenues

$
1,099,619


$
240,791


$
887,527


$
567,880


$
291,353


$
72,335


$
(1,607
)

$
3,157,898Operating income (loss)


311,032



54,753



209,067



66,726



24,232



17,221



(574,505
)


108,526Depreciation and amortization


11,329



1,752



4,470



46,100



6,562



365



47,780



118,358Interest expense (4)


18,728



2,327



8,950



1,812



3,500



1,370



(23,089
)


13,598Total assets (5)


327,619



61,601



216,025



1,092,744



152,818



31,091



268,312



2,150,210   (1)
    
    Commercial Services includes a
    $64,188 goodwill impairment charge for the year ended
    December 31, 2005.(2)
    
    EMEA includes a $102,227, $397,065,
    and $127,326 goodwill impairment charge for the years ended
    December 31, 2005 and 2004, and the six months ended
    December 31, 2003, respectively.(3)
    
    Corporate/Other operating loss is
    principally due to infrastructure and shared services costs,
    such as facilities, information systems, finance and accounting,
    human resources, legal and marketing.(4)
    
    Interest expense is allocated to
    the industry segments based on accounts receivable and unbilled
    revenue.(5)
    
    Industry segment assets include
    accounts receivable, unbilled revenue, certain software and
    property and equipment directly attributed to the industry
    segment, purchased intangible assets and goodwill. All other
    assets are not allocated to industry segments and are classified
    as corporate assets. F-68




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Geographic
    Information    Year ended December 31,


Six months ended2005


2004


December 31, 2003


Year ended June 30, 2003Property &





Property &





Property &





Property &Equipment,





Equipment,





Equipment





Equipment,Revenue (2)


Net (3)


Revenue (2)


Net (3)


Revenue (2)


Net (3)


Revenue (2)


Net (3)North America (1)

$
2,336,779


$
129,545


$
2,324,144


$
149,056


$
1,024,307


$
145,968


$
2,227,937


$
155,526EMEA


662,020



31,228



642,686



39,220



288,994



37,618



567,880



35,391Asia Pacific


312,190



6,832



328,338



12,442



159,482



12,400



291,353



11,538Latin America (4)


75,664



2,528



79,302



2,685



46,593



3,531



72,335



3,766Total Outside of North America


1,049,874



40,588



1,050,326



54,347



495,069



53,549



931,568



50,695Corporate/Other


2,247







1,312







3,127







(1,607
)


Total

$
3,388,900


$
170,133


$
3,375,782


$
203,403


$
1,522,503


$
199,517


$
3,157,898


$
206,221   (1)
    
    The North America region includes
    the Public Services, Commercial Services and Financial Services
    segments. The North America region is comprised of operations in
    the United States and Canada. The Company reports financial
    information for these two countries as one region. Canadian
    operations do not contribute materially to the North America
    region.(2)
    
    Revenue by geographic region is
    reported based on where client services are supervised.(3)
    
    Property and equipment, net of
    depreciation, related to the geographic region in which the
    assets reside.(4)
    
    The Latin America region includes
    Mexico. F-69




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  18.
    Results
    by Quarter    Quarterly periods during the year endedDecember 31, 2005December 31,


September 30,


June 30,


March 31,2005


2005


2005


2005 (1)(2)Revenue

$
790,921


$
831,401


$
895,245


$
871,333Costs of service:Costs of service


762,149



694,458



717,942



826,778Lease and facilities restructuring
    charge


9,094



882







19,605Total costs of service


771,243



695,340



717,942



846,383Gross profit


19,678



136,061



177,303



24,950Amortization of purchased
    intangible assets


567



567



566



566Goodwill impairment charge


166,415











Selling, general and administrative
    expenses


222,687



200,379



164,360



163,441Operating income (loss)


(369,991
)


(64,885
)


12,377



(139,057
)Interest/other expense, net


(7,203
)


(6,553
)


(12,422
)


(11,788
)Loss before taxes


(377,194
)


(71,438
)


(45
)


(150,845
)Income tax expense (benefit)


36,581



(1,014
)


4,841



81,713Net loss

$
(413,775
)

$
(70,424
)

$
(4,886
)

$
(232,558
)Loss per sharebasic and
    diluted

$
(2.06
)

$
(0.35
)

$
(0.02
)

$
(1.16
)     (1)
    
    During 2005, the Company identified certain errors in its
    previously reported financial statements. Because these changes
    are not material to the Companys financial statements for
    the periods prior to 2005 or to 2005 taken as a whole, the
    Company corrected these errors in the first quarter of 2005.
    These adjustments included entries to correct errors in
    accounting for certain foreign tax withholdings, income taxes,
    revenue, and other miscellaneous items. Had these errors been
    recorded in the proper periods, the impact of the adjustments on
    the first quarter of 2005 would have been an increase to revenue
    and gross profit of $726 and $4,927, respectively, and a
    decrease to net loss of $15,445.(2)
    
    In the first quarter of 2005, the Company recorded a valuation
    allowance of approximately $57,300 primarily against
    U.S. deferred tax assets to reflect its conclusion that it
    is more likely than not that these benefits would not be
    realized. F-70




---



##### 



BEARINGPOINT,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (in
    thousands, except share and per share
    amounts)(continued)
  Quarterly periods during the year endedDecember 31, 2004December 31,


September 30,


June 30,


March 31,2004 (1)


2004


2004


2004Revenue

$
788,101


$
823,691


$
875,387


$
888,603Costs of service:Costs of service


737,562



655,020



681,563



742,414Lease and facilities restructuring
    charge










8,364



3,335Total costs of service


737,562



655,020



689,927



745,749Gross profit


50,539



168,671



185,460



142,854Amortization of purchased
    intangible assets


566



793



1,003



1,095Goodwill impairment charge


397,065











Selling, general and administrative
    expenses


177,878



144,808



167,853



150,637Operating income (loss)


(524,970
)


23,070



16,604



(8,878
)Interest/other expense, net


(22,784
)


(4,909
)


(6,338
)


(6,230
)Income (loss) before taxes


(547,754
)


18,161



10,266



(15,108
)Income tax expense (benefit)


(36,489
)


13,694



32,684



1,902Net income (loss)

$
(511,265
)

$
4,467


$
(22,418
)

$
(17,010
)Earnings (loss) per
    sharebasic and diluted

$
(2.57
)

$
0.02


$
(0.11
)

$
(0.09
)   (1)
    
    The quarterly financial information
    for the three months ended December 31, 2004 reflects the
    impact of certain litigation settlements.(2)
    
    During 2005, the Company identified
    certain errors in its previously reported financial statements.
    Because these changes are not material to the Companys
    financial statements for the periods prior to 2005 or to 2005
    taken as a whole, the Company corrected these errors in the
    first quarter of 2005. These adjustments included entries to
    correct errors in accounting for certain foreign tax
    withholdings, income taxes, revenue, and other miscellaneous
    items. Had these errors been recorded in the proper periods, the
    impact of the adjustments on the first quarter of 2005 would
    have been an increase to revenue and gross profit of $726 and
    $4,927, respectively, and a decrease to net loss of $15,445. 19.
    Supplemental
    Financial Information   Balance at


Charge to





Balance atBeginning


Costs and


Deductions-


EndAllowance for Doubtful Accounts

of Period


Expenses (a)


Write Offs


of PeriodYear Ended December 31, 2005

$
11,296


$
5,334


$
(7,304
)

$
9,326Year Ended December 31, 2004


17,240



(1,057
)


(4,887
)


11,296Six Months Ended December 31,
    2003


18,727



3,901



(5,388
)


17,240Year Ended June 30, 2003


28,645



2,879



(12,797
)


18,727   (a)
    
    Expense reflected in other costs of
    service in the Consolidated Financial Statements  Balance at


Charged to


Charged


Credited to


Balance atBeginning


Income Tax


to Other


Income Tax


End ofIncome Tax Valuation Allowance

of Period


Provision


Accounts (b)


Provision


PeriodYear Ended December 31, 2005

$
114,775


$
223,031


$
986


$



$
338,792Year Ended December 31, 2004


88,037



24,757



1,981







114,775Six Months Ended December 31,
    2003


58,034



18,169



11,834







88,037Year Ended June 30, 2003


41,536



15,709



789







58,034   (b)
    
    Other accounts include deferred tax
    accounts. F-71




---



##### 



Tax





TaxReserve





ReserveBalance at


Charged to


Charged


Credited to


Balance atBeginning


Income Tax


to Other


Income Tax


End ofIncome Tax Reserve

of Period


Provision


Accounts (c)


Provision


PeriodYear Ended December 31, 2005

$
37,965


$
51,417


$
148


$



$
89,530Year Ended December 31, 2004


28,403



7,997



1,565







37,965Six Months Ended December 31,
    2003


23,884



3,391



1,128







28,403Year Ended June 30, 2003


11,436



6,030



6,418







23,884   (c)
    
    Other accounts include goodwill and
    currency translation accounts. F-72