10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
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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)
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DELAWARE
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22-3680505 |
(State or other jurisdiction of
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(IRS Employer |
incorporation or organization)
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Identification No.) |
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100 Crescent Court, Suite 700, Dallas, TX
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75201 |
(Address of principal executive offices)
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(Zip Code) |
(703) 747-3000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
(Title of class)
Series A Junior Participating Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. YES o NO þ
Indicate by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES o NO þ
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of
the Act). YES o NO þ
As of June 30, 2008, the aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing price of such stock on the New York Stock Exchange on
June 30, 2008, was approximately $176.0 million.
The number of shares of common stock of the Registrant outstanding as of May 1, 2009 was
4,416,987.
PART I.
FORWARD-LOOKING STATEMENTS
Some of the statements in this Annual Report on Form 10-K (this Annual Report) constitute
forward-looking statements within the meaning of the United States Private Securities Litigation
Reform Act of 1995. These statements relate to our operations and are based on our current
expectations, estimates and projections. Words such as may, will, could, would, should,
anticipate, predict, potential, continue, expects, intends, plans, projects,
believes, estimates, goals, in our view and similar expressions are used to identify these
forward-looking statements. The forward-looking statements contained in this Annual Report include,
without limitation, statements about our reorganization proceedings
under chapter 11 of the U.S.
Bankruptcy Code, the potential sale of all or substantially all of our businesses and assets, our
ability to continue as a going concern, the value of our common stock, our internal control over
financial reporting, our results of operation and our financial condition. Forward-looking
statements are only predictions and as such, are not guarantees of future performance and involve
risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are
based upon assumptions as to future events or our future financial performance that may not prove
to be accurate. Actual outcomes and results may differ materially from what is expressed or
forecast in these forward-looking statements. The reasons for these differences include changes
that occur in our continually changing business environment and the risk factors enumerated in
Item 1A, Risk Factors. As a result, these statements speak only as of the date they were made,
and we undertake no obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
AVAILABLE INFORMATION
We were incorporated as a business corporation under the laws of the State of Delaware in
1999. Our principal offices are currently located at 100 Crescent Court, Suite 700, Dallas, Texas
75201. Our main telephone number is (703) 747-3000.
Our website address is www.bearingpoint.com. Copies of our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those
reports, are available free of charge through our website as soon as reasonably practicable after
they are electronically filed with or furnished to the Securities and Exchange Commission (the
SEC). Information contained or referenced on our website is not incorporated by reference into
and does not form a part of this Annual Report.
You may read and copy any materials we file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
In this Annual Report, we use the terms BearingPoint, we, the Company, our Company,
our and us to refer to BearingPoint, Inc. and its subsidiaries. All references to years,
unless otherwise noted, refer to our twelve-month fiscal year.
On December 5, 2008, our stockholders approved a one-for-fifty reverse stock split, which
became effective on December 10, 2008. All references to share and per share data for all periods
presented have been adjusted to give effect to this reverse stock
split unless otherwise noted. The effect of the reverse stock split
on 2006, 2005 and 2004 disclosures is unaudited.
ITEM 1. BUSINESS
General
BearingPoint,
Inc. is a provider of management
and technology consulting services to commercial and public sector
organizations around the world. Our core services, which include management consulting, technology solutions,
application services and managed services, are designed to help our clients generate revenue,
increase cost-effectiveness, manage regulatory compliance, integrate information and transition to
next-generation technology. We believe we differentiate our services from others through our
results, approach and people. Our collaborative and flexible approach, including our passionate and
dedicated people who bring both deep management and technology experience to bear on solving our
clients issues, is well recognized for producing innovative and effective solutions.
1
Historically, in North America, we have delivered consulting services through our Public
Services, Commercial Services and Financial Services industry groups (our North American Industry
Groups), which provide significant industry-specific knowledge and service offerings.
Historically, outside of North America, we have been organized on a geographic basis Europe, the
Middle East and Africa (collectively EMEA), the Asia Pacific region and Latin America (including
Mexico).
For more information about our operating segments, see North American Industry Groups and
International Operations, Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operation Segments, and Note 18, Segment Information, of the Notes to
Consolidated Financial Statements.
As of January 1, 2009, we combined three of our business segments: Commercial Services,
Financial Services and Latin America and began managing the operations of these three segments as
one combined segment reporting to a single segment leader, and realigned resources and internal
management to gain synergies in both costs and revenue.
Chapter 11
Bankruptcy Proceedings and Sale Transactions
On February 18, 2009 (the Petition Date), BearingPoint, Inc. and certain of its subsidiaries
based in the U.S. (collectively, the Debtors) filed voluntary petitions for relief under chapter
11 of title 11 of the United States Code (the Bankruptcy Code) in the United States Bankruptcy
Court for the Southern District of New York (the Bankruptcy Court). The chapter 11 cases are
being jointly administered under the caption In re BearingPoint, Inc., et al., Case No. 09-10691
(REG) (the Chapter 11 Cases). The Debtors will continue to manage their properties and operate
their business as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in
accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy
Court. In addition, as part of the relief granted to the Debtors on the Petition Date, the
Bankruptcy Court entered an order confirming that the Companys subsidiaries that are domiciled
outside of the United States are not part of the Chapter 11 Cases. The Debtors may pay all debts
and honor all obligations arising in the ordinary course of their businesses after the Petition
Date. However, the Debtors may not pay creditors on account of obligations arising before the
Petition Date or engage in transactions outside the ordinary course of business without the prior
approval of the Bankruptcy Court.
As set
forth in more detail below, the Company sold significant portions of its businesses and assets and
has entered into agreements or is in negotiations to sell its remaining
businesses and assets. It is expected that upon the consummation of these transactions the Company
will wind down its operations and cease to operate as a going concern.
On November 13, 2008, the New York Stock Exchange (the NYSE) notified the Company that it
had decided to suspend trading in the Companys common stock prior to market open on November 17,
2008, based on its determination that the trading price of the Companys common stock was
abnormally low. The Company appealed the NYSEs decision to suspend the trading of its common
stock; however, due to the commencement of the Chapter 11 Cases, the Company withdrew its appeal on
March 5, 2009 and the Companys common stock was delisted from the NYSE effective as of March 19,
2009.
The decision to seek relief under the Bankruptcy Code was made after an exhaustive review of
alternative options. In addition to significantly reducing our debt burden, the bankruptcy filing
resolved potential defaults relating to our near-term cash payment obligations, including the right
of the holders of the $200.0 million 5.00% Convertible Senior Subordinated Debentures due 2025 (the
5.00% Convertible Senior Debentures) to require us to repurchase the 5.00% Convertible Senior
Debentures, as early as April 2009, at a purchase price equal to 100% of the principal amount of
$200 million, plus any accrued and unpaid interest. Our failure to repurchase these debentures
pursuant to the holders option would have caused a cross default under certain other of our
debentures and our $500.0 million senior secured credit facility
dated as of May 18, 2007, as
amended and restated on June 1, 2007 (the 2007 Credit Facility). Such a cross default, in turn,
would have caused all amounts outstanding thereunder to accelerate. The bankruptcy filing also
resolved the prospect that we would have to repay all of our outstanding debt in the event our
common stock is delisted from the NYSE. The chapter 11 filing, however, has resulted in the
acceleration of these debt obligations. Accordingly, they became automatically due and payable on
the Petition Date, subject to an automatic stay pursuant to the Bankruptcy Code of any action to
collect or recover a claim against the Debtors.
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On the Petition Date, the Debtors filed their pre-arranged proposed joint plan of
reorganization (the Plan), which embodied the proposed terms of the Debtors restructuring. The
Debtors secured lenders (the Secured Lenders), who are parties to the 2007 Credit Facility,
agreed in principle to support the Plan. As proposed, the Plan
provided, among other things, that:
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New Senior Secured Credit Facility. The 2007 Credit Facility would be replaced with
a new senior secured credit facility as follows: term loan in the amount of $272 million
plus accrued interest and a synthetic letter of credit facility in the amount of up to
$130 million; plus the issuance of new convertible preferred stock with a liquidation
preference of $50 million, plus accrued and unpaid dividends, which would be convertible
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Unsecured Debt. All unsecured debt would be exchanged for three different classes of
common stock. Holders of the 5.00% Convertible Senior Debentures and holders of the $40
million 0.50% Convertible Senior Subordinated Debentures due 2010 would receive shares
of class 1 common stock. Holders of the $250 million 2.50% Series A Convertible
Subordinated Debentures due 2024 and holders of the $200 million 2.75% Series B
Convertible Subordinated Debentures due 2024 would receive shares of class 2 common
stock. Certain general unsecured creditors would receive shares of class 3 common
stock. The three classes of common stock would be entitled to the same dividends,
distributions and voting rights, except that until the holders of class 1 common stock
had received dividends and distributions of $240 million, such holders would be entitled
to the dividend, distribution and voting rights (except with respect to the election of
directors) of the holders of class 2 common stock. |
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Existing Equity. All existing equity in the Company would be cancelled for no
consideration. |
However, as previously announced and as discussed in more detail below, the Company has
actively marketed the sale of its businesses and assets to potential bidders during the pendency of
the Chapter 11 Cases. The Company expects that the proposed Plan will be modified to reflect the
Sale Transactions described below. If the Company is successful in selling all or substantially
all of its assets, it will result in the liquidation of the Companys business and the Company
would cease to operate as a going concern.
In order for a plan of reorganization to be confirmed by the Bankruptcy Court, such plan must
be voted on by holders of impaired claims and must satisfy certain requirements of the Bankruptcy
Code. Confirmation of a plan by a Bankruptcy Court would make the plan binding on the Debtors, any
issuer of securities under the plan, any person acquiring property under the plan and any of the
Debtors creditors or equity interest holders. Subject to certain limited exceptions, the order
confirming a plan of reorganization will generally discharge the Debtors from any debt that arose
prior to the date the Debtors filed the Chapter 11 Cases, and substitutes for such debt the
obligations specified under the confirmed plan.
The Bankruptcy Court granted all of the relief sought by the Debtors on the Petition Date,
including our motion for interim authority to use cash on which the Debtors Secured Lenders have
asserted liens (the Cash Collateral), which provides us with continued access to funds to operate
our business. The Debtors use of the Cash Collateral must be in
accordance with a budget setting
forth their anticipated cumulative cash receipts and expenditures on a weekly basis and all
necessary and required cumulative expenses which the Debtors expect to incur during each week of
the budget. The Debtors failure to use the Cash Collateral in accordance with the budget could,
depending on the extent of the deviation, result in the Debtors losing access to the funds. The
Bankruptcy Court also entered an interim order establishing notification procedures and
restrictions in connection with holding and trading in our common stock and debt securities and
certain of our other liabilities. The order is intended to preserve, to the greatest extent
possible, the potential value of certain of our tax attributes, both during the pendency of the
Chapter 11 Cases and following emergence from bankruptcy. A final hearing confirming our ability
to use the Cash Collateral occurred on April 15, 2009.
As required by the Bankruptcy Code, the United States Trustee for the Southern District of New
York appointed an official committee of unsecured creditors on February 27, 2009.
On March 5, 2009, the Debtors filed their schedules of assets and liabilities and their
statements of financial affairs with the Bankruptcy Court. On March 11, 2009, the Bankruptcy Court
issued an order establishing April 17, 2009 as the deadline for each person or entity other than a
governmental unit (as defined in the Bankruptcy Code) to file a proof of claim against any of the
Debtors to assert any claim.
3
On March 23, 2009, the Company and certain of its subsidiaries entered into an Asset Purchase
Agreement with Deloitte LLP pursuant to which the Company and certain of its subsidiaries agreed to
sell a significant portion of their assets related to the Companys North American Public Services
business to Deloitte and Deloitte agreed to assume certain
liabilities associated with these assets as set forth in the Asset Purchase Agreement (the
Deloitte Transaction). On April 17, 2009, the Bankruptcy Court approved this sale. The closing of the Deloitte Transaction occurred on May 8, 2009.
In connection with the closing, the Company received net proceeds of
approximately $329.3 million (subject to certain contractual
adjustments).
Under the 2007 Credit Facility,
the Company is obligated to repay the lenders amounts borrowed
if it sells assets in excess of $15 million. The Bankruptcy
Courts order approving the Deloitte Transaction provided that all liens, claims, and encumbrances
attached to the proceeds of such sale. While the undisputed amount of liens totaled $255 million,
Wells Fargo and the Official Committee of Unsecured Creditors have entered into an agreed order
stipulating that the disputed amount of such liens totals no more than $1.5 million in the
aggregate. In accordance with the Bankruptcy Courts order
approving the Deloitte Transaction and the
undisputed security interests of the lenders under the 2007 Credit
Facility, on or about May 13, 2009, the Company made a
payment in the amount of $255 million to Wells Fargo from the proceeds of
the Deloitte Transaction.
On April 2, 2009, BearingPoint International Bermuda Holdings Limited, an indirect subsidiary
of the Company, entered into a Share Sale Agreement with PwC Advisory Co., Ltd. (PwC Japan), the
Japanese member firm of the PricewaterhouseCoopers global network of firms, for the sale of the
Companys consulting business in Japan to PwC Japan (the PwC Japan Transaction). Pursuant to the
Share Sale Agreement, PwC Japan agreed to purchase BearingPoint Co., Ltd. (Chiyoda-ku)
(BearingPoint Japan), an indirect, wholly-owned subsidiary of the Company, through the purchase
of all issued and outstanding shares of BearingPoint Japan. The Company generated cash of
approximately $45 million in connection with the PwC Japan Transaction. In addition, in connection
with the PwC Japan Transaction, PwC Japan assumed the intercompany debt owed by certain non-Debtor
subsidiaries of the Company to BearingPoint Japan. The closing of the PwC Japan Transaction
occurred on May 11, 2009.
On April 17, 2009, the Company and certain of its subsidiaries entered into an Asset Purchase
Agreement with PricewaterhouseCoopers LLP (PwC) pursuant to which the Company agreed to sell a
substantial portion of its assets related to its North American Commercial Services business unit,
including Financial Services (collectively, the CS Business), to PwC, and PwC agreed to assume
certain liabilities associated with these assets (the PwC U.S. Transaction). In addition, an
affiliate of PwC also entered into a definitive agreement to purchase the equity interests of
BearingPoint Information Technologies (Shanghai) Limited (BearingPoint China GDC), a subsidiary
of the Company that operates a global development center in China, and certain assets of a separate
global development center in India (the PwC China/India Transaction, and together with the PwC
U.S. Transaction, the PwC Commercial Services Transaction). On April 27, 2009, the Bankruptcy Court
approved bidding procedures in connection with an auction of all or substantially all of the assets of the CS Business
and BearingPoint China GDC (the Auction). The Auction was held on May 27, 2009 and concluded on May 28, 2009. At a hearing
on May 28, 2009, the Bankruptcy Court approved PwC as the winning bidder at the Auction. Under the terms of the winning bid,
the aggregate purchase price for the PwC Commercial Services Transaction to be paid by PwC is approximately $44 million (subject
to certain contractual adjustments). The closing of the PwC Commercial Services Transaction is
expected to occur by the end of June 2009 and is subject to customary closing conditions.
On April 20, 2009, the Board of Directors of the Company authorized the Company to enter into
a non-binding term sheet for the sale of its EMEA business to local management. Additionally, the
Company is in negotiations with other parties and local management to sell its Latin America
practices and sell various Asia Pacific practices other than BearingPoint Japan and BearingPoint China GDC and is in various stages of negotiations to
sell certain remaining assets that were not, or will not be, sold pursuant to other
transactions. These potential transactions, together with the Deloitte Transaction, the PwC Japan
Transaction and the PwC Commercial Services Transaction, are referred to collectively as the Sale
Transactions.
The purpose of these Sale Transactions is to sell all or substantially all of our business and
assets to third parties or local management. Although certain of the Sale Transactions must be
approved by the Bankruptcy Court and the Sale Transactions are subject to a number of risks, we
expect that the Plan will be modified to reflect the Sale Transactions and that the Chapter 11
Cases will result in a liquidation of BearingPoints business and assets under either chapter 11 or
chapter 7 of the Bankruptcy Code, such that BearingPoint will cease to operate as a going concern. There can be no assurance
that the Sale Transactions will be completed.
Operating in bankruptcy imposes significant risks and uncertainties on our business. See Item
1A Risk Factors Risks Relating to Bankruptcy for a discussion of the risks and uncertainties
relating to our business and investing in our securities as a result of the Chapter 11 Cases.
Additional information about our Chapter 11 Cases is available on our website
www.bearingpoint.com and can be found by clicking on
Restructuring Information. Our internet website and the
information contained or incorporated therein are not intended to be incorporated into this Annual
Report.
4
Going Concern
As discussed above, we expect that the Plan will be modified to reflect the Sale Transactions
and that the Chapter 11 Cases will result in a liquidation of our business and assets under either
chapter 11 or chapter 7 of the Bankruptcy Code, with the Debtors ceasing to operate as a going
concern. In addition, Ernst & Young LLPs report on the Companys 2008 consolidated financial
statements states that uncertainties inherent in the bankruptcy process raise substantial doubt
about the Companys ability to continue as a going concern.
North American Industry Groups
Historically, our North American operations were managed on an industry basis, enabling us to
capitalize on our significant industry-specific knowledge. We believe this focus enhanced our
ability to monitor global trends and observe best practice behavior, to design specialized service
offerings relevant to the marketplaces in which our clients operate, and to build sustainable
solutions. All of our industry groups provided management consulting, technology solutions,
application services and managed services to their respective clients.
Prior to January 1, 2009, our three historical North American Industry Groups were:
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Public Services, serving 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, and Health and Human Services; provincial, state and local governments; public
healthcare companies and private sector healthcare agencies; aerospace and defense
companies; and higher education clients. As described above, the closing of the sale of a
significant portion of our assets related to our North American Public Services business
pursuant to the Deloitte Transaction occurred on May 8, 2009. |
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Commercial Services, supporting a highly diversified range of clients, including those in
the life sciences and energy markets, as well as technology, consumer markets,
manufacturing, transportation, communications and private and public utilities. As described
above, we have entered into an agreement to sell a substantial portion of our assets related
to our Commercial Services business pursuant to the PwC Commercial Services Transaction. |
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Financial Services, directing its solutions to many of the worlds leading banking,
insurance, securities, real estate, hospitality and professional services institutions. As
described above, we have entered into an agreement to sell a substantial portion of our
assets related to our Financial Services business pursuant to the PwC Commercial Services
Transaction. |
International Operations
Our operations outside of North America historically have been organized on a geographic
basis, with alignment to our three North American Industry Groups enabling consistency in our
global strategy and execution.
Our three traditional geographic regions are:
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EMEA. As noted above, the Board of Directors of the Company authorized the Company to
enter into a non-binding term sheet for the sale of its EMEA business to local management. |
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Asia Pacific. As described above, the closing of the sale of our consulting business in
Japan pursuant to the PwC Japan Transactions occurred on May 11, 2009. |
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Pursuant to the PWC China/India Transaction, we have entered into agreements to sell two global
development centers in the Asia Pacific region. We are also in separate negotiations with
other parties and local management to sell various other Asia Pacific practices. |
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Latin America. As noted above, we are in negotiations with other parties and local
management to sell our Latin America practices. |
5
Our Joint Marketing Relationships
As of December 31, 2008, our alliance program had approximately 40 relationships with key
technology providers that support and complement our service offerings. Through this program, we
created joint marketing relationships to enhance our ability to provide our clients with high value
services. Those relationships typically entail some combination of commitments regarding joint
marketing, sales collaboration, training and service offering development.
Competition
We operate in a highly competitive and rapidly changing market and compete with a variety of
organizations that sell services similar to those we offer. Our competitors historically have
included specialized consulting firms, systems consulting and implementation firms, former Big 4
and other large accounting and consulting firms, application software firms providing
implementation and modification services, service and consulting groups of computer equipment
companies, outsourcing companies, systems integration companies, aerospace and defense contractors
and general management consulting firms. We also compete with our clients internal resources. Some
of our competitors have significantly greater financial and marketing resources, name recognition
and market share than we do.
We believe that the principal competitive factors in the markets in which we operate include
scope of services, service delivery approach, technical and industry expertise, value added,
availability of appropriate talent and resources, global reach, pricing and relationships.
Intellectual Property
We
compete based in part on our methodologies and other proprietary intellectual
property rights. We rely upon a combination of nondisclosure and other contractual arrangements,
non-solicitation agreements, trade secrets, copyright and trademark laws to protect our proprietary
rights and the rights of third parties from whom we license intellectual property. We also enter
into confidentiality and intellectual property agreements with our employees that limit the
distribution of proprietary information. We have only a limited ability to protect our
important intellectual property rights.
Customer Dependence
During 2008 and 2007, our revenue from the U.S. Federal government, inclusive of government
sponsored enterprises, was $1,031.7 million and $981.6 million, respectively, representing 32.3%
and 28.4% of our total revenue, respectively. For 2008 and 2007, this included approximately
$426.4 million and $378.7 million of revenue from the U.S. Department of Defense, respectively,
representing approximately 13.3% and 11.0% of our total revenue for 2008 and 2007, respectively.
While most of our government agency clients have the ability to unilaterally terminate their
contracts, our relationships are seldom with political appointees, and we have not historically
experienced a loss of U.S. Federal government business with a change in administration. For more
information regarding government proceedings and risks associated with U.S. government contracts,
see Item 3 Legal Proceedings, and Note 11, Commitments and Contingencies, of the Notes to
Consolidated Financial Statements.
Employees
As of December 31, 2008, we had approximately 15,200 full-time employees, including
approximately 12,700 billable professionals. For 2008, our voluntary annualized attrition rate was
24.8%, a slight increase over our attrition rate of 24.7% in 2007. However, due to the Chapter 11
Cases and the closing of certain Sale Transactions, as of May 15,
2009, we had approximately 8,900 full-time employees.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below before making an investment decision
regarding our securities. The risks described below are not the only ones facing us. Additional
risks not presently known to us or that we currently deem immaterial may also adversely affect our
business or operations. Our business, financial condition or results of operations, cash flows or
prospects could be materially and adversely affected by the occurrence of any of the matters
included in these risks.
6
Risks that Relate to Our Bankruptcy and the Sale Transactions
We are pursuing the sale of all or substantially all of our businesses pursuant to the Sale
Transactions, which will result in the liquidation of our business and the Company ceasing to
operate as a going concern.
On
May 8, 2009, the Company and certain of its subsidiaries sold a
significant portion of our
assets related to our North American Public Services business to Deloitte.
On May 11, 2009, BearingPoint International Bermuda
Holdings Limited, an indirect subsidiary of the Company, sold the Companys consulting business in
Japan to PwC Japan. On April 17, 2009, the Company and certain of
its subsidiaries entered into an Asset Purchase Agreement with PwC pursuant to which we agreed to
sell a substantial portion of our assets related to our Commercial Services business unit,
including Financial Services, to PwC, and PwC agreed to assume certain liabilities associated with
these assets. In addition, an affiliate of PwC also entered into a definitive agreement to
purchase the equity interests of BearingPoint China GDC and certain assets of a separate global
development center in India. On April 20, 2009, the Board of Directors of the Company authorized
the Company to enter into a non-binding term sheet for the sale of its EMEA business to local
management. Additionally, the Company is in negotiations with third parties and local management
to sell its Latin America practices and sell various Asia Pacific
practices other than BearingPoint Japan and BearingPoint China GDC and is in various
stages of negotiations to sell certain remaining assets that were
not, or will not be, sold pursuant to other transactions.
The purpose of the Sale Transactions is to sell all or substantially all of our businesses to
third parties or local management. Although not all of the Sale Transactions requiring Bankruptcy
Court approval have been approved by the Bankruptcy Court at this time and the Sale Transactions
are subject to a number of risks, we expect that the Plan will be modified to reflect the Sale
Transactions and that the Chapter 11 Cases will result in a liquidation of our business and assets
pursuant to a liquidation under either chapter 11 or chapter 7 of the Bankruptcy Code, with the
Debtors ceasing to operate as a going concern. In any event, we do not expect any funds to be
available for distribution to holders of our common stock or certain of our unsecured creditors.
See Risks that Relate to Our Common Stock below.
We are subject to the risks and uncertainties associated with bankruptcy proceedings as a
result of our filing for reorganization under chapter 11 of the Bankruptcy Code on February 18,
2009.
On February 18, 2009, we filed a voluntary petition with the Bankruptcy Court to reorganize
under chapter 11 of the Bankruptcy Code. Our operations based outside the United States were not
included in our filing. Although we are currently pursuing the sale of all or substantially all of
our businesses pursuant to the Sale Transactions, we plan to continue to operate our business as a
debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the
applicable provisions of the Bankruptcy Code while the Sale Transactions are pending. We expect
that the Debtors Joint Plan of Reorganization under chapter 11 of the Bankruptcy Code that we
originally filed with the Bankruptcy Court on February 18, 2009 will be modified to reflect the
Sale Transactions. There can be no assurance that the Plan, as modified, will be approved by the
Bankruptcy Court or that any conditions precedent to its implementation will be satisfied or when,
if ever, such confirmation and satisfaction will occur. Failure to obtain such confirmation or to
satisfy such conditions to implementation may result in lengthier chapter 11 proceedings as we
attempt to negotiate and implement an alternative plan of reorganization.
For the duration of the Chapter 11 Cases, our operations will be subject to the risks and
uncertainties associated with bankruptcy and the Sale Transactions, which include, among other
things:
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the relationships between us and our customers, employees, vendors, strategic partners
and others may be negatively affected by the Chapter 11 Cases and the Sale Transactions,
including risks that our customers will be less likely to purchase our services, that our
employees will seek out other opportunities or lack proper motivation to fulfill their
commitments and that vendors and strategic partners could terminate their relationships
with us or require financial assurances or enhanced performance to continue their business
relationships with us, which may be unduly burdensome on our business and operations; |
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our ability to negotiate and consummate the Sale Transactions; |
7
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the actions and decisions of our creditors and other third parties with interests in our
Chapter 11 Cases may be inconsistent with our plans; |
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|
objections to or limitations on our ability to obtain Bankruptcy Court approval with
respect to motions in the Chapter 11 Cases that we may seek from time to time or potential
adverse decisions by the Bankruptcy Court with respect to such motions; |
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objections to or limitations on our ability to reject contracts that are burdensome or
uneconomical; |
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our ability to obtain and maintain commercially reasonable terms with vendors, strategic
partners and service providers; |
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our ability to obtain and maintain contracts that are critical to our operations; |
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|
our ability to retain client engagements and maintain our billing and utilization rates; |
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our ability to retain and motivate our managing directors and other key employees; and |
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our ability to maintain adequate financing and cash on hand and to generate sufficient
cash from operations. |
These risks and uncertainties could affect our business and operations in various ways. For
example, negative events or publicity associated with our Chapter 11 Cases could adversely affect
our relationships with our customers, as well as with employees, which in turn could adversely
affect our operations and financial condition, particularly if the Chapter 11 Cases are protracted.
Also, transactions outside the ordinary course of business are generally subject to the prior
approval of the Bankruptcy Court, which may limit our ability to respond in a timely manner to
certain events or take advantage of certain opportunities. Third parties could propose and seek
confirmation of their own plan or plans for reorganization. Any such third party plan or plans
could disrupt our business, adversely affect our relationships with customers, vendors, strategic
partners and employees, or otherwise adversely affect our results of operations and financial
condition.
Because of the risks and uncertainties associated with our chapter 11 proceedings, the
ultimate impact of events that occur during these proceedings will have on our business, financial
condition and results of operations cannot be accurately predicted or quantified. Our current Plan
filed with the Bankruptcy Court provides, among other things, that all existing equity in the
Company will be cancelled for no consideration. We do not expect that any modifications to the
Plan, including those needed to reflect the Sale Transactions, would allow for distributions to
holders of our common stock or certain of our unsecured creditors. We believe that the value of
our common stock and various pre-petition liabilities is highly speculative. In addition, the
Bankruptcy Court entered an interim order establishing notification procedures and restrictions in
connection with holding and trading in our common stock and debt securities and certain of our
other liabilities. Accordingly, extreme caution should be exercised with respect to existing and future
investments in any of these securities or liabilities.
Operating under the Bankruptcy Code may restrict our ability to pursue our business
strategies.
Under the Bankruptcy Code, we must obtain Bankruptcy Court approval to, among other things:
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sell assets outside the ordinary course of business; |
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consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; |
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meet our capital needs; |
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grant liens; and |
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finance our operations, investments or other capital needs or to engage in other
business activities that would be in our interest. |
8
In addition, if a trustee is appointed to operate the Company while in chapter 11 bankruptcy, the
trustee would assume control of our assets.
Our liquidity position and our ability to continue as a going concern impose significant risks
to our operations.
Because of the public disclosure of our liquidity constraints, our ability to maintain normal
contractual terms with many of our customers has become impaired. We may be required to obtain
surety bonds, letters of credit or bank guarantees in support of an increased number of customer
engagements. We have experienced restrictions on the availability of credit, which has further
reduced our liquidity. In addition, due to our financial condition and results of operations, in
particular with regard to our Chapter 11 Cases and the explanatory paragraph indicating that
substantial doubt exists as to the Companys ability to continue as a going concern contained in
the audit report on our 2008 Financial Statements of our independent registered public accounting
firm, we expect that customers will become more reluctant to enter into engagements with us.
We will not be able to pursue our original Plan, as filed with the Bankruptcy Court on
February 18, 2009.
Although we filed a pre-arranged Plan with the Bankruptcy Court contemporaneously with our
filing of the Chapter 11 Cases, we have since determined to
proceed with the Sale Transactions. We expect to amend the Plan to reflect the Sale
Transactions and do not expect to emerge from
bankruptcy as a going concern. As a result of the Sale Transactions, we will not be able to pursue
our original Plan, as filed with the Bankruptcy Court on February 18, 2009.
If the conditions to closing the Sale Transactions are not satisfied, the Sale Transactions
may be terminated, which would have a significant adverse impact on us and the Chapter 11 Cases.
The Sale Transactions are subject to the satisfaction or waiver of various conditions, many of
which are subject to uncertainty. The conditions to the consummation of the PwC Commercial
Services Transaction include that the Chapter 11 Cases have
not been dismissed or converted to a chapter 7 proceeding, and that no trustee or examiner has been
appointed, and other customary closing conditions. There can be no assurance
that the Chapter 11 Cases will not have been dismissed or converted to a chapter 7 proceeding prior
to the consummation of the PwC Commercial Services Transaction.
The other Sale Transactions may contain similar or other
conditions to closing, including Bankruptcy Court approval. If we are
unable to satisfy these conditions to closing, we will not be able to consummate the Sale
Transactions, which would have a significant adverse impact on us and the Chapter 11 Cases.
The
Sale Transactions could be negatively affected by current
adverse conditions in financial markets.
The financial markets have recently been, and continue to be, disrupted and volatile. In
particular, the cost and availability of financing has been and may continue to be adversely
affected by illiquid financial and credit markets. As a result, potential bidders and purchasers
in the Sale Transactions may not be able to obtain the financing necessary to purchase our
businesses, which may diminish the proceeds available for distribution to our creditors.
Regardless of the outcome of the Sale Transactions, we do not expect any funds to be available for
distribution to our stockholders or certain of our unsecured creditors.
Failure to complete the Sale Transactions could negatively impact our business.
If the Sale Transactions are not completed for any reason, we will be subject to several
risks, including the following:
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having to convert from a proceeding under chapter 11 of the Bankruptcy Code to a
liquidation proceeding under either chapter 11 or chapter 7 of the Bankruptcy Code; |
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having to negotiate one or more alternative sale transactions, which may not create as
much value as the Sale Transactions; and |
9
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having the focus of our senior management directed toward the proposed Sale Transactions
instead of on our stand-alone operations. |
If the Sale Transactions are not completed, these risks may materialize and have a material
adverse effect on our operations, business, financial results,
financial condition and recoveries under an alternate plan of
reorganization.
The pursuit of the Chapter 11 Cases and the Sale Transactions have consumed and will continue
to consume a substantial portion of the time and attention of our management, and certain aspects
of the Sale Transactions will impact how our business is conducted, which may have an adverse
effect on our business and results of operations.
The requirements of the Chapter 11 Cases and the Sale Transactions have consumed and will
continue to consume a substantial portion of our managements time and attention and leave them
with less time to devote to the operations of our business. This diversion of managements
attention may have a material adverse effect on the conduct of our business, and, as a result, on
our financial condition and results of operations, particularly if the Chapter 11 Cases are
protracted. In addition, certain aspects of the Sale Transactions will impact how our business is
conducted, which may have an adverse effect on our business and results of operations.
Uncertainty related to the Sale Transactions could have a material adverse effect on our
business.
Uncertainty about whether and when the Sale Transactions will be completed and expectations as
to how the acquired businesses and assets will be operated after the consummation of the Sale
Transactions could have a material adverse effect on our business, including through employee
attrition (as discussed further in the risk factor below) and increased attempts by competitors to
persuade our customers to change service providers. This would have a negative impact on our
results of operations and financial condition.
We have experienced increased levels of employee attrition, we have begun to reduce our
workforce and our employees are facing considerable distractions and uncertainty, due to the
Chapter 11 Cases and the Sale Transactions.
Because
of the Chapter 11 Cases and the Sale Transactions, we have experienced increased levels of
employee attrition, and our employees are facing considerable distractions and uncertainty. In
addition, we have started reductions of our workforce during the Chapter 11 Cases and expect to
lose employees in connection with the acquisitions of our businesses
pursuant to the Sale Transactions. A
loss of key personnel or a substantial reduction in our workforce or material erosion of employee
morale could have a material adverse effect on our business, particularly if the Chapter 11 Cases
are protracted. Our ability to motivate and retain key employees is restricted by provisions of
the Bankruptcy Code, which limit or prevent our ability to implement a retention program or take
other measures intended to motivate key employees to remain with us throughout the pendency of the
Chapter 11 Cases and the Sale Transactions without Bankruptcy Court approval. The loss of the
services of any members of our senior management could impair our ability to execute our strategy
and, as a result, could have a material adverse effect on our results of operations and financial
condition.
We will be subject to claims made after the date that we filed for bankruptcy and other claims
that are not discharged in the Chapter 11 Cases, which could have a material adverse effect on our
results of operations and financial condition.
We are currently subject to claims in various legal proceedings and may become subject to
other legal proceedings in the future. Although we will seek to satisfy and discharge all claims
made against us prior to the date of the bankruptcy filing (which claims are generally stayed
during the Chapter 11 Cases), we may not be successful in doing so. Claims made against our
international operations (which were not included in our bankruptcy filing) are not stayed and will
not be discharged in the Chapter 11 Cases. In addition, any claims arising after the date of our
bankruptcy filing may not be subject to discharge in the Chapter 11 Cases. The outcome of each of
these claims, including our ability to have such claims satisfied and discharged in the Chapter 11
Cases, cannot, at this time, be determined, nor can the liability that may potentially result from
a negative outcome be reasonably estimated presently for every case. The liability that we may
ultimately incur with respect to any of these claims (in the event of a negative outcome) may be in
excess of amounts that have currently been accrued with respect to such claims and, as a result,
may have a material adverse effect on our results of operations and financial condition.
We likely will be unable to timely file certain periodic reports with the SEC.
We did not timely file with the SEC this Annual Report or our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2009, and likely will continue to be unable to timely file our
annual and quarterly periodic reports with the SEC in the future.
10
Following the commencement of the Chapter 11 Cases, our management has been particularly
strained by the considerable attention required for administering the Chapter 11 Cases and
marketing, negotiating and consummating the Sale Transactions. In addition, due to the continuing
demands on managements time and attention in connection with the Chapter 11 Cases and the Sale
Transactions, as well as the significant employee attrition we have recently experienced and expect
to continue to experience, we cannot make any assurances as to whether or when we will be able to
complete and file our periodic reports in the future.
Risks that Relate to Our Common Stock
Trading in our securities during the pendency of the Chapter 11 Cases is highly speculative
and poses substantial risks. Regardless of whether the Sale Transactions are consummated or an
alternate plan of reorganization is confirmed by the Bankruptcy Court, our common stock likely will
be cancelled and holders of such common stock likely will not receive any distribution with respect
to, or be able to recover any portion of, such investment.
Regardless of whether the Sale Transactions are consummated or an alternate plan of
reorganization is confirmed by the Bankruptcy Court, it is highly unlikely that the proceeds from
such sales would be sufficient to, or that any such plan of reorganization would, allow for
distributions with respect to our common stock or certain of our
unsecured creditors. Our common stock likely will be cancelled and extinguished upon the approval of the Bankruptcy Court and
the holders thereof would not be entitled to receive, and would not receive or retain, any property
or interest in property on account of such equity interests. Amounts invested by such holders in
our outstanding equity securities likely will not be recoverable. As such, our currently
outstanding equity securities likely have no value. Trading prices are very volatile and
frequently bear no relationship to the expected recovery by the holders of such securities in the
Chapter 11 Cases. In addition, the Bankruptcy Court also entered an interim order establishing
notification procedures and restrictions in connection with holding and trading in our common stock
and debt securities and certain of our other liabilities. Accordingly, we urge that extreme
caution be exercised with respect to existing and future investments in our equity securities and
any of our other securities.
Our common stock has been delisted from the NYSE and is not listed
on any other national securities exchange. It will likely be more difficult for stockholders and
investors to sell our common stock or to obtain accurate quotations of the share price of our
common stock.
As a result of our failure to maintain certain standards for continued listing on the NYSE, on
November 13, 2008, the Company received a notice from the NYSE that it had decided to suspend
trading in the Companys common stock on November 17, 2008, based on its determination that the
trading price of the Companys common stock was abnormally low, and to commence delisting
proceedings. The NYSE filed a Form 25 to delist our common stock on March 9, 2009 and such
delisting became effective on March 19, 2009. Due to the suspension of trading and delisting, our
common stock is now traded over-the-counter.
Stocks trading on the over-the-counter market are typically less liquid than stocks that trade
on a national securities exchange. Trading on the over-the-counter market may also negatively
impact the trading price of our common stock. In addition, the liquidity of our common stock may
be impaired, not only in the number of shares that are bought and sold, but also through delays in
the timing of transactions, and coverage by security analysts and the news media, if any, of our
company. Stockholders may find it difficult to resell their shares of our common stock, due to the
delisting and the likely effect of the Chapter 11 Cases on our common stock. The delisting of our
common stock from the NYSE may also result in other negative implications, including the potential
loss of confidence by customers, strategic partners and employees, and loss of institutional
investor interest in our common stock.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2008, our properties consisted of leased office facilities for specific
client contracts and for sales, support, research and development, consulting, administrative and
other professional personnel. Prior to the closing of the Deloitte Transaction, our corporate
headquarters consisted of approximately 235,000 square feet in McLean, Virginia. Our corporate
headquarters are currently located at 100 Crescent Court, Suite 700, Dallas, Texas 75201. As of
December 31, 2008, we occupied approximately 80
11
additional offices in the United States and approximately 50 offices in Latin America, Canada,
the Asia Pacific region and EMEA. All of our office space generally is leased pursuant to operating
leases that expire over various periods during the next 9 years. Portions of our office space are
sublet under operating lease agreements that expire over various periods during the next 8 years
and are also being marketed for sublease or disposition.
Pursuant to the Bankruptcy Code, and subject to the approval of the Bankruptcy Court, the
Debtors have the ability to reject unexpired leases of real property at their discretion. The
Debtors are currently reviewing and have commenced rejecting various leases that they believe are
no longer required as they proceed through the Sale Transactions and the liquidation of the
Company. The rejection of these leases leads to a pre-petition claim for damages which is capped
under the Bankruptcy Code.
ITEM 3. LEGAL PROCEEDINGS
Chapter 11 Cases
On February 18, 2009, the Debtors filed voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York, as
discussed in Item 1Business. Under the Bankruptcy Code, the filing of a petition automatically
stays most actions against the Company, including most actions to collect pre-petition indebtedness
or to exercise control over the property of our bankruptcy estates. Absent further order of the
Bankruptcy Court, no party, subject to certain exceptions, may take any action, also subject to
certain exceptions, to recover on pre-petition claims against the
Debtors. We expect substantially all of
our pre-petition liabilities will be resolved under our plan of reorganization if not otherwise
satisfied pursuant to orders of the Bankruptcy Court.
At this time, it is not possible to predict the outcome of the Chapter 11 Cases or their
effect on our business or certain 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. Prior to the
closing of the Deloitte Transaction, a significant portion of our business
related to providing services under contracts with the U.S. Federal government or state and local
governments, inclusive of government sponsored enterprises. These contracts are subject to
extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Federal
government or state and local governments investigate whether our
operations have been or are being conducted in
accordance with these requirements and the terms of the relevant contracts. In the ordinary course
of business, various government investigations are ongoing.
Overview
We currently are a party to a number of disputes that involve or may involve litigation or
other legal or regulatory proceedings. Generally, there are three types of legal proceedings to
which we may be made a party:
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Claims and investigations arising from our 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; |
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Claims and investigations being conducted by agencies or officers of the U.S. Federal
government and arising in connection with our provision of services under contracts with
agencies of the U.S. Federal government; and |
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Claims made in the ordinary course of business by clients seeking damages for alleged
breaches of contract or failure of performance, by current or former employees seeking
damages for alleged acts of wrongful termination or discrimination and by creditors or
other vendors alleging defaults in payment or performance. |
SEC Reporting Matters
2005 Class Action Suits. In and after April 2005, various separate complaints were filed in
the U.S. District Court for the Eastern District of Virginia, alleging that the Company and certain
of its current and former officers and directors violated Section 10(b) of the Exchange Act,
Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by, among other things,
making materially misleading statements between August 14, 2003 and April 20, 2005 with respect to
our financial results in our SEC filings and press releases. On January 17, 2006, the court
certified a class, appointed class counsel and appointed a class representative. The plaintiffs
12
filed an amended complaint on March 10, 2006 and the defendants, including the Company,
subsequently filed a motion to dismiss that complaint, which was fully briefed and heard on May 5,
2006. We were awaiting a ruling when, on March 23, 2007, the court stayed the case, pending the
U.S. Supreme Courts decision in the case of Makor Issues & Rights, Ltd v. Tellabs, argued before
the Supreme Court on March 28, 2007. On June 21, 2007, the Supreme Court issued its opinion in the
Tellabs case, holding that to plead a strong inference of a defendants fraudulent intent under the
applicable federal securities laws, a plaintiff must demonstrate that such an inference is not
merely reasonable, but cogent and at least as compelling as any opposing inference of
non-fraudulent intent. On September 12, 2007, the court dismissed with prejudice this complaint,
granting motions to dismiss filed by the Company and the other named defendants. In granting the
Companys motion to dismiss, the court ruled that the plaintiff failed to meet the scienter
pleading requirements set forth in the Private Securities Litigation Reform Act of 1995, as
amended. On September 26, 2007, the plaintiffs filed a motion that seeks a reversal of the courts
order dismissing the case or an amendment to the courts order that would allow the plaintiffs to
replead. The Company filed its brief on October 17, 2007 and although a hearing on the plaintiffs
motion was scheduled for November 16, 2007, the court canceled the hearing as not necessary. On
November 19, 2007, the court issued an order denying the plaintiffs motion to amend or alter the
courts September 12, 2007 dismissal of this matter. The plaintiffs have appealed the matter to the
U.S. Court of Appeals for the Fourth Circuit and oral argument was held on January 29, 2009. On
April 8, 2009, the lead plaintiffs filed a Motion for Modification of Stay in BearingPoints
Chapter 11 Cases, seeking to modify the automatic stay for the limited purpose of allowing the
Fourth Circuit to render a decision on the plaintiffs appeal. By order dated May 7, 2009, the
Bankruptcy Court granted the plaintiffs motion and modified the automatic stay solely to permit the
Fourth Circuit to render its decision on the appeal. On May 7,
2009, the plaintiffs filed a status
report with the Fourth Circuit advising of the Bankruptcy Courts modification of the automatic
stay.
2005 Shareholders Derivative Demand. On May 21, 2005, we received a letter from counsel
representing one of our shareholders requesting that we initiate a lawsuit against our Board and
certain present and former officers of the Company, alleging breaches of the officers and
directors duties of care and loyalty to the Company relating to the events disclosed in our report
filed on Form 8-K, dated April 20, 2005. On January 21, 2006, the shareholder filed a derivative
complaint in the Circuit Court of Fairfax County, Virginia, that was not served on the Company
until March 2006. The shareholders complaint alleged that his demand was not acted upon and
alleged the breach of fiduciary duty claims previously stated in his demand. The complaint also
included a non-derivative claim seeking the scheduling of an annual meeting in 2006. On May 18,
2006, following an extensive audit committee investigation, our Board responded to the
shareholders demand by declining at that time to file a suit alleging the claims asserted in the
shareholders demand. The shareholder did not amend the complaint to reflect the refusal of his
demand. We filed demurrers on August 11, 2006, which effectively sought to dismiss the matter
related to the fiduciary duty claims. On November 3, 2006, the court granted the demurrers and
dismissed the fiduciary claims, with leave to file amended claims. As a result of our annual
meeting of stockholders held on December 14, 2006, the claim seeking the scheduling of an annual
meeting became moot. On January 3, 2007, the plaintiff filed an amended derivative complaint
re-asserting the previously dismissed derivative claims and alleging that the Boards refusal of
his demand was not in good faith. The Company and the other defendants renewed their motion to
dismiss all remaining claims by filing demurrers, which argument was heard on March 23, 2007. On
February 20, 2008, the court granted the demurrers and dismissed the claims with prejudice.
SEC Investigation. On April 13, 2005, pursuant to the same matter number as its inquiry
concerning our restatement of certain financial statements issued in 2003, the staff of the SECs
Division of Enforcement requested information and documents relating to our March 18, 2005
Form 8-K. On September 7, 2005, we announced that the staff had issued a formal order of
investigation in this matter. We subsequently have received subpoenas from the staff seeking
production of documents and information, including certain information and documents related to an
investigation conducted by our Audit Committee. We continue to provide information and documents to
the SEC as requested. The investigation is ongoing and the SEC is in the process of taking the
testimony of a number of our current and former employees, as well as one of our former directors.
In connection with the investigation by our Audit Committee, we became aware of incidents of
possible non-compliance with the Foreign Corrupt Practices Act and our internal controls in
connection with certain of our operations in China and voluntarily reported these matters to the
SEC and U.S. Department of Justice in November 2005. Both the SEC and the Department of Justice are
investigating these matters in connection with the formal investigation described above. On
March 27, 2006, we received a subpoena from the SEC regarding information related to these matters
and has responded to their requests through the summer of 2006. We have not received any further
requests since that time.
13
Government Contracting Matters
Prior
to the closing of the Deloitte Transaction, a significant portion of
our business related to providing services under contracts with the
U.S. Federal government or state and local governments, inclusive of government sponsored
enterprises. These contracts are subject to extensive legal and regulatory requirements and, from
time to time, agencies of the U.S. Federal government or state and local governments investigate
whether our operations are being conducted in accordance with these requirements and the terms of
the relevant contracts. In the ordinary course of business, various government investigations are
ongoing. U.S. Federal government investigations of the Company, whether relating to these contracts
or conducted for other reasons, could result in administrative, civil or criminal liabilities,
including repayments, fines or penalties being imposed upon us, or could lead to suspension or
debarment from future U.S. Federal government contracting. It cannot be determined at this time
whether any findings, conclusions, penalties, fines or other amounts determined to be applicable to
us in any such investigation could have a material effect on our results of operations or financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As previously reported, on December 5, 2008, we held our 2008 Annual Meeting of Stockholders.
Set forth below is information concerning each matter submitted to a vote at the meeting. The
numbers of votes below do not reflect the one-for-fifty reverse stock split that became effective
on December 10, 2008.
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(1) |
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Election of Directors. Our stockholders elected the following persons as Class II
directors to hold office until the annual meeting of stockholders to be held in 2011 and
their respective successors have been duly elected and qualified. |
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Nominee for Class I Director |
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For |
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Withhold |
Wolfgang H. Kemna |
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119,646,439 |
|
|
|
59,096,506 |
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Albert L. Lord |
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|
103,531,942 |
|
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|
75,211,003 |
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J. Terry Strange |
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|
119,484,462 |
|
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59,258,483 |
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(2) Ratification of Appointment of Ernst & Young LLP. Our stockholders ratified the
appointment of Ernst & Young LLP as our independent registered public accounting firm for
2008.
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|
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For |
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Against |
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Abstain |
169,758,988 |
|
|
1,783,706 |
|
|
|
7,200,251 |
|
(3)
Amendment to the Amended and Restated Certificate of Incorporation. The Board of
Directors amended and restated the Companys Amended and Restated Certificate of
Incorporation, effective immediately following the Companys Annual Meeting, to permit the
Board of Directors, at their discretion, to enact a reverse stock split of the Companys
common stock at a ratio within the range from one-for-ten and one-for-fifty at any time prior
to January 16, 2009.
|
For |
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Against |
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Abstain |
152,226,526 |
|
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5,632,576 |
|
|
|
20,883,843 |
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14
PART II.
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ITEM 5. |
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information
Until November 17, 2008, our common stock was traded on the NYSE under the symbol BE.
Because the trading price of our common stock was abnormally low, the NYSE suspended trading in
our common stock and thereafter our common stock was delisted by the NYSE on March 19, 2009. In
addition, we had previously fallen below the NYSEs continued listing standard for minimum average
closing price of $1.00 over a consecutive 30 trading day period and minimum average market
capitalization of $100 million over a consecutive 30 trading day period. Since November 17, 2008,
our common stock is traded the over-the-counter, including on the Pink Sheets and OTC
Bulletin Board under the trading symbol BGPTQ.
The following table sets forth the high and low sales prices for our common stock, adjusted
for all periods to reflect the reverse stock split executed on December 10, 2008 as more fully
described below, as reported on the NYSE and over-the-counter for the quarterly periods indicated.
Price Range of Common Stock
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Price Range of |
|
|
Common Stock |
|
|
High |
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Low |
2008 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
30.00 |
|
|
|
1.00 |
|
Third Quarter |
|
|
72.00 |
|
|
|
25.00 |
|
Second Quarter |
|
|
101.50 |
|
|
|
31.00 |
|
First Quarter |
|
|
145.50 |
|
|
|
75.00 |
|
2007 |
|
|
|
|
|
|
|
|
Fourth Quarter |
|
|
259.50 |
|
|
|
122.50 |
|
Third Quarter |
|
|
382.00 |
|
|
|
191.50 |
|
Second Quarter |
|
|
400.00 |
|
|
|
345.00 |
|
First Quarter |
|
|
428.00 |
|
|
|
366.50 |
|
Regardless of whether the Sale Transactions are consummated or an alternate plan of
reorganization is confirmed by the Bankruptcy Court, it is highly unlikely that the proceeds from
such sales would be sufficient to, or that any such plan or reorganization would, allow for
distributions with respect to our common stock. These equity interests will likely be cancelled
and extinguished without consideration upon the approval of the Bankruptcy Court and the holders
thereof would not be entitled to receive, and would not receive or retain, any property or interest
in property on account of such equity interests. Accordingly, we urge that extreme caution be exercised
with respect to existing and future investments in the Companys equity securities and any of the
Companys liabilities or other securities. In addition, the Bankruptcy Court also entered an
interim order establishing notification procedures and restrictions in connection with holding and
trading in our common stock.
Holders
At April 27, 2009, we had approximately 227 stockholders of record.
Dividends
We have never paid cash dividends on our common stock, and we do not anticipate paying any
cash dividends on our common stock. We intend to retain all of our earnings, if any, for general
corporate purposes. Our 2007 Credit Facility contained limitations on our payment of dividends.
Reverse Stock Split
At our 2008 Annual Meeting of Stockholders held on December 5, 2008, our stockholders approved
an amendment to the Amended and Restated Certificate of Incorporation permitting the Board to
effect, at its discretion, a reverse stock split of our common stock at a
15
ratio within the range from one-for-ten and one-for-fifty at any time prior to January 16,
2009. Upon stockholder approval, the Board approved the implementation of a one-for-fifty reverse
stock split of our common stock. As a result of the reverse stock split, every fifty shares of our
common stock that was issued and outstanding as of market close on the record date was
automatically combined into one issued and outstanding share of common stock. The record date for
the reverse stock split was December 10, 2008 and the split was effective at 6:01 p.m., Eastern
Time, on the same date. As of the record date, we had 220,851,816 shares of common stock
outstanding and upon the effectiveness of the reverse stock split, we had 4,417,037 shares of
common stock outstanding. Instead of issuing fractional shares as a result of the reverse stock
split, stockholders received cash payments for such fractional shares after our transfer agent sold
all of the aggregated fractional shares of common stock.
Equity Compensation Plan Information
(as of December 31, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
Number of securities |
|
Weighted-average |
|
for future issuance |
|
|
to be issued upon |
|
exercise price of |
|
under equity |
|
|
exercise of |
|
outstanding |
|
compensation plans |
|
|
outstanding options, |
|
options, warrants |
|
(excluding securities |
Plan Category |
|
warrants and rights |
|
and rights |
|
reflected in column (a)) |
Equity Compensation Plans Approved by Security Holders |
|
|
934,510 |
|
|
$ |
506.49 |
|
|
|
1,177,690 |
(1)(2) |
Equity Compensation Plans Not Approved by Security Holders |
|
|
13,325 |
(3) |
|
$ |
0.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
947,835 |
|
|
$ |
506.49 |
|
|
|
1,177,690 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 610,359 shares of common stock available for grants of stock options, restricted
stock, stock appreciation rights and other stock-based awards under our Amended and
Restated 2000 Long-Term Incentive Plan (the LTIP) and 567,331 shares of common stock
available for issuance under our Amended and Restated Employee Stock Purchase Plan (the
ESPP). Effective as of January 14, 2009, we terminated the ESPP program. |
|
(2) |
|
Under the LTIP, the number of shares of common stock authorized for grants or awards is
1,843,586. Under the ESPP, the number of shares of our common stock available for purchase
is 75,322 shares, plus an annual increase on the first day of each of our fiscal years
beginning on July 1, 2001 and ending on June 30, 2026 equal to the lesser of (i) 600,000
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. |
|
(3) |
|
Consists of 13,325 outstanding RSUs held by Mr. Harbach, all of which were non-LTIP grants. |
Issuer Purchases of Equity Securities
The following table provides information relating to our purchase of shares of common stock of
the Company in 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate |
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Value of |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Yet Be Purchased |
|
|
|
|
|
|
|
|
|
|
as Part of |
|
Under Publicly |
|
|
|
|
|
|
|
|
|
|
Publicly |
|
Announced Plans |
|
|
Total Number of |
|
Average Price |
|
Announced Plans |
|
or Programs |
Period |
|
Shares Purchased |
|
per Share |
|
or Programs(1) |
|
($ in millions)(1) |
January 1, 2008 December 31, 2008
|
|
|
2,321 |
(2) |
|
$ |
65.85 |
|
|
|
|
$ |
64.3 |
|
|
|
|
(1) |
|
In July 2001, our Board authorized us to repurchase up to $100.0 million of our common stock. Any shares
so repurchased are held as treasury shares. During 2008, there were no open market purchases by the
Company of our common stock. |
|
(2) |
|
In 2008, as permitted under the LTIP, we acquired an aggregate of 1,979 shares of our common stock for an
aggregate price of $117,684 in connection with share withholding for payroll tax obligations due from
employees and former employees for the issuance of shares of common stock upon settlement of RSUs.
Additionally, we acquired an aggregate of 342 shares of our common stock in connection with repayment of
RSU gains realized totaling $35,180 from employees who terminated for cause. |
16
COMPARATIVE STOCK PERFORMANCE
Our Peer Group (the Peer Group) consists of Accenture Ltd, Computer Sciences Corporation,
Electronic Data Systems Corporation (acquired by HP in August of 2008) and Cap Gemini SA. We believe that the
members of the Peer Group are most comparable to us in terms of client base, service offerings and
size.
The following graph compares the total stockholder return on our common stock from 2004
through 2008 with the total return on the Standard & Poors (S&P) 500 Index and the Peer Group.
The graph assumes that $100 is invested initially and all dividends are reinvested.
17
ITEM 6. SELECTED FINANCIAL DATA
Our selected financial data is derived from our audited Consolidated Financial Statements and
related Notes included elsewhere in this report as of and for the years ended December 31, 2008,
2007 and 2006. The selected data as of and for the years ended December 31, 2005 and 2004 are also
derived from audited financial statements, unless noted otherwise. Through June 30, 2003, our fiscal year ended on June 30.
In February 2004, our Board approved a change in our fiscal year-end to a twelve-month period
ending December 31. Selected financial data should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operation, and the
Consolidated Financial Statements and the related Notes included herein.
Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
(in thousands, except per share amounts) |
|
Revenue |
|
$ |
3,197,041 |
|
|
$ |
3,455,562 |
|
|
$ |
3,444,003 |
|
|
$ |
3,388,900 |
|
|
$ |
3,375,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of service: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of service(1)(2) |
|
|
2,521,254 |
|
|
|
2,966,168 |
|
|
|
2,863,856 |
|
|
|
3,001,327 |
|
|
|
2,816,559 |
|
Lease and facilities
restructuring charge |
|
|
(3,524 |
) |
|
|
20,869 |
|
|
|
29,621 |
|
|
|
29,581 |
|
|
|
11,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of service |
|
|
2,517,730 |
|
|
|
2,987,037 |
|
|
|
2,893,477 |
|
|
|
3,030,908 |
|
|
|
2,828,258 |
|
Gross profit |
|
|
679,311 |
|
|
|
468,525 |
|
|
|
550,526 |
|
|
|
357,992 |
|
|
|
547,524 |
|
Amortization of purchased
intangible assets |
|
|
|
|
|
|
|
|
|
|
1,545 |
|
|
|
2,266 |
|
|
|
3,457 |
|
Goodwill impairment
charge(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,415 |
|
|
|
397,065 |
|
Selling, general and
administrative
expenses(1)(2) |
|
|
550,818 |
|
|
|
701,317 |
|
|
|
748,250 |
|
|
|
750,867 |
|
|
|
641,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
128,493 |
|
|
|
(232,792 |
) |
|
|
(199,269 |
) |
|
|
(561,556 |
) |
|
|
(494,174 |
) |
Insurance settlement |
|
|
|
|
|
|
|
|
|
|
38,000 |
|
|
|
|
|
|
|
|
|
Interest
/other expense, net(4) |
|
|
(91,811 |
) |
|
|
(57,698 |
) |
|
|
(19,774 |
) |
|
|
(37,966 |
) |
|
|
(17,644 |
) |
Loss on early
extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,617 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes |
|
|
36,682 |
|
|
|
(290,490 |
) |
|
|
(181,043 |
) |
|
|
(599,522 |
) |
|
|
(534,435 |
) |
Income tax expense(5) |
|
|
68,754 |
|
|
|
72,233 |
|
|
|
32,397 |
|
|
|
122,121 |
|
|
|
11,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
applicable to common
stockholders(6) |
|
|
(32,072 |
) |
|
|
(362,723 |
) |
|
|
(213,440 |
) |
|
|
(721,643 |
) |
|
|
(546,226 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss
applicable to common
stockholders basic and
diluted |
|
$ |
(7.18 |
) |
|
$ |
(83.90 |
) |
|
$ |
(50.30 |
)* |
|
$ |
(179.50 |
)* |
|
$ |
(138.61 |
)* |
|
|
|
* |
|
Unaudited for reverse stock split, see Available
Information and Note 1, Reverse Stock Split. |
18
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
December 31, |
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
(in thousands) |
Cash, cash equivalents,
and restricted cash(7) |
|
$ |
353,132 |
|
|
$ |
468,518 |
|
|
$ |
392,668 |
|
|
$ |
376,587 |
|
|
$ |
265,863 |
|
Total assets |
|
|
1,654,915 |
|
|
|
1,981,404 |
|
|
|
1,939,240 |
|
|
|
1,972,426 |
|
|
|
2,182,707 |
|
Long-term liabilities(8) |
|
|
1,336,135 |
|
|
|
1,538,801 |
|
|
|
1,078,930 |
|
|
|
976,501 |
|
|
|
648,565 |
|
Total debt |
|
|
976,916 |
|
|
|
974,643 |
|
|
|
671,850 |
|
|
|
674,760 |
|
|
|
423,226 |
|
Total liabilities(8) |
|
|
2,201,146 |
|
|
|
2,450,693 |
|
|
|
2,116,541 |
|
|
|
2,017,998 |
|
|
|
1,558,009 |
|
Total stockholders
(deficit) equity(8) |
|
|
(546,231 |
) |
|
|
(469,289 |
) |
|
|
(177,301 |
) |
|
|
(45,572 |
) |
|
|
624,698 |
|
|
|
|
(1) |
|
During the year ended December 31, 2008, an adjustment of $77.2 million was recorded to reverse expenses recorded in 2007 associated with the
performance share unit (PSU) and performance cash award (PCA) plans, comprised of $62.7 million within costs of service and $14.5
million within selling, general and administrative expenses, due to the Companys estimate of the performance condition not being probable of
achievement at the end of the plan period. During the year ended December 31, 2008, an additional adjustment was recorded of $37.0 million, which
increased net income, comprised of $36.6 million within cost of service and $0.4 million within selling, general and administrative expense, to
adjust accruals associated with global tax equalization expense. During the year ended December 31, 2008, severance expenses of $27.6 million
were recorded, comprised of $22.1 million within costs of service and $5.5 million within selling, general and administrative expenses resulting
from routine adjustments to the size of our workforce to better meet the needs of the business. |
|
(2) |
|
During the year ended December 31, 2007, an adjustment of $7.6 million was recorded, comprised of $2.5 million within costs of service and
$5.1 million within selling, general and administrative expenses, to adjust the stock-based compensation expense to account for an increase in
the estimated forfeiture rate and capture the impact of unanticipated forfeitures that occurred in the fourth quarter of 2007. |
|
(3) |
|
During the years ended December 31, 2005 and 2004, we recorded goodwill
impairment charges of $166.4 million and $397.1 million, respectively. |
|
(4) |
|
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. |
|
(5) |
|
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 conclusion that it is more likely than not that these tax benefits would not be realized.
|
|
(6) |
|
During the fourth quarter of 2006, the one-month reporting lag in the remaining EMEA entities was eliminated. The elimination of one month of
activity increased our 2006 consolidated net loss for the year ended December 31, 2006 by $1.2 million. |
|
(7) |
|
Restricted cash amounts at December 31, 2007, 2006, 2005 and 2004 were $1.7 million, $3.1 million, $121.2 million and $21.1 million, respectively. |
|
(8) |
|
During the year ended December 31, 2007, we recognized an increase of approximately $119.8 million in liability for unrecognized tax benefits,
which was reflected as an increase to the January 1, 2007 balance of accumulated deficit as a result of adopting the provisions of Financial
Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxes, as of January 1, 2007. |
Note: On February 18, 2009, the Debtors filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code. The selected financial data set forth above does not reflect the impact of
the Chapter 11 filing.
19
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following Managements Discussion and Analysis of Financial Condition and Results of
Operation (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
Forward-Looking Statements.
Overview
Historically, we strived to be recognized as the world leader in management and technology
consulting, admired for our passion and respected for our ability to solve our clients most
important challenges. We provide strategic consulting applications services, technology solutions
and managed services to government organizations, Global 2000 companies and medium-sized businesses
in the United States and internationally. Historically, in North America, we provided consulting
services through our Public Services, Commercial Services and Financial Services industry groups in
which we focused significant industry-specific knowledge and service offerings to our clients.
Outside of North America, historically, we were organized on a geographic basis, with operations in
EMEA, the Asia Pacific region and Latin America.
Chapter 11 Bankruptcy Proceedings and Sale Transactions
On February 18, 2009, the Debtors filed voluntary petitions for relief under the Bankruptcy
Code in the Bankruptcy Court. The chapter 11 cases are being jointly administered under the
caption In re BearingPoint, Inc., et al., Case No. 09-10691 (REG) (the Chapter 11 Cases). The
Debtors will continue to manage their properties and operate their business as
debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with the
applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. In addition,
as part of the relief granted to the Debtors on the Petition Date, the Bankruptcy Court entered an
order confirming that the Companys subsidiaries that are domiciled outside of the United States
are not part of the Chapter 11 Cases. The Debtors may pay all debts and honor all obligations
arising in the ordinary course of their businesses after the Petition Date. However, the Debtors
may not pay creditors on account of obligations arising before the Petition Date or engage in
transactions outside the ordinary course of business without the prior approval of the Bankruptcy
Court.
As
set forth in more detail below, the Company has sold significant
portions of its businesses and assets and has entered into agreements
or is in negotiations to sell its remaining
businesses and assets. It is expected that upon the consummation of these transactions the Company
will wind down its operations and cease to operate as a going concern.
On November 13, 2008, the NYSE notified the Company that it had decided to suspend trading in
the Companys common stock prior to market open on November 17, 2008, based on its determination
that the trading price of the Companys common stock was abnormally low. The Company appealed
the NYSEs decision to suspend the trading of its common stock; however, due to the commencement of
the Chapter 11 Cases, the Company withdrew its appeal on March 5, 2009 and the Companys common
stock was delisted from the NYSE effective as of March 19, 2009.
The decision to seek relief under the Bankruptcy Code was made after an exhaustive review of
alternative options. In addition to significantly reducing our debt burden, the bankruptcy filing
resolved potential defaults relating to our near-term cash payment obligations, including the right
of the holders of the 5.00% Convertible Senior Debentures to require us to repurchase the 5.00%
Convertible Senior Debentures, as early as April 2009, at a purchase price equal to 100% of the
principal amount of $200 million, plus any accrued and unpaid interest. Our failure to repurchase
these debentures pursuant to the holders option would have caused a cross default under certain
other of our debentures and our 2007 Credit Facility. Such a cross default, in turn, would have
caused all amounts outstanding thereunder to accelerate. The bankruptcy filing also resolved the
prospect that we would have to repay all of our outstanding debt in the event our common stock is
delisted from the NYSE. The chapter 11 filing, however, has resulted in the acceleration of these
debt obligations. Accordingly, they became automatically due and payable on the Petition Date,
subject to an automatic stay pursuant to the Bankruptcy Code of any action to collect or recover a
claim against the Debtors.
On the Petition Date, the Debtors filed the Plan, which embodied the proposed terms of the
Debtors restructuring. The Secured Lenders, who are parties to the 2007 Credit Facility, agreed
in principle to support the Plan. As proposed, the Plan provides, among other things, that:
20
|
|
|
New Senior Secured Credit Facility. The 2007 Credit Facility would be replaced with
a new senior secured credit facility as follows: term loan in the amount of $272 million
plus accrued interest and a synthetic letter of credit facility in the amount of up to
$130 million; plus the issuance of new convertible preferred stock with a liquidation
preference of $50 million, plus accrued and unpaid dividends, which would be convertible
into class 3 common stock (as described below). |
|
|
|
|
Unsecured Debt. All unsecured debt would be exchanged for three different classes of
common stock. Holders of the 5.00% Convertible Senior Debentures and holders of the $40
million 0.50% Convertible Senior Subordinated Debentures due 2010 would receive shares
of class 1 common stock. Holders of the $250 million 2.50% Series A Convertible
Subordinated Debentures due 2024 and holders of the $200 million 2.75% Series B
Convertible Subordinated Debentures due 2024 would receive shares of class 2 common
stock. Certain general unsecured creditors would receive shares of class 3 common
stock. The three classes of common stock would be entitled to the same dividends,
distributions and voting rights, except that until the holders of class 1 common stock
had received dividends and distributions of $240 million, such holders would be entitled
to the dividend, distribution and voting rights (except with respect to the election of
directors) of the holders of class 2 common stock. |
|
|
|
|
Existing Equity. All existing equity in the Company would be cancelled for no
consideration. |
However, as previously announced and as discussed in more detail below, the Company has
actively marketed the sale of its businesses and assets to potential bidders during the pendency of
the Chapter 11 Cases. The Company expects that the proposed Plan will be modified to reflect the
Sale Transactions described below. If the Company is successful in selling all or substantially
all of its assets, it will result in the liquidation of the Companys business and the Company
would cease to operate as a going concern.
In order for a plan of reorganization to be confirmed by the Bankruptcy Court, such plan must
be voted on by holders of impaired claims and must satisfy certain requirements of the Bankruptcy
Code. Confirmation of a plan by a Bankruptcy Court would make the plan binding on the Debtors, any
issuer of securities under the plan, any person acquiring property under the plan and any of the
Debtors creditors or equity interest holders. Subject to certain limited exceptions, the order
confirming a plan of reorganization will generally discharge the Debtors from any debt that arose
prior to the date the Debtors filed the Chapter 11 Cases, and substitutes for such debt the
obligations specified under the confirmed plan.
The Bankruptcy Court granted all of the relief sought by the Debtors on the Petition Date,
including our motion for interim authority to use the Cash Collateral, which provides us with
continued access to funds to operate our business. The Debtors use of the Cash Collateral must be
in accordance with a budget setting forth their anticipated cumulative cash receipts and
expenditures on a weekly basis and all necessary and required cumulative expenses which the Debtors
expect to incur during each week of the budget. The Debtors failure to use the Cash Collateral in
accordance with the budget could, depending on the extent of the deviation, result in the Debtors
losing access to the funds. The Bankruptcy Court also entered an interim order establishing
notification procedures and restrictions in connection with holding and trading in our common stock
and debt securities and certain of our other liabilities. The order is intended to preserve, to the
greatest extent possible, the potential value of certain of our tax attributes, both during the
pendency of the Chapter 11 Cases and following emergence from bankruptcy. A final hearing
confirming our ability to use the Cash Collateral occurred on April 15, 2009.
As required by the Bankruptcy Code, the United States Trustee for the Southern District of New
York appointed an official committee of unsecured creditors on February 27, 2009.
On March 5, 2009, the Debtors filed their schedules of assets and liabilities and their
statements of financial affairs with the Bankruptcy Court. On March 11, 2009, the Bankruptcy Court
issued an order establishing April 17, 2009 as the deadline for each person or entity other than a
governmental unit (as defined in the Bankruptcy Code) to file a proof of claim against any of the
Debtors to assert any claim.
On March 23, 2009, the Company and certain of its subsidiaries entered into an Asset Purchase
Agreement with Deloitte LLP pursuant to which the Company and certain of its subsidiaries agreed to
sell a significant portion of their assets related to the Companys North American Public Services
business to Deloitte and Deloitte agreed to
21
assume certain liabilities associated with these assets as set forth in the Asset Purchase
Agreement (the Deloitte Transaction). On April 17,
2009, the Bankruptcy Court approved this sale. The closing of the Deloitte Transaction occurred on May
8, 2009. In connection with the closing, the Company received net
proceeds of approximately $329.3 million (subject to certain
contractual adjustments).
Under
the 2007 Credit Facility, the Company is obligated to repay the lenders amounts borrowed
if it sells assets in excess of $15 million. The Bankruptcy
Courts order approving the Deloitte Transaction provided that all liens, claims, and encumbrances
attached to the proceeds of such sale. While the undisputed amount of liens totaled $255 million,
Wells Fargo and the Official Committee of Unsecured Creditors have entered into an agreed order
stipulating that the disputed amount of such liens totals no more than $1.5 million in the
aggregate. In accordance with the Bankruptcy Courts order
approving the Deloitte Transaction and the
undisputed security interests of the lenders under the 2007 Credit
Facility, on or about May 13, 2009, the Company made a
payment in the amount of $255 million to Wells Fargo from the proceeds of
the Deloitte Transaction.
On April 2, 2009, BearingPoint International Bermuda Holdings Limited, an indirect subsidiary
of the Company, entered into a Share Sale Agreement with PwC Advisory Co., Ltd. (PwC Japan), the
Japanese member firm of the PricewaterhouseCoopers global network of firms, for the sale of the
Companys consulting business in Japan to PwC Japan (the PwC Japan Transaction). Pursuant to the
Share Sale Agreement, PwC Japan agreed to purchase BearingPoint Co., Ltd. (Chiyoda-ku)
(BearingPoint Japan), an indirect, wholly-owned subsidiary of the Company, through the purchase
of all issued and outstanding shares of BearingPoint Japan. The Company generated cash of
approximately $45 million in connection with the PwC Japan Transaction. In addition, in connection
with the PwC Japan Transaction, PwC Japan assumed the intercompany debt owed by certain non-Debtor
subsidiaries of the Company to BearingPoint Japan. The closing of the PwC Japan Transaction
occurred on May 11, 2009.
On April 17, 2009, the Company and certain of its subsidiaries entered into an Asset Purchase
Agreement with PricewaterhouseCoopers LLP (PwC) pursuant to which the Company agreed to sell a
substantial portion of its assets related to its North American Commercial Services business unit,
including Financial Services (collectively, the CS Business), to PwC, and PwC agreed to assume
certain liabilities associated with these assets (the PwC U.S. Transaction). In addition, an
affiliate of PwC also entered into a definitive agreement to purchase the equity interests of
BearingPoint Information Technologies (Shanghai) Limited (BearingPoint China GDC), a subsidiary
of the Company that operates a global development center in China, and certain assets of a separate
global development center in India (the PwC China/India Transaction, and together with the PwC
U.S. Transaction, the PwC Commercial Services Transaction). On April 27, 2009, the Bankruptcy Court approved bidding procedures in
connection with an auction of all or substantially all of the assets
of the CS Business and BearingPoint China GDC (the
Auction). The Auction was held on May 27, 2009 and
concluded on May 28, 2009. At a hearing on May 28, 2009,
the Bankruptcy Court approved PwC as the winning bidder at the
Auction. Under the terms of the winning bid, the aggregate purchase
price for the PwC Commercial Services Transaction to be paid by PwC
is approximately $44 million (subject to certain contractual
adjustments). The closing of the PwC Commercial Services Transaction is
expected to occur by the end of June 2009 and is subject to
customary closing conditions.
On April 20, 2009, the Board of Directors of the Company authorized the Company to enter into
a non-binding term sheet for the sale of its EMEA business to local management. Additionally, the
Company is in negotiations with other parties and local management to sell its Latin America
practices and sell various Asia Pacific practices other than
BearingPoint Japan and BearingPoint China GDC and is in various stages of negotiations to
sell certain remaining assets that were not, or will not be, sold pursuant to other
transactions. These potential transactions, together with the Deloitte Transaction, the PwC Japan
Transaction and the PwC Commercial Services Transaction, are referred to collectively as the Sale
Transactions.
The purpose of these Sale Transactions is to sell all or substantially all of our business and
assets to third parties or local management. Although certain of the Sale Transactions must be
approved by the Bankruptcy Court and the Sale Transactions are subject to a number of risks, we
expect that the Plan will be modified to reflect the Sale Transactions and that the Chapter 11
Cases will result in a liquidation of BearingPoints business and assets under either chapter 11 or
chapter 7 of the Bankruptcy Code, such that BearingPoint will cease
to operate as a going concern. There can be no assurance that the
Sale Transactions will be completed.
Operating in bankruptcy imposes significant risks and uncertainties on our business. See Item
1A Risk Factors Risks Relating to Bankruptcy for a discussion of the risks and uncertainties
relating to our business and investing in our securities as a result of the Chapter 11 Cases.
Additional information about our Chapter 11 Cases is available on our website
www.bearingpoint.com and can be found by clicking on
Restructuring Information. Our internet website and the
information contained or incorporated therein are not intended to be incorporated into this Annual
Report.
22
Going Concern
As discussed above, we expect that the Plan will be modified to reflect the Sale Transactions
and that the Chapter 11 Cases will result in a liquidation of our business and assets under either
chapter 11 or chapter 7 of the Bankruptcy Code, with the Debtors ceasing to operate as a going
concern. In addition, Ernst & Young LLPs report on the Companys 2008 consolidated financial
statements states that uncertainties inherent in the bankruptcy process raise substantial doubt
about the Companys ability to continue as a going concern.
Economic and Industry Factors
We believe that our clients spending for consulting services is partially correlated to,
among other factors, the performance of the domestic and global economy as measured by a variety of
indicators such as gross domestic product, government policies, mergers and acquisitions activity,
corporate earnings, U.S. Federal and state government budget levels, inflation and interest rates
and client confidence levels, among others.
Historically, as economic uncertainties increase, clients interests in business and
technology consulting have turned more to improving existing processes and reducing costs rather
than investing in new innovations. Demand for our services, as evidenced by new contract bookings,
also does not uniformly follow changes in economic cycles. Consequently, we may experience rapid
decreases in new contract bookings at the onset of significant economic downturns while the
benefits of economic recovery may take longer to realize. Generally, during time of economic
uncertainty, our business plan places significant emphasis on continuing cost reduction and
consolidation efforts, monitoring utilization rates, and making conservative estimates of minimal
to no revenue growth. Nonetheless, most bookings are subject to cancellation on short notice and
we may be unable to rapidly and effectively adjust our cost structure if we experience significant
cancellations or deferrals of work.
The markets in which we provide services are increasingly competitive and global in nature.
While supply and demand in certain lines of business and geographies may support price increases
for some of our standard service offerings from time to time, to maintain and improve our
profitability we must constantly seek to improve and expand our unique service offerings and
deliver our services at increasingly lower cost levels. Our Public Services industry group, which
was our largest, also must operate within the U.S. Federal, state and local government markets
where unique contracting, budgetary and regulatory regimes control how contracts are awarded,
modified and terminated. Budgetary constraints or reductions in government funding may result in
the modification or termination of long-term government contracts, which dramatically affect that
business.
Revenue and Income Drivers
We derive substantially all of our revenue from professional services activities. Our revenue
is driven by our ability to continuously generate new opportunities to serve clients, by the prices
we obtain for our service offerings, and by the size and utilization of our professional workforce.
Our ability to generate new business is directly influenced by the economic conditions in the
industries and regions we serve, our anticipation and response to technological change, the type
and level of technology spending by our clients and by our clients perception of the quality of
our work. Our ability to generate new business is also indirectly and increasingly influenced by
our clients perceptions of our ability to manage our ongoing issues surrounding our financial
position.
Our gross profit consists of revenue less our costs of service. The primary components of our
costs of service include professional compensation and other direct contract expenses. Professional
compensation consists of payroll costs and related benefits associated with client service
professional staff (including bonuses, the vesting of various stock awards, tax equalization for
employees on foreign and long-term domestic assignments and costs associated with reductions in
workforce). Other direct contract expenses include costs directly attributable to client
engagements. These costs include out-of-pocket costs such as travel and subsistence for client
service professional staff, costs of hardware and software, and costs of subcontractors. If we are
unable to adequately control or estimate these costs, or properly anticipate the sizes of our
client service and support staff, our profitability suffers.
Our operating profit reflects our revenue less costs of service and certain additional items
that include, primarily, SG&A expenses, which include costs related to marketing, information
systems, depreciation and amortization, finance and accounting, human resources, sales force, and
other expenses related to managing and growing our business. Write-downs in the carrying value of
goodwill and amortization of intangible assets have also reduced our operating profit.
Our operating cash flow is derived predominantly from gross operating profit and how we manage
our receivables and payables.
23
Key Performance Indicators
In evaluating our operating performance and financial condition, we focus on the following key
performance indicators: bookings, revenue growth, gross margin (gross profit as a percentage of
revenue), utilization, days sales outstanding, free cash flow and attrition.
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Bookings. We believe that information regarding our new contract bookings provides useful
trend information regarding how the volume of our new business changes over time. Comparing
the amount of new contract bookings and revenue provides us with an additional measure of
the short-term sustainability of revenue growth. Information regarding our new bookings
should not be compared to, or substituted for, an analysis of our revenue over time. There
are no third-party standards or requirements governing the calculation of bookings. New
contract bookings are recorded using then existing currency exchange rates and are not
subsequently adjusted for currency fluctuations. These amounts represent our estimate at
contract signing of the net revenue expected over the term of that contract and involve
estimates and judgments regarding new contracts as well as renewals, extensions and
additions to existing contracts. Subsequent cancellations, extensions and other matters may
affect the amount of bookings previously reported; however, we do not revise previously
reported bookings. Bookings do not include potential revenue that could be earned from a
client relationship as a result of future expansion of service offerings to that client, nor
does it reflect option years under contracts that are subject to client discretion. We do
not record unfunded U.S. Federal contracts as new contract bookings while appropriation
approvals remain pending, as there can be no assurances that these approvals will be
forthcoming in the near future, if at all. Consequently, there can be significant
differences between the time of contract signing and new contract booking recognition. Our
level of bookings provides an indication of how our business is performing: a positive
variance between bookings and revenue is indicative of business momentum, a negative
variance is indicative of a business downturn. Nonetheless, we do not characterize our
bookings, or our engagement contracts associated with new bookings, as backlog because our
engagements generally can be cancelled or terminated on short notice or without notice. |
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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. |
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We believe that it is also useful to monitor net revenue, as well as revenue growth. Net
revenue represents the actual amount paid by our clients for the services we provide, as
opposed to services provided by others and ancillary costs and expenses. Net revenue is a
non-GAAP financial measure. The most directly comparable financial measure in accordance with
generally accepted accounting principles in the United States of America (GAAP) is revenue.
Net revenue is derived by reducing the components of revenue that consist of other direct
contract expenses, which are costs that are directly attributable to client engagements. These
costs include items such as computer hardware and software, travel expenses for professional
personnel and costs associated with subcontractors. |
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Gross Margin (gross profit as a percentage of revenue). Gross margin is a meaningful tool
for monitoring our ability to control our costs of service. Analysis of the various cost
elements, including professional compensation expense, effects of foreign exchange rate
changes and the use of subcontractors, as a percentage of revenue over time can provide
additional information as to the key challenges we are facing in our business. The cost of
subcontractors is generally more expensive than the cost of our own workforce and can
negatively impact our gross profit. While the use of subcontractors can help us to win
larger, more complex deals, and also may be mandated by our clients, we focus on limiting
the use of subcontractors whenever possible in order to minimize our costs. We also utilize
certain adjusted gross margin metrics in connection with the vesting and settlement of
certain employee incentive awards. For a discussion of these metrics, see Item 11,
Executive Compensation Compensation Discussion and Analysis. |
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We also monitor contribution margin to better review the profitability of our respective
operating segments. Contribution margin is a non-GAAP financial measure. The most directly
comparable financial measure in accordance with GAAP is gross margin. Contribution margin is
calculated by subtracting, from net revenue, professional compensation, other costs of service,
SG&A and certain other allocations, and then dividing by net revenue. |
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Utilization. Utilization represents the percentage of time our consultants are performing
work, and is defined as total hours charged to client engagements or to non-chargeable
client-relationship projects divided by total available hours for any specific time period,
net of holiday and paid vacation hours. |
24
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Days Sales Outstanding (DSO). DSO is an operational metric that approximates the amount
of earned revenue that remains unpaid by clients at a given time. DSOs are derived by
dividing the sum of our outstanding accounts receivable and unbilled revenue, less deferred
revenue, by our average net revenue per day. Average net revenue per day is determined by
dividing total net revenue for the most recently ended trailing twelve-month period by 365. |
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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 operation after
expenditures for fixed assets. Free cash flow does not represent our residual cash flow
available for discretionary expenditures as it excludes certain mandatory expenditures such
as repayment of maturing debt. We use free cash flow as a measure of recurring operating
cash flow. Free cash flow is a non-GAAP financial measure. The most directly comparable
financial measure calculated in accordance with GAAP is net cash provided by operating
activities. |
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Attrition. Attrition, or voluntary total employee turnover, is calculated by dividing the
number of our employees who have chosen to leave the Company within a certain period by the
total average number of all employees during that same period. Our attrition statistic
covers all of our employees, which we believe provides metrics that are more compatible
with, and comparable to, those of our competitors. |
Readers should understand that each of the performance indicators identified above are
utilized by many companies in our industry and by those who follow our industry. There are no
uniform standards or requirements for computing these performance indicators, and, consequently,
our computations of these amounts may not be comparable to those of our competitors.
Discussion of Certain 2008 Financial Results
Our overall performance in 2008 was negatively impacted by the global economic downturn,
coupled with continued concerns by our clients over our financial stability, particularly in light
of the rights of the holders of our 5.00% Convertible Senior Debentures to demand payment of up to
the entire principal amount of those debentures as early as April 2009 and potential acceleration
of all amounts under our various debt instruments upon a delisting of our common stock from the
NYSE.
Of particular note in 2008 are the following:
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New contract bookings for 2008 were $2,710.6 million, a decrease from new contract
bookings of $2,864.9 million for 2007. |
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During the year ended December 31, 2008, an adjustment of $66.6 million and $10.6 million
was recorded to reverse expenses recorded in 2007 associated with the PSU and PCA plans,
respectively, due to the Companys estimate of the performance conditions not being probable
of achievement at the end of the plan period. |
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Global tax equalization refers to our policy of estimating and recording expenses to
ensure that our employees working on domestic long-term and foreign short-term assignments
outside of their home tax jurisdiction will be subject to the same level of personal tax as
their home tax jurisdiction. If the estimated tax equalization liability is determined to be
greater or less than the amount due upon final settlement, the difference is recorded in the
current period. During 2008, we reversed accruals of $37.0 million in connection with our
global tax equalization policy, which resulted in our professional compensation expense
being reduced by this amount. |
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During 2008, we implemented numerous new controls in our efforts toward remediating our
material weaknesses in internal control over financial reporting. One material weakness
remains (see Item 9A of this Annual Report). |
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As of January 1, 2009, we combined three of our business segments: Commercial Services,
Financial Services, and Latin America and began managing the operations of these three
segments as one combined segment reporting to a single segment leader, and began realigning
resources and internal management in order to gain synergies in both costs and revenue. |
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Utilization for 2008 was 78.9%, compared with 77.2% in 2007. |
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As of December 31, 2008, our DSOs stood at 66 days, representing a decrease of 11 days,
or 14.3%, from our DSOs at December 31, 2007 of 77 days. |
25
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Free cash flow for 2008 and 2007 was ($112.1) million and ($231.5) million, respectively.
Net cash used in operating activities in 2008 and 2007 was ($63.9) million and
($193.3) million, respectively. Purchases of property and equipment in 2008 and 2007 were
$48.2 million and $38.2 million, respectively. |
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During 2008, we spent approximately $39.9 million in connection with the implementation
of our new North American financial reporting system, of which $15.6 million was expensed
and $24.3 million was capitalized, including $2.1 million of interest costs. We finalized
decisions regarding the design of, and obtained licenses for the components needed to
substantially replace, our existing North American financial reporting systems. This
implementation has been suspended due to the Companys Sale Transactions. |
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As of December 31, 2008, we had approximately 15,200 full-time employees, including
approximately 12,700 consulting professionals, which represented a decrease in billable
headcount of approximately 11.8% from full-time employees and consulting professionals at
December 31, 2007 of 17,100 and 14,400, respectively. |
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Our voluntary, annualized attrition rate for 2008 was 24.8%, compared to 24.7% for 2007. |
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In 2008, we paid performance-based cash bonuses totaling approximately $30.7 million
($17.2 million to staff and $13.5 million to managing directors), based on 2007 performance.
As of December 31, 2008, we had accrued performance-based cash bonuses totaling approximately
$19.6 million based on 2008 performance, however, as a result of
our bankruptcy and Sale Transactions, we currently do not anticipate
paying this full amount. |
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In April 2009, the U.S. Defense Contract Audit Agency (DCAA) issued a report on its
audit of our financial capability, which concluded that our financial condition is
unfavorable for performing government contracts due to our filing for bankruptcy. However,
we are still eligible to continue to receive contract awards of all types from the
U.S. Federal government. The DCAA examined our financial condition and capability and
determined we may not have adequate financial resources to perform government contracts in
the current and near-term (up to one year) without extraordinary management actions. |
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At the annual meeting of stockholders, held on December 5, 2008, the Board approved the
implementation of a one-for-fifty reverse stock split of the Companys common stock. The
record and effective date for the reverse stock split was December 10, 2008. As of the
record date, the Company had 220,851,816 shares of common stock outstanding and upon the
effectiveness of the reverse stock split, the Company had 4,417,036 shares of common stock
outstanding. The reverse stock split had no effect on the number of authorized shares of
common stock. |
Segments
Our reportable segments for 2008 consist of our three North America Industry Groups (Public
Services, Commercial Services and Financial Services), our three international regions (EMEA, Asia
Pacific and Latin America) and the Corporate/Other category (which consists primarily of
infrastructure costs). Revenue and gross profit information about our segments are presented below,
starting with each of our industry groups and then with each of our three international regions (in
order of size).
Our chief operating decision maker, the Chief Executive Officer, evaluates performance and
allocates resources among the segments. Accounting policies of our segments are the same as those
described in Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated
Financial Statements. Upon consolidation, all intercompany accounts and transactions are
eliminated. Inter-segment revenue is not included in the measure of profit or loss for each
reportable segment. Performance of the segments is evaluated on operating income excluding the
costs of infrastructure functions (such as information systems, finance and accounting, human
resources, legal and marketing) as described in Note 18, Segment Information, of the Notes to
Consolidated Financial Statements.
26
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Revenue. Our revenue for 2008 was $3,197.0 million, a decrease of $258.5 million, or 7.5%,
compared to 2007 revenue of $3,455.6 million. Dampening the impact of revenue declines in 2008 was
$87.4 million of favorable impact of the strengthening of foreign currencies, particularly the
Euro, the Japanese Yen, and the Brazilian Real, against the U.S. dollar. The following tables
present certain revenue information and performance metrics for each of our reportable segments
during 2008 and 2007. Amounts are in thousands, except percentages. For additional geographical
revenue information, please see Note 18, Segment Information, of the Notes to Consolidated
Financial Statements.
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Percent |
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Percent |
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Year Ended |
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Increase |
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Increase |
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December 31, |
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(Decrease) |
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(Decrease) |
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2008 |
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2007 |
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US$ Change |
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US$ |
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Local Currency |
Revenue |
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Public Services |
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$ |
1,368,992 |
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$ |
1,432,645 |
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$ |
(63,653 |
) |
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(4.4 |
%) |
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(4.4 |
%) |
Commercial Services |
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386,599 |
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|
509,789 |
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(123,190 |
) |
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(24.2 |
%) |
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(24.2 |
%) |
Financial Services |
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185,978 |
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264,198 |
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(78,220 |
) |
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(29.6 |
%) |
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(29.6 |
%) |
EMEA |
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833,520 |
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791,298 |
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42,222 |
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5.3 |
% |
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(1.2 |
%) |
Asia Pacific |
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324,047 |
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362,715 |
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(38,668 |
) |
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(10.7 |
%) |
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(18.3 |
%) |
Latin America |
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|
101,361 |
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90,091 |
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11,270 |
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12.5 |
% |
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5.8 |
% |
Corporate/Other |
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(3,456 |
) |
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4,826 |
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(8,282 |
) |
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n/m |
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n/m |
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Total |
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$ |
3,197,041 |
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$ |
3,455,562 |
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$ |
(258,521 |
) |
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(7.5 |
%) |
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(10.0 |
%) |
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Public Services revenue decreased in 2008 due to declines in the SLED, Healthcare, and
Emerging Markets sectors, partially offset by increases in the Civilian and Defense sectors.
The declines in the SLED, Healthcare, and Emerging Markets sectors were primarily due to a
reduced demand for services. Additionally SLED was negatively impacted by reductions in
revenue due to performance issues on certain SLED contracts, and declines in Emerging Markets
sector were the result of our decision to exit certain locations due to security concerns.
Revenue growth in the Civilian sector was due to increased activity with existing clients as
well as increases in billing rates for our services. Revenue growth in the Defense sector was
due to increased demand for our services, and the recognition of $7.7 million in revenue
during the first quarter of 2008 relating to work performed in earlier periods for which
contract contingencies were resolved in the current period. |
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Commercial Services revenue decreased significantly in 2008 due to declines in all sectors.
Revenue decreases were attributable to reduced demand for our services and reductions in the
effective rates charged for our services. |
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Financial Services revenue decreased significantly in 2008 due to revenue decreases in the
Banking, Services and Global Markets sectors, slightly offset by revenue increases in the
Insurance sector. Revenue decreases were attributable, in part, to lower levels of contract
signings since the fourth quarter of 2007. These decreases were due to a combination of
factors, including reduced demand for our services, and our devoting significant efforts
during the first quarter of 2008 to reducing headcount and stabilizing our business model, as
many clients deferred new initiatives in the wake of the crisis in the financial markets and
became increasingly sensitive to negative perceptions regarding our financial stability.
These revenue declines were only slightly offset by increased revenue in the Insurance sector
driven by additional efforts on a small number of large client engagements. |
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EMEA revenue increased during 2008 primarily as a result of the favorable impact of the
strengthening of foreign currencies, specifically the Euro, against the U.S. dollar. The
currency impact further enhanced meaningful revenue growth in Germany and France, and
partially offset the effects of revenue decreases in the United Kingdom, Spain, Sweden and
Norway. The increase in revenues in Germany and France resulted from both increased billing
rates and increased demand for our services. Revenues in Spain continue to decline as a
result of our strategic decision to significantly reduce our activities in this country. The
revenues in the United Kingdom, Sweden and Norway declined due to the loss of key personnel
in the early part of 2008 in these countries. |
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Asia Pacific revenue decreased during 2008 primarily as a result of revenue declines in
Australia, and New Zealand. These revenue declines were offset by the favorable impact of the
strengthening of the Japanese yen against the U.S. dollar. The |
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favorable impact of the strengthening yen fully offset revenue declines in local currency in
Japan, resulting in marginal revenue growth in U.S. dollars. In Australia, we experienced
significant attrition and lost a number of key employees, in early 2008, which led to a
substantial reduction in our business and lower revenues in 2008. Revenues in Australia were
also adversely impacted by the transitioning of work on a large systems implementation contract
with a telecommunication client in the support phase. In Japan the decline in revenue in local
currency was due largely to the impact of fewer projects related to J-SOX and the decline in
rates billed for our work on a particularly large systems implementation contract. In
addition, our decision to reduce our presence in New Zealand in late 2007 resulted in
significantly less revenue year over year. All countries in the region were significantly
impacted by the current economic slowdown, which resulted in reduced bookings and revenue. |
|
|
|
|
Latin America revenue increased in 2008 primarily as a result of revenue increases in
Brazil and Costa Rica, as well as the favorable impact of the strengthening of the Brazilian
Real against the U.S. dollar. These increases were only partially offset by revenue declines
in Mexico. |
|
|
|
|
Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue. |
Gross Profit. During 2008, our revenue decreased $258.5 million and total costs of service
decreased $469.3 million when compared to 2007, resulting in an increase in gross profit of $210.8
million, or 45.0%. Gross profit as a percentage of revenue increased to 21.2% for 2008 from 13.6%
for 2007. Contributing to the increase in gross profit was $22.3 million as a result of the
favorable impact of the strengthening of foreign currencies, primarily the Euro, the Japanese Yen,
and Brazilian Real, against the U.S. dollar. The change in gross profit for 2008 compared to 2007
resulted primarily from the following:
|
|
|
Professional compensation expense decreased as a percentage of revenue to 48.9% for 2008,
compared to 53.8% for 2007. We experienced a net decrease in professional compensation
expense of $294.2 million, or 15.8%, to $1,564.2 million for 2008 over $1,858.5 million for
2007. The decrease in professional compensation was primarily due to reductions in headcount
in every segment, the reversal of $62.7 million of expenses recorded in 2007 associated with
the performance share unit (PSU) and performance cash award (PCA) plans due to the
Companys estimate of the performance condition not being probable of achievement at the end
of the plan period, a $37.0 million adjustment related to the reversal of accruals in
connection with our global tax equalization and a decline in cost of service bonus expense
of $37.9 million. Dampening the declines in professional compensation was the unfavorable
impact of $44.6 million as a result of the strengthening of foreign currencies against the
U.S. dollar. |
|
|
|
|
Other direct contract expenses decreased as a percentage of revenue to 21.1% for 2008
compared to 23.4% for 2007. We experienced a net decrease in other direct contract expenses
of $133.1 million, or 16.5%, to $674.6 million for 2008 from $807.7 million for 2007. The
decrease was driven primarily by reduced subcontractor expenses as a result of increased use
of our internal resources coupled with a decline in the volume of work. Dampening the
declines of other direct contract expenses was the unfavorable impact of $13.9 million as a
result of the strengthening of foreign currencies against the U.S. dollar. |
|
|
|
|
Other costs of service as a percentage of revenue increased slightly to 8.8% for 2008
from 8.7% for 2007. We experienced a net decrease in other costs of service of
$17.6 million, or 5.9%, to $282.4 million for 2008 from $300.0 million for 2007. The
decrease was primarily due to a decline in depreciation and amortization expense of $11.3
million, a decline in rent and facilities related expenses of $7.8 million, and a decline in
bad debt expense of $3.8 million. Partially offsetting the declines in other cost of service
was $11.5 million of expense associated with the settlement of a contract dispute with one
particular Public Services client. Additionally, dampening the declines in other cost of
service was the unfavorable impact of $6.6 million as a result of the strengthening of
foreign currencies against the U.S. dollar. |
|
|
|
|
In 2008 we recorded, within the Corporate/Other operating segment, a credit of
$3.5 million for lease and facilities restructuring costs, compared to a $20.9 million
charge for lease and facilities restructuring costs in 2007. These costs for 2008 related
primarily to the fair value of future lease obligations associated with office space,
primarily within the EMEA and North America regions, which we no longer use. |
28
Gross Profit by Segment. The following tables present certain gross profit and margin
information and performance metrics for each of our reportable segments for years 2008 and 2007
Amounts are in thousands, except percentages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
|
|
Percent |
|
|
Year Ended |
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
|
December 31, |
|
|
|
|
|
|
|
(Decrease) |
|
|
(Decrease) |
|
|
2008 |
|
|
2007 |
|
|
US$ Change |
|
|
|
US$ |
|
|
Local Currency |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Services |
|
$ |
328,794 |
|
|
$ |
263,431 |
|
|
$ |
65,363 |
|
|
|
24.8 |
% |
|
|
24.8 |
% |
Commercial Services |
|
|
85,736 |
|
|
|
81,656 |
|
|
|
4,080 |
|
|
|
5.0 |
% |
|
|
5.0 |
% |
Financial Services |
|
|
47,766 |
|
|
|
41,627 |
|
|
|
6,139 |
|
|
|
14.7 |
% |
|
|
14.7 |
% |
EMEA |
|
|
183,260 |
|
|
|
153,959 |
|
|
|
29,301 |
|
|
|
19.0 |
% |
|
|
10.5 |
% |
Asia Pacific |
|
|
90,110 |
|
|
|
81,946 |
|
|
|
8,164 |
|
|
|
10.0 |
% |
|
|
(0.4 |
%) |
Latin America |
|
|
17,433 |
|
|
|
(11,240 |
) |
|
|
28,673 |
|
|
|
255.1 |
% |
|
|
241.7 |
% |
Corporate/Other |
|
|
(73,788 |
) |
|
|
(142,854 |
) |
|
|
69,066 |
|
|
|
n/m |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
679,311 |
|
|
$ |
468,525 |
|
|
$ |
210,786 |
|
|
|
45.0 |
% |
|
|
40.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2008 |
|
2007 |
Gross Profit as a Percentage of Revenue |
|
|
|
|
|
|
|
|
Public Services |
|
|
24.0 |
% |
|
|
18.4 |
% |
Commercial Services |
|
|
22.2 |
% |
|
|
16.0 |
% |
Financial Services |
|
|
25.7 |
% |
|
|
15.8 |
% |
EMEA |
|
|
22.0 |
% |
|
|
19.5 |
% |
Asia Pacific |
|
|
27.8 |
% |
|
|
22.6 |
% |
Latin America |
|
|
17.2 |
% |
|
|
(12.5 |
%) |
Corporate/Other |
|
|
n/m |
|
|
|
n/m |
|
Total |
|
|
21.2 |
% |
|
|
13.6 |
% |
Changes in gross profit by segment were as follows:
|
|
|
Public Services gross profit increased in 2008 despite the decline in revenue, primarily
due to the significant reductions in other direct contract expense and professional
compensation. These cost savings were primarily due to decreases in subcontractor expenses,
the reversal of compensation expense associated with our PSU and PCA plans as discussed
above, and the reversal of costs associated with global tax equalization. Though revenue
declined during 2008, gross profit was positively impacted by the recognition of $7.7
million in revenue during the first quarter of 2008 relating to work performed in earlier
periods for which contract contingencies were resolved in the current period. Gross profit
improvements were also attributable to improved results in the Defense and Civilian sectors.
The improvements were substantially offset with declines in the SLED and Emerging Markets
sectors due to revenue declines coupled with an increase in costs associated with one large
loss contract in the SLED sector. |
|
|
|
|
Commercial Services gross profit increased in 2008 as the impact of significant revenue
declines in most sectors was more than offset by significant reductions in professional
compensation, and, to a lesser extent, reductions in other direct contract expenses. The
reduction in professional compensation was due primarily to the effects of continuing
headcount reductions, including reductions among additional internal personnel allocated to
this segment, the reversal of compensation expense associated with our PSU and PCA plans as
discussed above, and the reversal of costs associated with global tax equalization. |
|
|
|
|
Financial Services gross profit increased slightly in 2008 as the impact of significant
revenue decreases were offset by significant decreases in professional compensation, and, to
a lesser extent, reductions in other direct contract expenses and other cost of service. The
reduction in professional compensation was due primarily to the reversal of compensation
expense associated with our PSU and PCA plans discussed above, and, to a lesser extent,
accrual reversals for costs associated with global tax equalization recorded during the
year, as well as the effects of continuing headcount reductions in response to declining
demand for our services. |
29
|
|
|
EMEA gross profit increased in 2008 due to the favorable impact of the strengthening of
the Euro against the U.S. dollar, as well as increased profitability, primarily in Germany
and France. These increases in profitability were driven by increases in revenue coupled
with decreases in professional compensation and other costs of services as a result of cost
reduction efforts executed throughout the year. Additionally other cost of service also
declined due to an asset impairment recorded in 2007 without any corresponding impairment
recorded in 2008. |
|
|
|
|
Asia Pacific gross profit increased in 2008 due primarily to the favorable impact of the
strengthening of foreign currencies against the U.S. dollar, particularly the Japanese yen.
Significant declines in revenue, particularly in Australia, Japan, and New Zealand were
substantially offset by lower professional compensation and other direct contract expenses.
These declines in cost of service were in response to the lower volume of work in the region
due to the significant reduction in staffing levels in Australia and New Zealand, a slowing
economy, as well as lower use of sub-contracted labor in Japan and a reduction in cost
accruals related to loss contracts. |
|
|
|
|
Latin America gross profit increased in 2008 due to increases in revenue as well as
reductions in professional compensation. |
|
|
|
|
Corporate/Other contains rent and facilities expenses not specifically allocated to one of
the reportable segments, as well as the residual expenses of our Global Delivery Centers
(GDCs) and other cross industry technology resources, which are charged out to our
reportable segments as they are utilized on customer facing engagements. In 2008, we
experienced declines in lease and facilities charges of $38.0 million, as well as $22.4
million of lower residual expenses for our GDCs as a result of the change in the method we
utilize to cross charge the costs associated with these personnel to the other segments.
While the declines in lease and facilities related charges contributed to consolidated growth
in gross profit, the lower residual expenses associated with our GDCs would have been
absorbed within the other segments and would not contribute to growth in consolidated gross
profit. |
Selling, General and Administrative Expenses. Selling, general and administrative expenses
decreased $150.5 million, or 21.5%, to $550.8 million for 2008 from $701.3 million for 2007.
Selling, general and administrative expenses as a percentage of gross revenue decreased to 17.2%
for 2008 from 20.3% for 2007. The decrease was primarily due to reduced costs directly related to
the closing of our financial statements, primarily related to subcontracted labor, as well as
savings from the reduction in the size of our sales force. In addition, significant declines were
due to a reduction in stock compensation expenses and bonus expenses totaling $14.5 million related
to the reversal of expense associated with our PSU and PCA plans as discussed above, and savings in
marketing expense in response to the current economic conditions.
Interest Income. Interest income was $7.4 million and $12.1 million in 2008 and 2007,
respectively. Interest income is earned primarily from cash and cash equivalents, including
money-market investments. The decline in interest income was due to lower levels of cash invested
during 2008, as well as declines in market rates on those investments during the year.
Interest Expense. Interest expense was $61.0 million and $61.2 million in 2008 and 2007,
respectively. Interest expense is attributable to our debt obligations, consisting of interest due
along with amortization of loan costs and loan discounts.
Other Expense, net. Other expense, net, was $38.2 million and $8.6 million in 2008 and 2007,
respectively. The balances in each period primarily consisted of foreign currency exchange gains
and losses associated with the revaluation of our intercompany payables and receivables.
Income Tax Expense. We incurred income tax expense of $68.8 million in 2008 and income tax
expense of $72.2 million in 2007. The principle reasons for the differences between the effective
income tax rate on loss from continuing operations of 187.4% and (24.9)% for 2008 and 2007,
respectively, and the U.S. Federal statutory income tax rate were: nondeductible meals and
entertainment expense of $19.0 million and $19.0 million; changes to deferred tax asset valuation
allowance of $(12.7) million and $125.6 million; state and local income taxes of $1.7 million and
$(12.4) million; foreign recapitalization and restructuring of $24.7 million and $17.3 million;
foreign taxes of $11.0 million and $17.4 million; tax on unremitted foreign earnings of $22.1
million and $0; prior year tax refund claims of $(5.6) million and $0: income tax reserves of
$(1.9) million and $12.5 million; non-deductible intercompany charges and interest of $7.5 million
and $7.8 million; foreign dividend income of $7.0 million and $1.0 million; and other
non-deductible items of $(2.2) million and $17.4 million, respectively.
Final determination of a significant portion of the Companys tax liabilities that will
effectively be settled remains subject to ongoing examination by various taxing authorities,
including the Internal Revenue Service. We are actively pursuing strategies to
30
favorably settle or resolve these liabilities for unrecognized tax benefits. If we are
successful in mitigating these liabilities, in whole or in part, the majority of the impact will be
recorded as an adjustment to income tax expense in the period of settlement.
In 2008, we realized a net loss of $32.1 million, or a loss of $7.18 per share, representing a
decrease of $330.7 million over a net loss of $362.7 million, or a loss of $83.90 per share in
2007. This change in net loss was primarily attributable to:
|
|
|
An increase in gross profit of $210.8 million in 2008; |
|
|
|
|
A decrease in selling, general and administrative expenses of $150.5 million in 2008;
and offset by |
|
|
|
|
An increase in other expense of $29.6 million in 2008 due to foreign currency
exchange losses associated with the revaluation of our intercompany payables and
receivables. |
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
Revenue. Our revenue for 2007 was $3,455.6 million, an increase of $11.6 million, or 0.3%,
over 2006 revenue of $3,444.0 million. The following tables present certain revenue information and
performance metrics for each of our reportable segments during 2007 and 2006. Amounts are in
thousands, except percentages. For additional geographical revenue information, please see Note 18,
Segment Information, of the Notes to Consolidated Financial Statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
$ Change |
|
|
|
% Change |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Services |
|
$ |
1,432,645 |
|
|
$ |
1,339,358 |
|
|
$ |
93,287 |
|
|
|
7.0 |
% |
Commercial Services |
|
|
509,789 |
|
|
|
554,806 |
|
|
|
(45,017 |
) |
|
|
(8.1 |
)% |
Financial Services |
|
|
264,198 |
|
|
|
399,331 |
|
|
|
(135,133 |
) |
|
|
(33.8 |
)% |
EMEA |
|
|
791,298 |
|
|
|
703,083 |
|
|
|
88,215 |
|
|
|
12.5 |
% |
Asia Pacific |
|
|
362,715 |
|
|
|
360,001 |
|
|
|
2,714 |
|
|
|
0.8 |
% |
Latin America |
|
|
90,091 |
|
|
|
82,319 |
|
|
|
7,772 |
|
|
|
9.4 |
% |
Corporate/Other |
|
|
4,826 |
|
|
|
5,105 |
|
|
|
(279 |
) |
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,455,562 |
|
|
$ |
3,444,003 |
|
|
$ |
11,559 |
|
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of |
|
Revenue growth |
|
|
|
|
currency |
|
(decline), net of |
|
|
|
|
fluctuations |
|
currency impact |
|
Total |
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Public Services |
|
|
0.0 |
% |
|
|
7.0 |
% |
|
|
7.0 |
% |
Commercial Services |
|
|
0.0 |
% |
|
|
(8.1 |
)% |
|
|
(8.1 |
)% |
Financial Services |
|
|
0.0 |
% |
|
|
(33.8 |
)% |
|
|
(33.8 |
)% |
EMEA |
|
|
9.4 |
% |
|
|
3.1 |
% |
|
|
12.5 |
% |
Asia Pacific |
|
|
1.7 |
% |
|
|
(0.9 |
)% |
|
|
0.8 |
% |
Latin America |
|
|
9.5 |
% |
|
|
(0.1 |
)% |
|
|
9.4 |
% |
Corporate/Other |
|
|
n/m |
|
|
|
n/m |
|
|
|
n/m |
|
Total |
|
|
2.3 |
% |
|
|
(2.0 |
)% |
|
|
0.3 |
% |
|
|
|
Public Services revenue increased in 2007 due to significant revenue growth in our
Emerging Markets, SLED and Civilian sectors. Revenue growth within these sectors was
partially derived from expected increases in work on several large existing multi-year
contracts signed in prior years. Revenue in our Defense sector declined somewhat, due to
congressional decisions regarding ongoing funding by the U.S. government of the continuing
war on terrorism and combat operations in Iraq and Afghanistan, as well as increased
budgetary pressures on U.S. defense spending. The non-governmental portion of our Healthcare
sector also experienced revenue declines. |
|
|
|
|
Commercial Services revenue decreased in 2007. While we experienced significant revenue
growth in our Energy sector as client demand for the Companys industry-specific solutions
increased, overall, revenue decreased due to declines in the |
31
|
|
|
Communications and Media, High Technology and Manufacturing sectors. These declines were due,
in part, to decreased business levels caused by consolidation within the telecommunications
industry and disputes with two significant telecommunications clients in that sector. |
|
|
|
|
Financial Services revenue decreased in 2007 due to significant revenue declines across
all of its industry sectors. Revenue decreases were attributable to several factors,
including the winding down of the segments largest client engagement during 2007. The
continuing effects of losses of senior staff in certain of our higher rate business sectors
also attributed to revenue declines in 2007. In addition, difficulties in securing long-term
client commitments and delays by clients in implementing new initiatives given the recently
reported industry-wide losses related to asset write-downs all had a negative effect on
revenue on a year-over-year basis. |
|
|
|
|
EMEA revenue increased in 2007, primarily as a result of the favorable impact of the
strengthening of foreign currencies, primarily the Euro, against the U.S. dollar, but also
due to significant revenue increases in France, Russia and Switzerland. Revenue growth in
France was due to an expanding systems implementation practice while revenue growth in
Russia and Switzerland was generally attributable to increased demand for our consulting
services in those markets. These increases were partially offset by revenue declines in
Spain and the United Kingdom. Revenue in the United Kingdom declined due to the reduction in
the volume of work provided to multi-national clients in 2007, and the decline in revenue in
Spain was attributable to our strategic decision to reduce our activities in this country. |
|
|
|
|
Asia Pacific revenue increased in 2007, primarily as a result of the favorable impact of
the strengthening of foreign currencies against the U.S. dollar. Significant revenue growth
was achieved in Japan and to a lesser extent in China. These increases continue to be offset
by lower revenue in Australia, Korea and New Zealand. Japanese revenue increased due to
continued revenue growth from systems implementation contracts and projects involving
compliance with Japans Financial Instruments and Exchange Law. This growth began in 2006
and has continued throughout 2007. China revenue increased as a result of significant new
contracts signed with several large multi-national clients in 2007. Lower revenue in
Australia and New Zealand resulted from the winding down or completion of several
significant client engagements and partially due to deteriorating market conditions. |
|
|
|
|
Latin America revenue increased in 2007, with Brazil and Mexico contributing equally to
the growth in U.S. dollars. The favorable impact of the strengthening of the Brazilian Real
against the U.S. dollar served to offset local currency revenue declines in Brazil. |
|
|
|
|
Corporate/Other: Our Corporate/Other segment does not contribute significantly to our
revenue. |
Gross Profit. During 2007, our revenue increased $11.6 million and total costs of service
increased $93.6 million when compared to 2006, resulting in a decrease in gross profit of
$82.0 million, or 14.9%. Gross profit as a percentage of revenue decreased to 13.6% for 2007 from
16.0% for 2006. The change in gross profit for 2007 compared to 2006 resulted primarily from the
following:
|
|
|
Professional compensation expense increased as a percentage of revenue to 53.8% for 2007,
compared to 50.1% for 2006. We experienced a net increase in professional compensation
expense of $133.0 million, or 7.7%, to $1,858.5 million for 2007 over $1,725.5 million for
2006. The increase in professional compensation was primarily due to merit-based annual
salary increases, increases in stock-based compensation expense for PSUs, RSUs and, to a
lesser extent, cash bonuses. |
|
|
|
|
Other direct contract expenses decreased as a percentage of revenue to 23.4% for 2007
compared to 25.8% for 2006. We experienced a net decrease in other direct contract expenses
of $80.4 million, or 9.1%, to $807.7 million for 2007 from $888.2 million for 2006. The
decrease was driven primarily by reduced subcontractor expenses as a result of increased use
of our internal resources. In addition, the decline was driven by higher other direct
contract expenses recorded in the first quarter of 2006 related to the HT Contract. |
|
|
|
|
Other costs of service as a percentage of revenue increased to 8.7% for 2007 from 7.3%
for 2006. We experienced a net increase in other costs of service of $49.8 million, or
19.9%, to $300.0 million for 2007 from $250.2 million for 2006. The increase was primarily
due to an increase in non-billable employees over the prior year, due in part to the
redeployment of existing employees from client-facing roles to practice support roles, which
resulted in related salaries and expenses now being reflected in other costs of service
rather than professional compensation expense. |
32
|
|
|
In 2007 we recorded, within the Corporate/Other operating segment, a charge of
$20.9 million for lease and facilities restructuring costs, compared to a $29.6 million
charge for lease and facilities restructuring costs in 2006. These costs for 2007 related
primarily to the fair value of future lease obligations associated with office space,
primarily within the EMEA and North America regions, which we will no longer be using. |
Gross Profit by Segment. The following tables present certain gross profit and margin
information and performance metrics for each of our reportable segments for years 2007 and 2006.
Amounts are in thousands, except percentages.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
$ Change |
|
|
|
% Change |
Gross Profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Services |
|
$ |
263,431 |
|
|
$ |
263,841 |
|
|
$ |
(410 |
) |
|
|
(0.2 |
)% |
Commercial Services |
|
|
81,656 |
|
|
|
81,419 |
|
|
|
237 |
|
|
|
0.3 |
% |
Financial Services |
|
|
41,627 |
|
|
|
135,187 |
|
|
|
(93,560 |
) |
|
|
(69.2 |
)% |
EMEA |
|
|
153,959 |
|
|
|
129,523 |
|
|
|
24,436 |
|
|
|
18.9 |
% |
Asia Pacific |
|
|
81,946 |
|
|
|
80,448 |
|
|
|
1,498 |
|
|
|
1.9 |
% |
Latin America |
|
|
(11,240 |
) |
|
|
9,058 |
|
|
|
(20,298 |
) |
|
|
n/m |
|
Corporate/Other |
|
|
(142,854 |
) |
|
|
(148,950 |
) |
|
|
6,096 |
|
|
|
n/m |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
468,525 |
|
|
$ |
550,526 |
|
|
$ |
(82,001 |
) |
|
|
(14.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
2007 |
|
2006 |
Gross Profit as a Percentage of Revenue |
|
|
|
|
|
|
|
|
Public Services |
|
|
18.4 |
% |
|
|
19.7 |
% |
Commercial Services |
|
|
16.0 |
% |
|
|
14.7 |
% |
Financial Services |
|
|
15.8 |
% |
|
|
33.9 |
% |
EMEA |
|
|
19.5 |
% |
|
|
18.4 |
% |
Asia Pacific |
|
|
22.6 |
% |
|
|
22.3 |
% |
Latin America |
|
|
(12.5 |
)% |
|
|
11.0 |
% |
Corporate/Other |
|
|
n/m |
|
|
|
n/m |
|
Total |
|
|
13.6 |
% |
|
|
16.0 |
% |
Changes in gross profit by segment were as follows:
|
|
|
Public Services gross profit remained relatively unchanged in 2007. Significant
year-over-year revenue increases were offset by a significant increase in professional
compensation expense of $80.4 million, or 13.5%, over 2006, and additional costs and revenue
write-downs of approximately $15 million were taken on two of our SLED sector contracts. The
increase in professional compensation expense was associated with the hiring of additional
personnel needed to meet the demand for our services, as well as bonus payments and
accruals, and increases in stock-based compensation expense. |
|
|
|
|
Commercial Services gross profit remained relatively unchanged in 2007, with declines in
subcontractor expenses, professional compensation and reimbursable client expenses being
partially offset by reductions in revenue and contract losses. In 2006, Commercial Services
gross profit was negatively impacted by losses of approximately $86.2 million attributable
to settlements reached with two telecommunications clients, as compared to losses of
approximately $16.7 million in 2007, primarily in connection with a single Communications
and Media sector project. |
|
|
|
|
Financial Services gross profit significantly decreased in 2007, primarily due to
significantly lower revenue combined with a decline in higher margin engagements in the
total mix of engagements. Declines in revenue were partially offset by declines in
compensation expense, reimbursable client expenses and subcontractor expenses. These
declines in costs of services were at a slower pace than the declines in revenue, resulting
in lower gross profits in 2007 as compared to 2006. |
|
|
|
|
EMEA gross profit increased in 2007, primarily due to overall higher revenue in the EMEA
region as well as improved profitability in Germany, France and Switzerland as a result of
higher utilization and lower costs. This increase was partially |
33
|
|
|
offset by an increase in professional compensation due to a larger number of additional
personnel to meet the demand for our services and, to a lesser extent, an increase in other
costs of services. The increases in professional compensation and other costs of services were
partially offset by decreases in costs associated with subcontractors due largely to our effort
to increase the use of internal resources. |
|
|
|
|
Asia Pacific gross profit increased in 2007, due to increased revenue and improvements in
profitability and staff utilization in our Japanese business. In addition, positive growth
in gross profit in the region was realized from decreases in other direct contract expenses
as a result of decreased subcontractor usage in Japan, which were substantially offset by
higher professional compensation costs as well as increased contract loss reserves of
$12.1 million recorded during 2007 as compared to 2006. |
|
|
|
|
Latin America gross profit decreased in 2007, due to significant increases in
compensation expense, other direct contract expenses and contract write-offs. These
increases were driven by an increase in employee compensation recognized as a result of
statutory overtime regulations and other employee benefits in Brazil, and to a lesser extent
by increased subcontractor expenses in Mexico. |
|
|
|
|
Corporate/Other consists primarily of rent expense and other facilities related charges. |
Amortization of Purchased Intangible Assets. We did not incur any amortization expense in 2007
as our intangible assets were fully amortized. Amortization of purchased intangible assets was
$1.5 million in 2006.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
decreased $46.9 million, or 6.3%, to $701.3 million for 2007 from $748.3 million for 2006. Selling,
general and administrative expenses as a percentage of gross revenue decreased to 20.3% for 2007
from 21.7% for 2006. The decrease was primarily due to reduced costs directly related to the
closing of our financial statements, primarily subcontracted labor, as well as savings from the
reduction in the size of our sales force. Partially offsetting these savings was increased
compensation expense for additional SG&A personnel, additional recruiting costs incurred and
stock-based compensation expense related to RSUs and PSUs.
Interest Income. Interest income was $12.1 million and $8.7 million in 2007 and 2006,
respectively. Interest income is earned primarily from cash and cash equivalents, including
money-market investments. The increase in interest income was due to a higher level of cash
invested in money markets during 2007.
Interest Expense. Interest expense was $61.2 million and $37.2 million in 2007 and 2006,
respectively. Interest expense is attributable to our debt obligations, consisting of interest due
along with amortization of loan costs and loan discounts. The increase in interest expense was due
to interest attributable to our 2007 Credit Facility, the acceleration of debt issuance costs
resulting from the termination of the 2005 Credit Facility, and, to a lesser extent, higher
interest rates on our debt obligations.
Insurance Settlement. During 2006, related to the Settlement Agreement with HT, we recorded
$38.0 million for an insurance settlement. For additional information, see Note 11, Commitments
and Contingencies, of the Notes to Consolidated Financial Statements.
Other (Expense) Income, net. Other expense, net, was $8.6 million in 2007, and other income,
net, was $8.7 million in 2006. The balances in each period primarily consisted of foreign currency
exchange gains and losses.
Income Tax Expense. We incurred income tax expense of $72.2 million for the year ended
December 31, 2007 and income tax expense of $32.4 million for the year ended December 31, 2006. The
principle reasons for the differences between the effective income tax rate on loss from continuing
operations of (24.9)% and (17.9)% for years ended December 31, 2007 and 2006, respectively, and the
U.S. Federal statutory income tax rate were: nondeductible meals and entertainment expense of
$19.0 million and $22.0 million; increases to deferred tax asset valuation allowance of
$125.6 million and $76.8 million; state and local income taxes of $(12.4) million and
$(6.7) million; foreign recapitalization and restructuring of $17.3 million and $5.4 million;
foreign taxes of $17.4 million and $(3.8) million; income tax reserves of $12.5 million and
$8.4 million; non-deductible interest of $7.8 million and $10.7 million; foreign dividend income of
$1.0 million and $13.6 million; and other non-deductible items of $17.4 million and $10.0 million,
respectively.
Net Loss. For 2007, we incurred a net loss of $362.7 million, or a loss of $83.90 per share.
Contributing to the net loss for 2007 were $60.1 million of bonus expense (which includes, among
other things, $6.3 million related to 2006 performance bonuses,
34
$10.6 million related to the PCAs and $30.3 million expected to be paid in 2008 for 2007
performance), $97.1 million of non-cash compensation expense related to the vesting of stock-based
awards, $20.9 million of lease and facilities restructuring charges, and the previously mentioned
$83.5 million in external costs related to the preparation of our financial statements, our
auditors review and audit of our financial statements and the testing of internal controls. For
2006, we incurred a net loss of $213.4 million, or a loss of $50.30 per share. Contributing to the
net loss for 2006 were $48.2 million of losses related to the previously mentioned settlements with
telecommunications clients, $57.4 million of bonus expense, $53.4 million of non-cash compensation
expense related to the vesting of stock-based awards, $29.6 million of lease and facilities
restructuring charges and the previously mentioned $33.6 million year over year increase in
external costs related to the closing of our financial statements.
Obligations and Commitments
As of December 31, 2008, we had the following obligations and commitments to make future
payments under contracts, contractual obligations and commercial commitments. These obligations
were affected by the Debtors filing voluntary petitions for relief under Chapter 11 of the
Bankruptcy Code and therefore may not be paid in full as a result. Amounts are in thousands.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period |
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
More than |
|
|
Total |
|
1 year |
|
1-3 years |
|
3-5 years |
|
5 years |
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and long-term debt(1) |
|
|
1,238,773 |
|
|
|
238,693 |
|
|
|
98,152 |
|
|
|
319,978 |
|
|
|
581,950 |
|
Operating leases |
|
|
234,763 |
|
|
|
75,453 |
|
|
|
92,254 |
|
|
|
45,513 |
|
|
|
21,543 |
|
Purchase obligations(2) |
|
|
98,201 |
|
|
|
57,751 |
|
|
|
30,558 |
|
|
|
9,372 |
|
|
|
520 |
|
Obligations under the pension and postretirement medical plans |
|
|
60,414 |
|
|
|
4,164 |
|
|
|
9,395 |
|
|
|
10,901 |
|
|
|
35,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3) |
|
|
1,632,151 |
|
|
|
376,061 |
|
|
|
230,359 |
|
|
|
385,764 |
|
|
|
639,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Short-term and long-term debt includes both principal and interest
scheduled payment obligations. Certain of our debt allows the holders
the right to convert the debentures into shares of our common stock or
cash (at the Companys option) in earlier periods than presented
above. For additional information, see Note 6, Notes Payable, of the
Notes to Consolidated Financial Statements. |
|
(2) |
|
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. Purchase obligations exclude agreements that are
cancelable without penalty. From time to time, our operating segments,
particularly our Public Services segment, enter into agreements with
vendors in the normal course of business that support existing
contracts with our clients (client vendor agreements). The vast
majority of these client vendor agreements involve subcontracts for
services to be provided by third-party vendors. These agreements may
be in the form of teaming agreements or may be a client requirement,
and can span multiple years, depending on the duration of the
underlying arrangement with our clients. We are liable for payments to
vendors under these client vendor agreements. We are unable to cancel
some of these client vendor agreements unless the related agreement
with our client is terminated and/or upon payment of a penalty.
However, our clients are generally obligated by contract to reimburse
us, directly or indirectly, for payments we make to vendors under
these agreements. We are not aware of any payments we have been
required to make to vendors after a related client contract has been
terminated. We currently estimate that the total payments we could be
obligated to make under all client vendor agreements known to us would
be approximately $57,237; however, we are unable to identify which of
these agreements might constitute purchase obligations. |
|
(3) |
|
The above table does not reflect unrecognized tax benefits of
$285,576. Due to uncertainty regarding the completion of tax audits
and possible outcomes, the estimate of obligations related to
unrecognized tax benefits cannot be made. For additional information,
see Note 14, Income Taxes, to the Consolidated Financial Statements. |
35
Liquidity and Capital Resources
Chapter 11 Filing
As disclosed above, on February 18, 2009, the Debtors filed voluntary petitions for relief
under chapter 11 of title 11 of the Bankruptcy Code in the Bankruptcy Court. For additional
information regarding the Companys liquidity and capital resources see Item 7, Managements
Discussion and Analysis of Financial Condition and Results of Operation Overview Chapter 11
Bankruptcy Proceedings and Sale Transactions.
The following table summarizes the cash flow statements for the year ended December 31, 2008,
2007 and 2006 (amounts are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 to 2008 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
Net cash (used in) provided by: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
(63,858 |
) |
|
$ |
(193,295 |
) |
|
$ |
60,970 |
|
|
$ |
129,437 |
|
Investing activities |
|
|
(49,986 |
) |
|
|
(36,834 |
) |
|
|
65,280 |
|
|
|
(13,152 |
) |
Financing activities |
|
|
(567 |
) |
|
|
290,566 |
|
|
|
(7,316 |
) |
|
|
(291,133 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(2,740 |
) |
|
|
16,807 |
|
|
|
15,297 |
|
|
|
(19,547 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
$ |
(117,151 |
) |
|
$ |
77,244 |
|
|
$ |
134,231 |
|
|
$ |
(194,395 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities. Net cash used in operating activities during 2008 decreased
$129.4 million over 2007. This decrease was primarily attributable to a decline in net loss, net of
non-cash items, as well as decreases to our unbilled revenue, accounts receivable and deferred
revenue, despite a decrease in DSOs during 2008.
Net cash used in operating activities during 2007 increased $254.3 million over 2006. This
increase was primarily attributable to an increase in net loss, net of non-cash items, the timing
of payment of significant amounts of accounts payable and, to a lesser degree, increases to our
combined accounts receivable and unbilled revenue despite a decrease in DSOs during 2007.
Investing Activities. Net cash used in investing activities increased $13.2 million during
2008 from 2007. This increase was attributable to an increase in capital expenditures of $10.0
million in 2008 from 2007 and an additional $1.8 million of restricted cash was posted as collateral
for letters of credit and surety bonds during 2008.
Net cash used in investing activities during 2007 increased $102.1 million over 2006. This
increase was predominantly due to the release of restricted cash posted as collateral for letters
of credit and surety bonds. The increase was offset by a decrease of $14.6 million in capital
expenditures in 2007 over 2006.
Financing Activities. Net cash used in financing activities during 2008 was $0.6 million. Net
cash provided by financing activities during 2007 was $290.6 million, resulting primarily from the
proceeds received from the term loans under the 2007 Credit Facility with an aggregate principal
amount of $300.0 million.
At December 31, 2008, we had global cash balances of $353.1 million. The Companys ability to
generate cash will be governed by its plan of reorganization and its bankruptcy filing as disclosed
above.
In addition, issuances of common stock under the ESPP generated $1.7 million, $12.4 million
and $0 in cash during 2008, 2007 and 2006, respectively. Because we were not current in our SEC
periodic reports in 2006, we were unable to issue freely tradable shares of our common stock and
had not issued shares under the LTIP or ESPP since early 2005. These sources of financing became
available to us again once we became current in our SEC periodic reports in 2007; however, we
terminated the ESPP effective January 14, 2009.
36
Debt Obligations
The following tables present a summary of the activity in our debt obligations for 2008 and
2007 (amounts are in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2007 |
|
|
Borrowings |
|
|
Repayments |
|
|
Other(1) |
|
|
2008 |
|
Convertible debentures |
|
$ |
675,611 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,910 |
|
|
$ |
680,521 |
|
Term Loans under the 2007 Credit Facility |
|
|
297,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
297,750 |
|
Other |
|
|
1,282 |
|
|
|
3,249 |
|
|
|
(5,886 |
) |
|
|
|
|
|
|
(1,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable |
|
$ |
974,643 |
|
|
$ |
3,249 |
|
|
$ |
(5,886 |
) |
|
$ |
4,910 |
|
|
$ |
976,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2006 |
|
|
Borrowings |
|
|
Repayments |
|
|
Other(1) |
|
|
2007 |
|
Convertible debentures |
|
$ |
671,490 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
4,121 |
|
|
$ |
675,611 |
|
Term Loans under the 2007 Credit Facility |
|
|
|
|
|
|
300,000 |
|
|
|
(2,250 |
) |
|
|
|
|
|
|
297,750 |
|
Other |
|
|
360 |
|
|
|
2,853 |
|
|
|
(1,931 |
) |
|
|
|
|
|
|
1,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable |
|
$ |
671,850 |
|
|
$ |
302,853 |
|
|
$ |
(4,181 |
) |
|
$ |
4,121 |
|
|
$ |
974,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Other changes in notes payable consist of amortization of notes
payable discount and foreign currency translation adjustments. |
2007 Credit Facility
On May 18, 2007, we entered into a $400.0 million senior secured credit facility and on
June 1, 2007, we amended and restated the credit facility to increase the aggregate commitments
under the facility from $400.0 million to $500.0 million. The 2007 Credit Facility consists of
(1) term loans in an aggregate principal amount of $300.0 million (the Term Loans) and (2) a
letter of credit facility in an aggregate face amount at any time outstanding not to exceed
$200.0 million (the LC Facility). The LC Facility is supported by cash deposits made on our
behalf by the lenders. If the Company fails to repay any disbursement on a letter of credit and
these cash deposits are used to reimburse the issuing bank, the amount of any cash deposits used
for such purpose will be considered as additional loans to the Company (the LC Loans and,
together with the Term Loans, the Loans). Interest on the Term Loans under the 2007 Credit
Facility is calculated, at the Companys option, at a rate per annum equal to either (1) 3.5% plus
the London Interbank Offered Rate (LIBOR) or (2) 2.5% plus a base rate equal to the higher of
(a) the federal funds rate plus 0.5% and (b) UBS AG, Stamford Branchs prime commercial lending
rate. Interest on the LC Loans is similarly calculated at the Companys option at a rate per annum
equal to either (1) 4.0% plus LIBOR or (2) 4.0% plus a base rate computed in the same manner as the
Term Loans. Debt issuance costs of $18.8 million, mainly comprised of underwriting, commitment, and
legal fees, were capitalized into other non-current assets and are being amortized to interest
expense over the life of the Loans. As of December 31, 2008, we had $294.8 million outstanding
under the Term Loans and an aggregate of approximately $124.3 million of letters of credit issued
and outstanding. The Company is charged fees for the LC Facilitys continued availability, which
totals 4.125% per annum on the total amount of cash deposits made available from time to time by
the lenders under the LC Facility to collateralize their obligation to fund demands made on letters
of credit issued under the LC Facility. We are separately charged a fronting fee of 0.1875% per
annum on the average daily aggregate outstanding face amount of all letters of credit issued.
Our obligations under the 2007 Credit Facility are secured by first priority liens and
security interests in substantially all of our assets and most of our material domestic
subsidiaries, as guarantors of such obligations (including a pledge of 65% of the stock of certain
of our foreign subsidiaries), subject to certain exceptions.
The 2007 Credit Facility requires us to make prepayments of outstanding Loans and cash
collateralize outstanding letters of credit in an amount equal to (i) 100% of the net proceeds
received from property or asset sales (subject to exceptions), (ii) 100% of the net proceeds
received from the issuance or incurrence of additional debt (subject to exceptions), (iii) 100% of
all casualty and condemnation proceeds (subject to exceptions), (iv) 50% of the net proceeds
received from the issuance of equity (subject to exceptions) and (v) for each fiscal year ending on
or after December 31, 2008, the difference between (a) 50% of the Excess Cash Flow (as defined in
the 2007 Credit Facility) and (b) any voluntary prepayment of the Loans or the LC Facility (subject
to exceptions). In addition, we are required to pay $750,000 in principal plus any accrued and
unpaid interest at the end of each quarter, commencing on June 29, 2007 and ending on March 31,
2012.
37
The 2007 Credit Facility contains affirmative and negative covenants, customary
representations, warranties and covenants, certain of which include exceptions for events that
would not have a material adverse effect on the Companys business, results of operation, financial
condition, assets or liabilities.
|
|
|
The affirmative covenants include, among other things: the delivery of unaudited
quarterly and audited annual financial statements, all in accordance with generally accepted
accounting principles; certain monthly operating metrics and budgets; compliance with
applicable laws and regulations (excluding, prior to October 31, 2008, compliance with
certain filing requirements under the securities laws); maintenance of existence and
insurance; after October 31, 2008, as requested by the Administrative Agent, reasonable
efforts to maintain credit ratings; and maintenance of books and records (subject to the
material weaknesses previously disclosed in our Annual Report on Form 10-K for the year
ended December 31, 2005). |
|
|
|
|
The negative covenants, which (subject to exceptions) restrict certain of our corporate
activities, include, among other things, limitations on: disposition of assets; mergers and
acquisitions; payment of dividends; stock repurchases and redemptions; incurrence of
additional indebtedness; making of loans and investments; creation of liens; prepayment of
other indebtedness; and engaging in certain transactions with affiliates. |
Events of default under the 2007 Credit Facility include, among other things: defaults based
on nonpayment, breach of representations, warranties and covenants, cross-defaults to other debt
above $10 million, loss of lien on collateral, invalidity of certain guarantees, certain bankruptcy
and insolvency events, certain ERISA events, judgments against us in an aggregate amount in excess
of $20 million that remain unpaid, and change of control events.
The 2007 Credit Facility replaced our 2005 Credit Facility, which was terminated on May 18,
2007. For information about the 2005 Credit Facility, see Discontinued 2005 Credit Facility.
Discontinued 2005 Credit Facility
On July 19, 2005, we entered into a $150.0 million Senior Secured Credit Facility (the 2005
Credit Facility). Our 2005 Credit Facility, as amended, provided for up to $150.0 million in
revolving credit and advances. Advances under the revolving credit line were limited by the
available borrowing base, which was based upon a percentage of eligible accounts receivable and
unbilled receivables.
In 2005 and 2006, we entered into five amendments to the 2005 Credit Facility. Among other
things, these amendments revised certain covenants contained in the 2005 Credit Facility, including
the extensions of the filing deadlines for our 2005, 2006 and 2007 SEC periodic reports and an
increase in the amounts of civil litigation payments that we are permitted to pay and in the
aggregate amount of investments and indebtedness that we are permitted to make and incur with
respect to our foreign subsidiaries. In addition, in 2007 we obtained several limited waivers that,
among other things, waived the delivery requirement of our SEC periodic reports to the lenders
under the facility.
The 2005 Credit Facility was terminated on May 18, 2007. On that date, all outstanding
obligations under the 2005 Credit Facility were paid or assumed under the 2007 Credit Facility, and
all liens and security interests under the 2005 Credit Facility were released.
Guarantees and Indemnification Obligations
In the normal course of business, we have indemnified third parties and have commitments and
guarantees under which we may be required to make payments in certain circumstances. These
indemnities, commitments and guarantees include: indemnities to third parties in connection with
surety bonds; indemnities to various lessors in connection with facility leases; indemnities to
customers related to intellectual property and performance of services subcontracted to other
providers; indemnities to directors and officers under the organizational documents and agreements
with them; and guarantees issued between subsidiaries on intercompany receivables. The duration of
these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Certain
of these indemnities, commitments and guarantees do not provide for any limitation of the maximum
potential future payments we could be obligated to make. We estimate that the fair value of these
agreements was minimal. Accordingly, no liabilities have been recorded for these agreements as of
December 31, 2008.
We are also required, in the course of business, particularly with certain of our Public
Services clients, largely in the state and local markets, to obtain surety bonds, letters of credit
or bank guarantees for client engagements. At December 31, 2008, we had
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$87.9 million in outstanding surety bonds and $126.2 million in letters of credit extended to
secure certain of these bonds. The issuers of our outstanding surety bonds may, at any time,
require that we post collateral (cash or letters of credit) to fully secure these obligations.
From time to time, we enter into contracts with clients whereby we have joint and several
liability with other participants and/or third parties providing related services and products to
clients. Under these arrangements, we and other parties may assume some responsibility to the
client or a third party for the performance of others under the terms and conditions of the
contract with or for the benefit of the client or in relation to the performance of certain
contractual obligations. In some arrangements, the extent of our obligations for the performance of
others is not expressly specified. Certain of these guarantees do not provide for any limitation of
the maximum potential future payments we could be obligated to make. As of December 31, 2008, we
estimate we had assumed an aggregate potential contract value of approximately $43.8 million to our
clients for the performance of others under arrangements described in this paragraph. These
contracts typically include recourse provisions that would allow us to recover from the other
parties all but approximately $0.3 million if we are obligated to make payments to the clients that
are the consequence of a performance default by the other parties. To date, we have not been
required to make any payments under any of the contracts described in this paragraph. We estimate
that the fair value of these agreements was minimal. Accordingly, no liabilities have been recorded
for these contracts as of December 31, 2008.
Critical Accounting Policies and Estimates
The preparation of our Consolidated Financial Statements in conformity with GAAP requires that
management make estimates, assumptions and judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial
Statements and the reported amounts of revenue and expenses during the reporting period.
Managements estimates, assumptions and judgments are derived and continually evaluated based on
available information, historical experience and various other assumptions that are believed to be
reasonable under the circumstances. Because the use of estimates is inherent in GAAP, actual
results could differ from those estimates. The areas that we believe are our most critical
accounting policies include:
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legal contingencies, |
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accounting for employee global mobility and tax equalization. |
A critical accounting policy is one that involves making difficult, subjective or complex
accounting estimates that could have a material effect on our financial condition and results of
operation. Critical accounting policies require us to make assumptions about matters that are
highly uncertain at the time of the estimate, and different estimates that we could have used, or
changes in the estimate that are reasonably likely to occur, may have a material impact on our
financial condition or results of operation.
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Revenue Recognition
We earn revenue from three primary sources: (1) technology integration services where we
design, build and implement new or enhanced system applications and related processes, (2) services
to provide general business consulting, such as system selection or assessment, feasibility
studies, business valuations and corporate strategy services, and (3) managed services in which we
manage, staff, maintain, host or otherwise run solutions and systems provided to our customers.
Contracts for these services have different terms based on the scope, deliverables and complexity
of the engagement, which require management to make judgments and estimates in recognizing revenue.
The Company is compensated on contracts principally through time-and-material arrangements,
cost-reimbursable plus fee arrangements, and fixed price arrangements.
Technology integration services represent a significant portion of our business and are
generally accounted for under the percentage-of-completion method in accordance with Statement of
Position (SOP) 81-1, Accounting for Performance of Construction-Type and Certain Production-Type
Contracts (SOP 81-1). A portion of the Companys revenue is derived from arrangements that
include software developed and/or provided by the Company. The Company recognizes software license
fees included in these arrangements as revenue in accordance with SOP 97-2, Software Revenue
Recognition, as amended by SOP 98-9 by applying the provisions of SOP 81-1, as appropriate.
Software license fee revenue is generally included in the Companys technology integration service
revenue, which is recognized using the percentage-of-completion method. Under the
percentage-of-completion method, management estimates the percentage-of-completion based upon costs
to the client incurred as a percentage of the total estimated costs to the client. When total cost
estimates exceed revenue, we accrue for the estimated losses immediately. The use of the
percentage-of-completion method requires significant judgment relative to estimating total contract
revenue and costs, including assumptions relative to the length of time to complete the project,
the nature and complexity of the work to be performed, and anticipated changes in estimated
salaries and other costs. Incentives and award payments are included in estimated revenue using the
percentage-of-completion method when the realization of such amounts is deemed probable upon
achievement of certain defined goals. Estimates of total contract revenue and costs are
continuously monitored during the term of the contract and are subject to revision as the contract
progresses. When revisions in estimated contract revenue and costs are determined, such adjustments
are recorded in the period in which they are first identified. Revenue arrangements entered into
with the same client that are accounted for under SOP 81-1 are accounted for on a combined basis
when they: are negotiated as a package with an overall profit margin objective; essentially
represent an agreement to do a single project; involve interrelated activities with substantial
common costs; and are performed concurrently or sequentially.
Revenue for general business consulting services is recognized as work is performed and
amounts are earned in accordance with Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements, as amended by SAB No. 104, Revenue Recognition (SAB 104).
We consider amounts to be earned once evidence of an arrangement has been obtained, services are
delivered, fees are fixed or determinable and collectability is reasonably assured. For these types
or arrangements, we recognize revenue over the period of performance. Depending on the specific
contractual provisions and nature of the deliverable, revenue may be recognized on a proportional
performance model based on level of effort, as milestones are achieved or when final deliverables
have been provided. Revenue arrangements entered into with the same client that are accounted for
under SAB 104 are accounted for on a combined basis when they are entered into at or near the same
time, unless it is clearly evident that the contracts are not related to one another.
For our managed service arrangements, we typically implement or build system applications for
customers that we then manage or run for periods that may span several years. Such arrangements
include the delivery of a combination of one or more of our service offerings and are governed by
Emerging Issues Task Force Issue 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. In managed service arrangements in which the system application implementation or
build has standalone value to the customer, and we have sufficient objective evidence of fair value
for the managed or run services, we bifurcate the total arrangement into two units of accounting
based on the residual method: (i) the system application implementation, or build, which is
recognized as technology integration services using the percentage-of-completion method under
SOP 81-1 and (ii) the managed or run services, which are recognized under SAB 104 ratably over the
estimated life of the customer relationship. In instances where we are unable to bifurcate a
managed service arrangement into separate units of accounting, the total contract is recognized as
one unit of accounting under SAB 104. In such instances, total fees and direct and incremental
costs related to the system application implementation or build are deferred and recognized
together with managed or run services upon completion of the system application implementation or
build ratably over the estimated life of the customer relationship. Certain managed service
arrangements may also include transaction-based services in addition to the system application
implementation or build and managed services. Fees from transaction-based services are recognized
as earned if we have sufficient objective evidence of fair value for such transactions; otherwise,
transaction fees are recognized ratably over the remaining life of the customer relationship period
when we determine these fees are realizable. The
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determination of fair value requires us to use significant judgment. We determine the fair
value of service revenue based upon our recent pricing for those services when sold separately
and/or prevailing market rates for similar services.
Revenue on cost-plus-fee contracts is recognized to the extent of costs incurred plus an
estimate of the applicable fees earned. We consider fixed fees under cost-plus-fee contracts to be
earned in proportion to the allowable costs incurred in performance of the contract.
Revenue includes reimbursements of travel and out-of-pocket expenses with equivalent amounts
of expense recorded in other direct contract expenses. In addition, we generally enter into
relationships with subcontractors where we maintain a principal relationship with the customer. In
such instances, subcontractor costs are included in revenue with offsetting expenses recorded in
other direct contract expenses.
Unbilled revenue consists of recognized recoverable costs and accrued profits on contracts for
which billings had not been presented to clients as of the balance sheet date. We anticipate that
the collection of these amounts will likely occur within one year of the balance sheet date.
Billings in excess of revenue recognized for which payments have been received are recorded as
deferred revenue until the applicable revenue recognition criteria have been met.
Valuation of Accounts Receivable
We maintain allowances for doubtful accounts for estimated losses resulting from the inability
of our customers to make required payments. Assessing the collectability of customer receivables
requires management judgment. We determine our allowance for doubtful accounts by specifically
analyzing individual accounts receivable, historical bad debts, customer concentrations, customer
creditworthiness, current economic and accounts receivable aging trends, and changes in our
customer payment terms. Our valuation reserves are periodically re-evaluated and adjusted as more
information about the ultimate collectability of accounts receivable becomes available. Upon
determination that a receivable is uncollectible, the receivable balance and any associated
valuation reserve is written off. As noted above in our policy on Revenue Recognition, in the
normal course of accounting for long-term contracts, we will periodically adjust our estimates for
these contracts which may result in changes to amounts recorded as accounts receivable and/or
unbilled revenues.
Valuation of Goodwill
Goodwill is the amount by which the cost of acquired net assets in a business acquisition
exceeds the fair value of net identifiable assets on the date of purchase. We assess the impairment
of goodwill and identifiable intangible assets on at least an annual basis on April 1 and whenever
events or changes in circumstances indicate that the carrying value of the asset may not be
recoverable, as prescribed in the SFAS No. 142, Goodwill and Other Intangible Assets
(SFAS 142).
An impairment review of the carrying amount of goodwill is conducted if events or changes in
circumstances indicate that goodwill might be impaired. Factors we consider important that could
trigger an impairment review include significant underperformance relative to historical or
projected future operating results, identification of other impaired assets within a reporting
unit, the more-likely-than-not expectation that a reporting unit or a significant portion of a
reporting unit will be sold, significant adverse changes in business climate or regulations,
significant changes in senior management, significant changes in the manner of our use of the
acquired assets or the strategy for our overall business, significant negative industry or economic
trends, a significant decline in our stock price for a sustained period, or a significant
unforeseen decline in our credit rating. Determining whether a triggering event has occurred
includes significant judgment from management.
The goodwill impairment test prescribed by SFAS 142 requires us to identify reporting units
and to determine estimates of the fair value of our reporting units as of the date we test for
impairment unless an event occurs or circumstances change that would more likely than not reduce
the fair value of the reporting unit below its carrying amount. As of December 31, 2008, our
reporting units consisted of our three North America Industry Groups and our three international
regions. To identify impairment, the fair value of the reporting unit is first compared to its
carrying value. If the reporting units allocated carrying value exceeds its fair value, we
undertake a second evaluation to assess the required impairment loss to the extent that the
carrying value of the goodwill exceeds its implied fair value. The fair value of a reporting unit
is the amount for which the unit as a whole could be bought or sold in a current transaction
between willing parties. We estimate the fair values of our reporting units using a combination of
the discounted cash flow valuation model and comparable market transaction models. Those models
require estimates of future revenue, profits, capital expenditures and working capital for each
unit as well as comparability with recent transactions in the industry. We estimate these
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amounts by evaluating historical trends, current budgets, operating plans and industry data.
Determining the fair value of reporting units and goodwill includes significant judgment by
management and different judgments could yield different results.
Accounting for Income Taxes
Provisions for federal, state and foreign income taxes are calculated on reported pre-tax
earnings based on current tax law and also include, in the current period, the cumulative effect of
any changes in tax rates from those used previously in determining deferred tax assets and
liabilities. Such provisions differ from the amounts currently receivable or payable because
certain items of income and expense are recognized in different time periods for financial
reporting purposes than for income tax purposes. Significant judgment is required in determining
income tax provisions and evaluating tax positions.
We establish reserves for income tax when, despite the belief that our tax positions are fully
supportable, there remains uncertainty in a tax position in our previously filed income tax
returns. For tax positions where it is more likely than not that a tax benefit will be sustained,
we have recorded the largest amount of tax benefit with a greater than 50% likelihood of being
realized upon settlement with a taxing authority that has full knowledge of all relevant
information. For income tax positions where it is not more likely than not that a tax benefit will
be sustained, no tax benefit has been recognized in the Consolidated Financial Statements. For
additional information, see Note 14, Income Taxes, of the Notes to the Consolidated Financial
Statements.
The majority of our deferred tax assets at December 31, 2008 consisted of federal, foreign and
state net operating loss carryforwards that will expire between 2009 and 2028. During 2008, the
valuation allowance against federal, state and certain foreign net operating loss and foreign tax
credit carryforwards decreased $24.9 million due to the utilization of foreign tax loss carryovers.
Since our inception, various foreign, state and local authorities have audited us in the area
of income taxes. Those audits included examining the timing and amount of deductions, the
allocation of income among various tax jurisdictions and compliance with foreign, state and local
tax laws. In evaluating the exposure associated with various tax filing positions, we accrue
charges for exposures related to uncertain tax positions.
During 2005, the Internal Revenue Service commenced a federal income tax examination for the
tax periods ended June 30, 2001, June 30, 2003, December 31, 2003, December 31, 2004 and
December 31, 2005. During 2007, the Internal Revenue Service opened the examination for the tax
period ended June 30, 2002. We are unable to determine the ultimate outcome of these examinations,
but we believe that we have established appropriate reserves related to apportionment of income
between jurisdictions, the impact of the restatement items and certain filing positions. We are
also under examination from time to time in foreign, state and local jurisdictions.
At December 31, 2008, we believe we have appropriately accrued for exposures related to
uncertain tax positions. To the extent we were to prevail in matters for which accruals have been
established or be required to pay amounts in excess of reserves, our effective tax rate in a given
financial statement period may be materially impacted.
No significant statute of limitations expired during 2008. During 2007, a statute of
limitations expired in one of our foreign taxing jurisdictions. As a result, we recognized a total
decrease of $9.1 million in our tax reserve, $1.7 million of which was recognized as a reduction to
our income tax expense for the year ended December 31, 2007. During 2006, none of the established
reserves expired based on the statute of limitations with respect to certain tax examination
periods. An increase to the reserve for tax exposures of $26.1 million, $12.7 million and
$13.8 million, was recorded as an income tax expense for changes in exposures in 2008, 2007 and
2006, respectively, including interest and penalties.
The carrying value of our net deferred tax assets assumes that we will be able to generate
sufficient future taxable income in certain tax jurisdictions to realize the value of these assets.
If we are unable to generate sufficient future taxable income in these jurisdictions, a valuation
allowance is recorded when it is more likely than not that the value of the deferred tax assets is
not realizable. Management evaluates the realizability of the deferred tax assets and assesses the
need for any valuation allowance. In 2008, we determined that it was more likely than not that a
significant amount of our deferred tax assets primarily in the U.S. may not be realized; therefore,
we recorded a valuation allowance against those deferred assets.
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Valuation of Long-Lived Assets
Long-lived assets primarily include property and equipment and intangible assets with finite
lives (purchased software and capitalized software). In accordance with SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, we periodically review long-lived assets for
impairment whenever events or changes in business circumstances indicate that the carrying amount
of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each
impairment test is based on a comparison of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset to the carrying amount of the asset. If an impairment is
indicated, the asset is written down to its estimated fair value based on a discounted cash flow
analysis. Determining the fair value of long-lived assets includes significant judgment by
management, and different judgments could yield different results.
Accounting for Leases
We lease office facilities under non-cancelable operating leases that expire at various dates
through 2017, and may include options that permit renewals for additional periods. Rent abatements
and escalations are considered in the determination of straight-line rent expense for operating
leases. Leasehold improvements made at the inception of or during the lease are amortized over the
shorter of the asset life or the lease term. We receive incentives to lease office facilities in
certain areas, which are recorded as a deferred credit and recognized as a reduction to rent
expense on a straight-line basis over the lease term.
Restructuring Charges
We periodically record restructuring charges resulting from restructuring our operation
(including consolidation and/or relocation of operation), changes in our strategic plan or
management responses to increasing costs or declines in demand. The determination of restructuring
charges requires management to utilize significant judgment and estimates related to expenses for
employee benefits, such as costs of severance and termination benefits, and costs for future lease
commitments on excess facilities, net of estimated future sublease income. In determining the
amount of lease and facilities restructuring charges, we are required to estimate such factors as
future vacancy rates, the time required to sublet excess facilities and sublease rates. These
estimates are reviewed and potentially revised on a quarterly basis based on available information
and known market conditions. If our assumptions prove to be inaccurate, we may need to make changes
in these estimates that could impact our financial position and results of operation.
Legal Contingencies
We are currently involved in various claims and legal proceedings. We periodically review the
status of each significant matter and assess our potential financial exposure. If the potential
loss from any claim or legal proceeding is considered probable and the amount can be reasonably
estimated, we accrue a liability for the estimated loss. We use significant judgment in both the
determination of probability and the determination as to whether an exposure is reasonably
estimable. Due to the uncertainties related to these matters, accruals are based only on the best
information at that time. As additional information becomes available, we reassess the potential
liability related to our pending claims and litigation and may revise our estimates. Such revisions
in the estimates of potential liabilities could have a material impact on our financial position
and results of operation. We expense legal fees as incurred.
Retirement Benefits
Our pension plans and postretirement benefit plans are accounted for using actuarial
valuations required by SFAS No. 87, Employers Accounting for Pensions, SFAS No. 106, Employers
Accounting for Postretirement Benefits Other Than Pensions, and SFAS 158, Employers Accounting
for Defined Benefit Pension and Other Postretirement Plans. The pension plans relate to our plans
for employees in Germany and Switzerland. Accounting for retirement plans requires management to
make significant subjective judgments about a number of actuarial assumptions, including discount
rates, salary growth, long-term return on plan assets, retirement, turnover, health care cost trend
rates and mortality rates. Depending on the assumptions and estimates used, the pension and
postretirement benefit expense could vary within a range of outcomes and have a material effect on
our financial position and results of operation. In addition, the assumptions can materially affect
accumulated benefit obligations and future cash funding. For 2008, the discount rate to determine
the benefit obligation for the pension plans was 4.9%. The discount rate reflects the rate at which
the pension benefits could be effectively settled. The rate is based upon comparable high quality
corporate bond yields with maturities consistent with expected pension payment periods. A 100 basis
point increase in the discount rate would decrease the 2009 pension expense for the plans by
approximately $3.2 million. A 100 basis point decrease in the discount rate would increase the 2009
pension expense for the plans by approximately $2.9 million. The expected long-term rate of return
on assets for 2008 was 4.8%. This
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rate represents the average of the long-term rates of return for the defined benefit plan
weighted by the plans assets as of December 31, 2008. To develop this assumption, we considered
historical asset returns, the current asset allocation and future expectations of asset returns.
The actual long-term rate of return from July 1, 2003 until December 31, 2008 was 14.7%. A
100 basis point increase or decrease in the expected long-term rate of return on the plans assets
would have had an approximately $0.3 million impact on our 2009 pension expense. As of December 31,
2008, the pension plan had a $3.2 million unrecognized actuarial gain that will be expensed over
the average future working lifetime of active participants.
We also offer a postretirement medical plan to the majority of our full-time U.S. employees
and managing directors who meet specific eligibility requirements. For 2008, the discount rate to
determine the benefit obligation was 6.1%. The discount rate reflects the rate at which the
benefits could be effectively settled. The rate is based upon comparable high quality corporate
bond yields with maturities consistent with expected retiree medical payment periods. A 100 basis
point increase in the discount rate would decrease the 2008 retiree medical expense for the plan by
approximately $3.1 million. A 100 basis point decrease in the discount rate would increase the 2008
retiree medical expense for the plan by approximately $2.6 million. As of December 31, 2008, the
postretirement medical plan had $3.4 million in unrecognized actuarial gains that will be expensed
over the average future working lifetime of active participants.
Accounting for Stock-Based Compensation
We have various stock-based compensation plans under which we have granted stock options,
restricted stock awards and stock units to certain officers, employees and non-employee directors.
We granted both service-based and performance-based stock units and stock options during 2008. The
fair value is generally fixed on the date of grant based on the number of stock units or stock
options issued and the fair value of the Companys stock on the date of grant. For the
performance-based stock units and stock options, each quarter we compare the actual performance
results with the performance conditions to determine the probability of the award fully vesting.
The determination of successful compliance with the performance conditions requires significant
judgment by management, as differing outcomes may have a significant impact on current and future
stock compensation expense.
We adopted SFAS No. 123(R), Share-Based Payment (SFAS 123(R)), on January 1, 2006. This
standard requires that all share-based payments to employees be recognized in the statements of
operation based on their fair values. We have used the Black-Scholes model to determine the fair
value of our stock option awards. Under the fair value recognition provisions of SFAS 123(R),
share-based compensation is measured at the grant date based on the fair value of the award and is
recognized as expense over the requisite service period. Determining the fair value of share-based
awards at the grant date requires judgment, including estimating stock price volatility and
employee stock option exercise behaviors. If actual results differ significantly from these
estimates, stock-based compensation expense and our results of operation could be materially
impacted. As stock-based compensation expense recognized in the Consolidated Statements of
Operation is based on awards that ultimately are expected to vest, the amount of expense has been
reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those
estimates. Forfeitures were estimated based on historical experience. If factors change and we
employ different assumptions in the application of SFAS 123(R), the compensation expense that we
record in future periods may differ significantly from what we have recorded in the current period.
We adopted the modified prospective transition method permitted under SFAS 123(R) and
consequently have not adjusted results from prior years. Under the modified prospective transition
method, the 2006 compensation cost includes expense relating to the remaining unvested awards
granted prior to December 31, 2005 along with new grants made during 2006. For grants which vest
based on certain specified performance criteria, the grant date fair value of the shares is
recognized over the requisite period of performance once achievement of criteria is deemed
probable. For grants that vest through the passage of time, the grant date fair value of the award
is recognized over the vesting period.
We elected the alternative transition method as outlined in FASB Staff Position (FSP)
123(R)-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment
Awards, to calculate the historical pool of excess tax benefits available to offset tax shortfalls
in periods following the adoption of SFAS 123(R).
The after-tax stock-based compensation expense impact of adopting SFAS 123(R) for the year
ended December 31, 2006 was $25.7 million with a $0.12 per share reduction to diluted earnings per
share. Prior to the adoption of SFAS 123(R), we used the intrinsic value method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, including FIN 44, Accounting for Certain Transactions
Involving Stock Compensation, for our plans. Under this accounting method, stock option
compensation awards that are granted with an exercise price at the current fair value of our common
stock as of the date of the award generally did not require compensation expense to be recognized
in the Consolidated Statements of Operations.
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As of December 31, 2008, there was $1.6 million, $12.8 million and $48.8 million of total
unrecognized compensation cost, net of expected forfeitures, related to nonvested options, RSUs and
PSUs, respectively, granted under the LTIP. That cost is expected to be recognized over a
weighted-average period of 3.1 years, 1.6 years and 1 year, respectively.
Accounting for Intercompany Loans
Intercompany loans are classified between long- and short-term based on managements intent
regarding repayment. Translation gains and losses on short-term loans are recorded in other
(expense) income, net, in our Consolidated Financial Statements and similar gains and losses on
long-term loans are recorded as other comprehensive income in our Consolidated Statements of
Changes in Stockholders Equity (Deficit). Accordingly, changes in managements intent relative to
the expected repayment of these intercompany loans will change the amount of translation gains and
losses included in our Consolidated Financial Statements.
Accounting for Employee Global Mobility and Tax Equalization
We have a tax equalization policy designed to ensure that our employees on domestic long-term
and foreign assignments will be subject to the same level of personal tax, regardless of the tax
jurisdiction in which the employee works. We record for tax equalization expenses in the period
incurred. If the estimated tax equalization liability, including related interest and penalties, is
determined to be greater or less than amounts due upon final settlement, the difference is recorded
in the current period.
Recently Issued Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 establishes a single authoritative definition of fair value, sets a framework for
measuring fair value and expands on required disclosures about fair value measurements. SFAS 157 is
effective for fiscal years beginning January 1, 2008 and will be applied prospectively. In February
2008, the FASB issued a Staff Position that (1) partially deferred the effective date of SFAS 157
for one year for certain nonfinancial assets and nonfinancial liabilities and (2) removed certain
leasing transactions from the scope of SFAS 157. The adoption of SFAS 157 and its related
pronouncements did not have a material effect on our consolidated financial position, results of
operations or cash flows.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities including an amendment of FAS 115 (SFAS 159). The new statement
allows entities to choose, at specific election dates, to measure eligible financial assets and
liabilities at fair value that are not otherwise required to be measured at fair value. If a
company elects the fair value option for an eligible item, changes in that items fair value in
subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for the
fiscal year beginning January 1, 2008. We have elected not to apply the fair value option to any of
our financial instruments.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which replaces
SFAS No. 141, Business Combinations. This statement establishes principles and requirements for
how an acquirer: recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any noncontrolling interest in the acquiree; recognizes and
measures the goodwill acquired in the business combination or a gain from a bargain purchase; and
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This Statement applies prospectively to
business combinations for which the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15, 2008. We do not expect this will have a
significant impact on our consolidated financial position, results of operations, or cash
flows.
In May 2008, the FASB issued FASB Staff Position (FSP) Accounting Principles Board Opinion
No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement) (FSP APB 14-1). FSP APB 14-1 requires issuers of convertible
debt instruments that may be settled in cash upon conversion (including partial cash settlement) to
separately account for the liability and equity components in a manner that will reflect the
issuers nonconvertible debt borrowing rate when interest expense is recognized in subsequent
periods. The provisions of FSP APB 14-1 shall be applied retrospectively to all periods presented,
effective for the fiscal year beginning January 1, 2009. We are continuing to evaluate the impact
of the provisions of FSP APB 14-1; however, at this time we believe the incremental interest
expense to be recognized as a result of the adoption will be material.
In October 2008, the FASB issued FSP SFAS No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active (FSP 157-3). FSP 157-3 clarifies
the application of SFAS 157 in a market that is not active and provides
45
an example to illustrate key considerations in determining the fair value of a financial asset when
the market for that financial asset is not active. FSP 157-3 became effective immediately,
including prior periods for which financial statements have not been issued. Therefore, we have
adopted the provisions of FSP 157-3 in our financial statements. The adoption did not have a
material impact on our consolidated financial position, results of operations, or cash flows.
In December 2008, the FASB issued FSP SFAS 132(R)-1, Employers Disclosure about
Postretirement Benefit Plan Assets, effective for fiscal years ending after December 15, 2009.
The additional disclosure requirements are designed to provide the users of the financial
statements with an understanding of a) how the investment allocation decisions are made; b) the
major categories of plan assets; c) the inputs and valuation techniques used to measure the fair
value of the plan assets, including the effect of using significant unobservable inputs; and d)
significant concentration of risk within plan assets. We do not believe the adoption of this FSP
will have a material impact on our consolidated financial position, results of operations, or cash
flows.
46
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a number of market risks in the ordinary course of business. These risks,
which include interest rate risk and foreign currency exchange risk, arise in the normal course of
business rather than from trading activities.
Interest Rate Risk
Our exposure to potential losses due to changes in interest rates is minimal as our
outstanding debt obligations have fixed interest rates. The fair value of our debt obligations may
increase or decrease for various reasons, including fluctuations in the market price of our common
stock, fluctuations in market interest rates and fluctuations in general economic conditions.
The table below presents principal cash flows (net of discounts) and related weighted average
interest rates by scheduled maturity dates for our debt obligations as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date |
|
|
Year ended December 31, |
|
|
(In thousands U.S. Dollars, except interest rates) |
|
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Thereafter |
|
Total |
|
Fair Value |
U.S. Dollar Functional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated
Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
62,500 |
|
Average fixed interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.10 |
% |
|
|
3.10 |
% |
|
|
|
|
U.S. Dollar Functional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated
Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
66,260 |
|
Average fixed interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.10 |
% |
|
|
4.10 |
% |
|
|
|
|
U.S. Dollar Functional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency Series C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated
Debentures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
200,000 |
|
|
$ |
137,000 |
|
Average fixed interest
rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.00 |
% |
|
|
5.00 |
% |
|
|
|
|
U.S. Dollar Functional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Senior
Subordinated Debentures(1) |
|
|
|
|
|
$ |
30,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,521 |
|
|
$ |
19,832 |
|
Average fixed interest rate |
|
|
|
|
|
|
0.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.50 |
% |
|
|
|
|
U.S. Dollar Functional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans under the 2007
Credit Facility |
|
$ |
3,000 |
|
|
$ |
3,000 |
|
|
$ |
3,000 |
|
|
$ |
285,750 |
|
|
|
|
|
|
|
|
|
|
$ |
294,750 |
|
|
$ |
112,100 |
|
Average fixed interest
rate |
|
|
4.94 |
% |
|
|
4.94 |
% |
|
|
4.94 |
% |
|
|
4.94 |
% |
|
|
|
|
|
|
|
|
|
|
4.94 |
% |
|
|
|
|
U.S. Dollar Functional |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
$ |
997 |
|
|
$ |
648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,645 |
|
|
$ |
1,645 |
|
Average fixed interest
rate |
|
|
7.93 |
% |
|
|
6.32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.30 |
% |
|
|
|
|
|
|
|
(1) |
|
The fair value was estimated using the Black-Scholes model with an
expected volatility of 138.7%, risk-free interest rate of 0.1%, an
expected life of 1.5 years, and an expected dividend yield of zero. |
47
Foreign Currency Exchange Risk
We operate internationally and are exposed to potentially adverse movements in foreign
currency rate changes. Any foreign currency transaction, defined as a transaction denominated in a
currency other than the U.S. dollar, will be reported in U.S. dollars at the applicable exchange
rate. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the
balance sheet date and income and expense items are translated at average rates for the period.
We have foreign exchange exposures related primarily to short-term intercompany loans
denominated in non-U.S. dollars to certain of our foreign subsidiaries. The potential gain or loss
in the fair value of these intercompany loans that would result from a hypothetical change of 10%
in exchange rates would have been approximately $7.6 million and $3.1 million as of December 31,
2008 and 2007, respectively. For additional information, see Note 2, Summary of Significant
Accounting Policies, of the Notes to Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the index included on Page F-1, Index to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
As previously reported, on February 5, 2007, the Chairman of the Audit Committee of the Board
(the Audit Committee) was notified by our independent registered public accounting firm,
PwC, that PwC was declining to stand for re-election and that the
client-auditor relationship between the Company and PwC would cease upon PwCs completion of
services related to the audit of our annual financial statements for 2006 and related 2006
quarterly reviews.
During the Companys years ended December 31, 2005 and December 31, 2006, and through June 28,
2007, there were no disagreements between the Company and PwC on any matter of accounting principle
or practice, financial statement disclosure, or auditing scope or procedure that, if not resolved
to PwCs satisfaction, would have caused it to make reference to the matter in connection with its
report on the Companys consolidated financial statements for the relevant year, and there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K, except that the Company
disclosed that material weaknesses existed in its internal control over financial reporting for
2006 and 2005. The material weaknesses identified are discussed in Item 9A of the Companys Annual
Reports on Form 10-K for the year ended December 31, 2006 and for the year ended December 31, 2005.
The Company has authorized PwC to respond fully to any inquiries of its successor concerning the
material weaknesses. PwCs audit reports on the Companys consolidated financial statements for the
years ended December 31, 2006 and December 31, 2005 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
On February 9, 2007, the Audit Committee of the Board, as part of its periodic review and
corporate governance practices, determined to engage Ernst & Young LLP (Ernst & Young) as the
Companys independent registered public accounting firm commencing with the audit for the year
ending December 31, 2007. Ernst & Young also has been engaged as the independent registered public
accounting firm for the 401(k) Plan, commencing with the audit for the 401(k) Plans year ending
December 31, 2007. During the Companys years ended December 31, 2005 and December 31, 2006, and
through February 9, 2007, neither the Company, nor anyone on its behalf, consulted with Ernst &
Young with respect to either (i) the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that might be rendered on
the Companys consolidated financial statements for 2006 or 2005, and no written report or oral
advice was provided by Ernst & Young to the Company that Ernst & Young concluded was an important
factor considered by the Company in reaching a decision as to the accounting, auditing, or
financial reporting issue for 2006 or 2005 or (ii) any matter that was the subject of either a
disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described
in Item 304(a)(1)(v) of Regulation S-K.
48
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report, management performed, with the
participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the
effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms,
and that such information is accumulated and communicated to our management, including our Chief
Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required
disclosures. Based on the evaluation performed, with the participation of our Chief Executive
Officer and our Chief Financial Officer, we concluded that as of December 31, 2008, because of the
existence of the material weakness discussed below, the Companys disclosure controls and
procedures were not effective.
We believe that because we performed substantial additional procedures to compensate for the
material weakness, our consolidated financial statements included in this Annual Report are fairly
stated in all material respects.
Managements Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements in accordance
with GAAP. Internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projection of any evaluation of effectiveness to future periods is
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Management has conducted, with the participation of our Chief Executive Officer and our Chief
Financial Officer, an assessment, including testing of the effectiveness of our internal control
over financial reporting as of December 31, 2008. Managements assessment of internal control over
financial reporting was conducted using the criteria in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis.
In connection with managements assessment of our internal control over financial reporting, we
identified a material weakness in our internal control over financial reporting as of December 31,
2008. Specifically, we did not design effective controls to capture and accrue costs incurred but
not yet invoiced by third party suppliers and contractors. In addition, we did not maintain
adequate controls over the approval and processing of purchase orders.
The above material weakness affects the completeness, accuracy and timeliness of the recording
of accounts payable, accrued liabilities, and other current and non-current liabilities. Until the
underlying control deficiencies are remediated, this material weakness could result in a material
misstatement of our annual or interim consolidated financial statements. Management will continue
to perform additional procedures to mitigate the risk of misstatement otherwise mitigated by an
effective control environment. Because of the material weakness described above, management has
concluded that we did not maintain effective internal control over financial reporting as of
December 31, 2008, based on the Internal Control Integrated Framework issued by COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2008 has
been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in
their report which is included elsewhere in this Item 9A.
49
Changes in Internal Control over Financial Reporting
Senior management implemented significant changes in internal control over financial
reporting. These changes represent changes that have materially affected or are reasonably likely
to materially affect, our internal control over financial reporting. These improvements in our
internal control over financial reporting have enabled us to significantly strengthen our control
environment, the completeness and accuracy of underlying accounting data, and the timeliness with
which we are able to close our books. The areas remediated were attained through:
|
|
|
Implementation of numerous formal management financial review monitoring controls
within the financial statement close and reporting process in our Asia Pacific region, |
|
|
|
|
Strengthening of policies and procedures across the organization, and |
|
|
|
|
The continued adherence to revenue related policies and the maturity of internal
controls over revenue and related revenue accounts. |
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm, on Internal Control
over Financial Reporting
The Board of Directors and Stockholders of BearingPoint, Inc.:
We have audited BearingPoint, Inc.s internal control over financial reporting as of December
31, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). BearingPoint,
Inc.s management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have
a material effect on the financial statements.
50
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of
the companys annual or interim financial statements will not be prevented or detected on a timely
basis. The following material weakness has been identified and included in managements assessment.
Management has identified a material weakness in controls relating to the Companys accounts
payable and accrual process. This material weakness was considered in determining the nature,
timing and extent of audit tests applied in our audit of the 2008 financial statements and this
report does not affect our report dated March 30, 2009, except for Note 22 as to which the date is
June 4, 2009, on those financial statements that included an explanatory paragraph regarding
BearingPoint, Inc.s ability to continue as a going concern.
In our opinion, because of the effect of the material weakness described above on the
achievement of the objectives of the control criteria, BearingPoint, Inc. has not maintained
effective internal control over financial reporting as of December 31, 2008, based on the COSO
criteria.
/s/ Ernst & Young LLP
McLean, Virginia
March 30, 2009
ITEM 9B. OTHER INFORMATION
None.
51
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our
Board currently consists of four directors. Information about our
directors as of June 1, 2009 is provided
below. For information about our executive officers, please see Executive Officers of the
Registrant included in Part I of this Annual Report.
Reduction
in Size of Board of Directors
On
May 27, 2009, the Board unanimously approved a reduction in its
size from ten members to four members, which became effective as of
12:00 p.m., Eastern time, on June 1, 2009. The Board
believes that this reduction in size is appropriate to facilitate the
responsibilities and obligations of the Board in connection with the
Companys bankruptcy proceedings and potential Sale Transactions.
In
connection with this reduction, each of Douglas C. Allred, Betsy J.
Bernard, Jill S. Kanin-Lovers, Wolfgang H. Kemna, Albert L. Lord and
J. Terry Strange voluntarily resigned from the Board, effective as of
the 12:00 p.m., Eastern time, on June 1, 2009. After such
resignations, the Board is currently composed of F. Edwin Harbach,
Roderick C. McGeary, Frederic F. Brace and Eddie R. Munson.
In
addition, as of June 1, 2009, the full Board will fulfill the
obligations and responsibilities previously assigned to the Audit
Committee, Compensation Committee and Nominating and Corporate
Governance Committee of the Board.
Frederic F. Brace, age 51, has been a member of the Board since January 1, 2009. Mr. Brace
retired from UAL Corporation (United Air Lines, Inc.) where he served as Executive Vice President
and Chief Financial Officer from August 2002 to 2008, and held various other senior management
positions at UAL from 1983 to 2002.
F. Edwin Harbach, age 55, has been Chief Executive Officer and a member of the Board since
December 2007. Mr. Harbach also served as the Companys President and Chief Operating Officer from
January 2007 to December 2007. From 1976 until his retirement in 2004, Mr. Harbach held various
positions with and served in leadership roles at Accenture Ltd, a global management consulting,
technology services and outsourcing company, including chief information officer, Managing Partner
of Japan and Managing Director of Quality and Client Satisfaction.
Roderick C. McGeary, age 58, has been a member of the Board since August 1999 and Chairman of
the Board since November 2004. From March 2005 until December 2007, Mr. McGeary served the Company
in a full-time capacity, focusing on clients, employees and business partners. From 2004 until
2005, Mr. McGeary served as our Chief Executive Officer. From 2000 to 2002, Mr. McGeary was the
Chief Executive Officer of Brience, Inc., a wireless and broadband company. Mr. McGeary is a
director of Cisco Systems, Inc., a worldwide leader in networking for the Internet, and Dionex
Corporation, a manufacturer and marketer of chromatography systems for chemical analysis.
Eddie R. Munson, age 58, was our Chief Financial Officer on an interim basis from June 2008
through November 2008 and a member of the Board since October 2007. He is a retired partner with
KPMG and has more than 30 years of auditing experience focusing on the financial services,
government and automotive industries. From 1996 to 2004, Mr. Munson was a member of KPMGs board of
directors, where he was a member of the pension committee and chair of the committees responsible
for partner rights and board nominations. Most recently, Mr. Munson was the national partner in
charge of KPMGs University Relations and Campus Recruiting programs. Mr. Munson is also a director
of United American Healthcare Corporation.
52
No family relationships exist between any of the directors or between any director and any
executive officer of the Company.
Executive Sessions of Non-Management Directors
Our non-management directors who are not employees of the Company meet separately on a regular
basis.
Audit Committee
Following
the reduction in the size of our Board in June 2009, the full
Board will fulfill the obligations and responsibilities previously
assigned to the Audit Committee. The Board believes that this is
appropriate in light of the reduced size of the Board and the
Boards obligations in connection with the Companys
bankruptcy proceedings and potential Sale Transactions. The Board has
determined that Mr. Munson is an audit committee financial expert as defined in Item 401(h) of Regulation S-K.
Compensation Committee Interlocks and Insider Participation
To the
Companys knowledge, there are no other relationships involving
members of the Board requiring disclosure in this Annual Report.
53
Standards of Business Conduct
On
May 10, 2007, the Board approved our Standards of Business Conduct (the SBC), which
superseded our prior Code of Business Conduct and Ethics. The SBC became effective as of May 31,
2007. The SBC was developed as part of our commitment to enhancing our culture of integrity and our
corporate governance policies. The SBC reflects changes in law and regulation, best practices and
updates to the Companys policies. In addition, the SBC contains new or enhanced policies and/or
procedures relating to violations of the SBC, conflicts of interest (including those related to the
giving and receiving of gifts and entertainment), financial disclosures, the importance of
maintaining the confidentiality of Company, client and competitor information, data privacy and
protection, Company property, investor and media relations, records management, and
lobbying/political activities. The SBC applies to all of our directors and employees, including our
principal executive officer, principal financial officer and principal accounting officer. The SBC
is posted on our website, at www.bearingpoint.com in the Corporate Governance. We intend to satisfy
the disclosure requirement regarding any amendment to, or waiver of, a provision of the SBC for our
Chief Executive Officer, Chief Financial Officer, Corporate Controller or persons performing
similar functions, by posting such amendment or waiver on our website within the applicable
deadline that may be imposed by government regulation following the
amendment or waiver. A
printed copy of the SBC documents is available free of charge to any person who makes a request to our Investor Relations
team at 973-214-9953.
Committees
Following
the reduction in the size of our Board in June 2009, and given the
Companys bankruptcy proceedings and the various Sale Transactions,
the full Board will fulfill the obligations and responsibilities
previously assigned to the Audit Committee, Compensation Committee
and the Nominating and Corporate Governance Committee. As the full
Board now consists of four members, the Board does not believe that
having separate committees is efficient in light of the Companys
situation and the speed at which events are occurring.
Communications with Board of Directors
The
Board welcomes your questions and comments. If you would like to communicate directly with
our Board or our non-management directors of the Board as a group, you may submit your communication to our Chief Legal
Officer by writing to them at
the following address:
BearingPoint, Inc.
c/o Chief Legal Officer
100 Crescent Court, Suite 700
Dallas, Texas 75201
All
communications and concerns will be forwarded to our Board or our non-management directors
as a group, as applicable. We also have established a dedicated telephone
number for communicating concerns or comments regarding compliance matters to the Company. The
phone number is 1-800-206-4081 (or 240-864-0229 for international callers), and is available
24 hours a day, seven days a week. The SBC prohibits any retaliation or
other adverse action against any person for raising a concern. If you wish to raise your concern in
an anonymous manner, you may do so by calling the telephone number listed above.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the U.S. Federal securities laws, directors and executive officers, as well as persons
who beneficially own more than ten percent of our outstanding common stock, must report their
initial ownership of the common stock and any changes in that ownership to the SEC. The SEC has
designated specific due dates for these reports, and we must identify in this Annual Report those
persons who did not file these reports when due. Based solely on a review of copies of Forms 3, 4
or 5 filed by us on behalf of our directors and executive officers or otherwise provided to us and
copies of Schedule 13Gs, we believe that all of our directors, executive officers and greater than
ten percent stockholders complied with their applicable filing requirements for 2008.
54
ITEM 11. EXECUTIVE COMPENSATION
Effective
12:00 p.m., Eastern time, on June 1, 2009, the Board was reduced in
size from ten members to four members. In addition, the remaining
members of the Board are fulfilling the obligations and
responsibilities previously assigned to the Compensation Committee.
References in the Compensation Discussion and Analysis below to the
Compensation Committee or Committee refer to the Compensation Committee prior to
the reduction in the size of the Board. As most decisions related to
compensation occurred prior to June 1, 2009, this discussion, where
appropriate, refers to the actions and decisions of the former
directors, Jill Kanin-Lovers, Betsy J. Bernard and Douglas C. Allred,
who previously comprised the Compensation Committee. However, as set forth
below in the Report of the Board of Directors on Executive
Compensation, the current Board has approved such actions and
decisions of the Compensation Committee discussed below.
Compensation Discussion and Analysis
Prior
to June 1, 2009, the Compensation Committee of our Board of Directors
(the Committee) determined the
compensation of our executive officers, including making individual compensation decisions, and
reviewing and monitoring the compensation programs applicable to our executive officers. This
discussion describes the Committees determination of 2008 compensation for our named executive
officers.
Bankruptcy Proceedings and Sale of Assets
The Company is currently undergoing bankruptcy proceedings and is in the process of selling
all or substantially all of its assets. In addition, the Board has not yet fully evaluated the
effect of the Chapter 11 Cases and disposition of assets on its compensation practices. However,
it is expected that the Board will not make any significant changes to executive compensation
in 2009, except as set forth below, due, in part, to the uncertainties regarding the bankruptcy and
sale processes and the likelihood that the Company will no longer continue as a going concern. If
necessary, upon the completion of the Chapter 11 Cases, the Board will review and modify the
compensation philosophy and objectives set forth below. Please note that the discussion below
relates to compensation determinations that were made during the course of 2008 and early 2009.
Moreover, due to the Chapter 11 Cases, all significant compensation decisions and changes to
compensation must be approved by the Bankruptcy Court and, as such,
the Board cannot be assured
that any compensation decisions that it makes going forward would be approved.
Key Employee Incentive Plan
Due to the difficulties currently faced by the Companys employees in managing the Chapter 11
Cases and the sale process, the Board is evaluating the implementation of a new program that
seeks to motivate employees to maximize the Companys value during the sale and bankruptcy
processes. Any amounts paid to employees through such program would be subject to the Company
achieving certain established milestones. Currently, the Board is still discussing the
potential implementation and specifics of such a plan, however, any plan that is approved will be
subject to the approval of the Bankruptcy Court.
Changes in Management in 2008
In 2008, there were several changes in our executive management team. On March 17, 2008,
David Hunter was named as our Chief Operating Officer, effective as of March 13, 2008. As of May
13, 2008, Eileen A. Kamerick was appointed as our Chief Financial Officer, replacing Judy A. Ethell
in such position. Ms. Ethell, however, agreed to continue as an employee until July 31, 2008 to
assist in the transition to the new chief financial officer. Ms. Ethell entered into a separate
compensation arrangement at such time; therefore, the Committee did not make any 2008 bonus
determinations for Ms. Ethell. Effective as of June 2, 2008, Ms. Kamerick resigned as Chief
Financial Officer and Eddie R. Munson, a director of the Board and former member of the Audit
Committee, agreed to serve as the Companys Chief Financial Officer on an interim basis, effective
as of June 2, 2008. Pursuant to Mr. Munsons compensation arrangement with the Company, he did not
participate in our bonus compensation program and did not receive any equity awards as
compensation. As such, the Committee did not make any 2008 bonus determinations for Ms. Kamerick or
Mr. Munson. Effective as of November 11, 2008, Kenneth A. Hiltz, a managing director of
AlixPartners, LLP, was appointed as our Chief Financial Officer, at which point Mr. Munson ceased
to serve as the interim Chief Financial Officer and resumed his duties as a member of the Board and
the Audit Committee. Pursuant to an interim management services agreement, the Company paid
AlixPartners a fee based on an hourly rate for time worked by Mr. Hiltz and also paid or reimbursed
AlixPartners for reasonable out-of-pocket expenses. As Mr. Hiltz is not an employee of the
Company, he does not receive any compensation, or bonus, directly from the Company and does not
participate in the Companys employee benefit plans. On November 19, 2008, Laurent C. Lutz provided
the Company with notice of his intention to terminate his employment with the Company and to resign
from his positions as Chief Legal Officer and Secretary. We agreed with Mr. Lutz that he would
cease to be an employee of the Company as of the close of business on December 31, 2008; however,
Mr. Lutz entered into an independent contractor agreement with the Company where he was compensated
on an hourly basis through February 15, 2009. John DeGroote was appointed as Chief Legal Officer
of the Company, effective on December 31, 2008; however, Mr. DeGroote is not considered a named
executive officer.
Rejection of Employment Agreements
with David R. Hunter
On
May 27, 2009, the Bankruptcy Court entered an order authorizing the
Companys rejection of (i) the employment letter agreement dated
March 13, 2008 between the Company and David R. Hunter, the Companys
Chief Operating Officer, and (ii) the Special Termination Agreement
dated March 13, 2008 between the Company and David R. Hunter.
Pursuant to the order, such agreements will be deemed to be rejected
effective as of April 29, 2009. In accordance with the order, Mr. Hunter has
30 days from the date the order is served on him to file a
proof of claim to assert any damage claim arising from the rejection
of such agreements.
55
Overall Compensation Philosophy and Objectives
In 2008, our compensation philosophy continued to center on our desire to enhance corporate
performance and stockholder value by aligning the financial interests of our executive officers
with those of our stockholders. We implemented this philosophy by adopting pay for performance
measures, based upon both individual performance and Company performance. Our goal was to design
compensation programs that would:
attract and retain the best possible talent;
recognize and reward outstanding individual performance;
motivate our people to deliver quality service to our clients, in order to drive client
satisfaction and the profitability of our Company;
provide for cash and long-term incentive compensation at levels that are competitive with
companies within our industry and of similar size (targeting total target compensation to
remain at approximately the 50th percentile); and
communicate individual metrics openly and transparently, to influence employee performance
and accountability.
How Compensation is Determined
The
Committee devoted a substantial portion of its time to determining the compensation of our
executive officers. This process includes reviewing market data, sharing best practices,
determining appropriate milestones to assess Company performance, and discussing appropriate levels
of compensation based upon both individual and Company performance. In addition, the Committee
engaged, from time to time, a compensation consultant for independent guidance and expertise. For
2008, we engaged Towers Perrin to provide its counsel related to various executive compensation
matters. In addition, the Committee considered the financial performance and outlook of the
Company for 2009 and beyond when assessing and reviewing its compensation decisions for the
executive officers.
As part of the process, the Committee considered peer benchmarking information, which is used
to assess the level of our executive officer compensation relative to a group of peer companies,
and to compare the mix of total compensation. For 2008, the Committee reviewed market comparisons
for all companies participating in the Towers Perrin U.S. Executive Compensation Databank within
the business services or information technology industries (the Peer Companies). This broad
industry peer group for 2008 consisted of 38 companies:
|
|
|
|
|
Accenture Ltd
|
|
eBay Inc.
|
|
IKON Office Solutions, Inc. |
ADVO, Inc.
|
|
eFunds Corporation
|
|
IMS Health Incorporated |
APAC Customer Services, Inc.
|
|
Electronic Data Systems Corporation
|
|
Iron Mountain Inc. |
ARAMARK Corporation
|
|
EMC Corporation
|
|
Kelly Services Inc. |
Automatic Data Processing, Inc.
|
|
Emdeon Corporation
|
|
MacDonald Dettwiler & Assoc. |
Booz Allen Hamilton Inc.
|
|
Equifax Inc.
|
|
Oracle Corporation |
CA, Inc.
|
|
First Data Corporation
|
|
Pitney Bowes Inc. |
Ceridian Corporation
|
|
Fiserv, Inc.
|
|
Robert Half International Inc. |
CheckFree Corporation
|
|
G&K Services, Inc.
|
|
Symantec Corporation |
CitiStreet
|
|
Gartner, Inc.
|
|
TeleTech Holdings Inc. |
Convergys Corporation
|
|
The GEO Group, Inc.
|
|
Unisys Corporation |
Deluxe Corporation
|
|
GTECH Holdings Corp
|
|
Viad Corp. |
Dendrite International Inc.
|
|
H&R Block, Inc. |
|
|
56
In addition, the Committee reviewed its compensation decisions against compensation data for 9
direct peer companies, provided through a survey prepared by Towers Perrin. These companies were:
|
|
|
Accenture Ltd
|
|
Gartner, Inc. |
Booz Allen Hamilton Inc.
|
|
International Business Machines Corporation |
Cap Gemini U.S.
|
|
SAIC |
Deloitte Consulting
|
|
Unisys Corporation |
Diamond Management & Technology Consultants |
|
|
Generally, the Committee determined executive compensation based upon the total amount of
compensation relative to the Peer Companies, with the general goal of setting the level of
compensation at approximately the 50th percentile. Given the challenges and financial
uncertainties facing the Company, the Committee did not set specific goals and target compensation
levels for its executive officers in 2008, as the Committee wanted management to focus on
addressing the Companys substantial issues. The Committee determined that it would be more
appropriate to review, in early 2009, the Companys performance, situation and outlook upon the
completion of fiscal year 2008 before making bonus decisions, including decisions regarding the mix
of compensation. Prior to June 1, 2009, the Committee had determined that no bonus payouts would be made for any
executive officers for 2008 and the Board has not decided, to date, to change or alter such decision.
As part of its regular decision-making process, the Committee met with the Chief Executive
Officer to discuss the annual performance of each executive officer (and in the case of the Chief
Executive Officer, the Committee met with both the Chairman of the Board and other members of the
Board). The Committee then deliberated and determined the executive officers compensation, taking
into account managements recommendations, the executive officers individual performance and
Company performance and market data. For 2008 decisions, the Committee examined the bankruptcy
proceedings, the current state of the Company and a short- and long-term outlook of the Companys
prospects, among other factors.
Principal Components of Executive Officer Compensation
Prior to our bankruptcy filing, the principal elements of our executive officer compensation
program consisted of base salary, annual cash incentive payments and, at appropriate intervals,
long-term incentive compensation typically in stock-based awards. We also provide the same deferred
compensation plans, health and welfare (including medical), retirement and other perquisites and
benefits to our executive officers that are available to our managing directors.
We have utilized employment agreements and other agreements, prior to the bankruptcy filing,
as the primary manner for structuring the compensation of our executive officers. Certain terms
and conditions of our employment agreements with our executive officers reflected our strong
desire, at the time of hire, to induce these individuals to join our Company given their level of
expertise and experience and the specific issues we faced at that time. The Committees goal in
using such agreements was to further align the terms of employment of our executive officers with
the standard terms and conditions that apply to the vast majority of our managing directors, unless
specific situations necessitate alternative treatment. In 2008, the Committee made significant
efforts to standardize the employment agreements that the Company had been using as a number of
officers had agreements that differed, in one respect or another. The Committee felt that the use
of standardized agreements would enable it to offer competitive packages to executive officers, but
also would better ensure equity in these agreements and simplify the administration of such
employment packages.
Fixed Compensation
Base Salaries. Base salaries for our executive officers are determined by evaluating the
responsibilities of the position, the experience and performance of the individual and market
information comparing such salaries to the competitive marketplace for executive talent, with
emphasis on our primary competitors in the management and technology consulting industry. The
Committee considered salary adjustments based upon the recommendation of the Chief Executive Officer
(other than with respect to his salary) and the Committees evaluation of Company performance and
individual performance, taking into account any additional or new responsibilities assumed by the
individual executive officer in connection with promotions or organizational changes. Our
philosophy is that, base salary should comprise a smaller percentage of total target compensation
for our executive officers, with a greater percentage tied to Company performance than the
compensation mix of our other employees. Because our executive officers are the primary
decision-makers and policy-makers for our Company, we believe it is appropriate to directly link a
larger percentage of their compensation with Company performance, to hold them accountable for the
decisions that they make.
57
Base salary information for our executive officers can be found in the Summary Compensation
Table included in this Annual Report. As previously disclosed, Mr. Harbachs 2008 annual base
salary was increased to $900,214 as of January 2, 2008 in connection with his promotion to Chief
Executive Officer announced on December 3, 2007. Ms. Ethells 2008 annual base salary remained
constant from 2007 at $520,094. Mr. Lutzs 2008 annual base salary was increased to $600,142 due
to Mr. Lutzs expanded role and increased responsibilities given the Companys particular
circumstances. The Committee determined that these base salaries were appropriate, given the tasks
management had performed in the past and the objectives it had outlined for the future. No named
executive officers received any increase in salary in 2009.
As part of its analysis, the Committee assessed each executive officers proposed base salary
for 2008 against relevant market data provided by Towers Perrin. In the case of Mr. Harbach, his
2008 base salary was between the 25th and 50th percentile for direct peer companies. Ms. Ethells
and Mr. Lutzs 2008 base salaries were between the 50th and 75th percentile for direct peer
companies. As set forth in more detail below, Mr. Hunters 2008 base salary was set at
approximately the 50th percentile for direct peer companies.
In addition, the Committee evaluated the salaries given to new executive officers, including
Messrs. Hunter and Munson and Ms. Kamerick. The Committees evaluation with respect to these
officers differed from determinations made with respect to continuing officers. In the case of Mr.
Hunter, the Committee evaluated, among other things, Mr. Hunters residence in Australia, the tax
consequences of such residence, Mr. Hunters preferred tax planning and travel requirements. Based
upon these considerations, Mr. Hunters base compensation for 2008 was initially established at the
equivalent of $750,000 USD (United States Dollars). Because of Mr. Hunters particular
circumstances, it was determined that Mr. Hunter would receive approximately 50% of his base
compensation in cash (he received a salary of $430,000 AUD (Australian Dollars) based upon the
conversion rate on March 13, 2008, this approximately equaled $400,000 USD) and approximately 50%
in stock options (which at the date of grant were valued at approximately $350,000 USD). The
Committee determined in the fourth quarter of 2008 that Mr. Hunters annual compensation for 2009
would continue to be the equivalent of $750,000 USD, however, such amount would be paid 100% in
cash rather than in a combination of cash and stock options due to the Companys circumstances and
the unavailability of sufficient shares to meet Mr. Hunters previous mix of cash and stock
options. Mr. Hunters 2009 local base compensation was then determined based on the exchange rate
as of December 31, 2008, set at $1,086,531 AUD. In Mr. Munsons case, the Committee examined
precedent for interim Chief Financial Officers and determined that Mr. Munsons base salary would
constitute the substantial majority of his compensation. The Committee did not set any target
compensation for Mr. Munson above the base salary. The Committee retained the ability to provide
Mr. Munson with a bonus if it determined to do so, however, no bonus was paid to Mr. Munson. Mr.
Munson was paid a monthly salary of $75,000 for his service as our interim Chief Financial Officer.
Ms. Kamericks base salary was determined after an evaluation of Peer Companies and a review of
the challenges posed by the Companys fiscal situation. Ms. Kamericks annual base salary was set
at $600,000.
Variable Compensation
Cash
Awards. The Committee made cash award determinations each year based upon its pay for
performance philosophy. For 2008, our executive officers were awarded the annual cash awards set
forth in the Bonus column of the Summary Compensation Table included in this Annual Report.
Awards earned for performance during one year are paid in the following year. For 2008, all of our
executive officers were eligible to receive a maximum cash award equal to 100% of their respective
base salaries, as set forth in their respective employment agreements. In mid-2008, the Committee,
after reviewing the Companys performance at such time and given the significant issues facing the
Company, determined that no individual or objective performance metrics would be set for the named
executive officers. The Committee determined that it would evaluate variable compensation upon the
completion of 2008 and make determinations based upon a totality of factors, including, but not
limited to, Company performance, individual performance, stock price, revenue, DSOs, gross profit,
maintenance of public reporting obligations, and issues related to the Companys liquidity.
However, given the fact that the Company has filed voluntary petitions under Chapter 11 of the
Bankruptcy Code, no bonuses were paid for 2008 performance to any of the named executive officers.
Long-Term Incentive Compensation
While we have maintained parity with our major competitors on base cash compensation for our
executive officers, comparisons with our Peer Companies indicate that our long-term incentive
equity awards continue to lag behind our competitors. However, as part of the plan of
reorganization, no additional equity will be issued during the Chapter 11 Cases.
58
Performance Share Units. In early 2007, we issued performance share units (PSUs) to certain
of our executive officers to help balance the mix of fixed and variable compensation paid to our
executive officers. Award amounts were based upon each executive officers individual performance
and responsibilities and roles within the Company and by assessing and comparing the executive
officers total compensation, including previously granted incentive awards and the balance of
fixed and variable compensation.
The vesting of the PSUs is tied to the achievement of performance targets of both minimum
growth in consolidated business unit contribution (CBUC) and relative total shareholder return as
compared to the S&P 500. We currently do not believe that the minimum CBUC target will be achieved
and that the PSUs will not vest.
Restricted Stock Units. We have granted restricted stock units (RSUs) for various purposes,
including employment offers for new executive officer candidates. In 2008, Mr. Harbach was the only
executive officer to receive a grant of RSUs (additional information can be found in the Grants of
Plan-Based Awards table included in this Annual Report). Mr. Harbach received such RSU grants as
part of his promotion to Chief Executive Officer
Stock Options. The following executive officers received grants of stock options in 2008:
Mr. Harbach and Mr. Hunter.
Mr. Harbach received stock options in 2008 as part of his promotion to Chief Executive
Officer, and Mr. Hunter received his options as part of his initial employment compensation
package. To date, we have not instituted any equity ownership requirements for our executive
officers. We did not consider any such policy in 2008 due to the significant issues faced by the
Company.
As part of the Companys plan of reorganization, it is expected that all outstanding equity
awards will be cancelled for no consideration.
Other Compensation
Deferred Compensation Plans. We have a Deferred Compensation Plan and a Managing Directors
Deferred Compensation Plan for our managing directors and other highly compensated executives. The
two plans are substantially identical and permit a select group of management and highly
compensated employees to accumulate additional income for retirement and other personal financial
goals by making elective deferrals of compensation to which they will become entitled in the
future. Our deferred compensation plans are nonqualified and unfunded, and participants are
unsecured general creditors of the Company with respect to their accounts. None of our executive
officers have participated in our deferred compensation plans.
Other Benefits. Our executive officers are eligible for the same health and welfare programs
as our other employees. Our retirement program for U.S. employees includes a 401(k) program. We
match 25% of the first 6% of pre-tax eligible compensation contributed by the individual employee
to the plan, and, at our discretion, may make additional discretionary contributions of up to 25%
of the first 6% of pre-tax eligible compensation contributed to the plan. Employee contributions to
the 401(k) program for our executive officers are limited by federal law. We do not make up for the
impact of these statutory limitations through any type of nonqualified deferred compensation or
other program.
Perquisites and Other Compensation. Certain of our executive officers have received
perquisites such as reimbursements of moving expenses and legal fees and gross-up payments in
connection with the same as set forth in their respective employment agreements. As part of Mr.
Harbachs employment arrangement as Chief Executive Officer of the Company, Mr. Harbach will be
reimbursed for his rental of an apartment in New York City during part of 2007 and 2008, which is
his primary office location (Mr. Harbach resides in Florida). The Committee will review its
decision to provide this reimbursement to Mr. Harbach at each lease renewal date.
Regulatory Considerations
The Internal Revenue Code contains a provision that limits the tax deductibility of certain
compensation paid to our executive officers to the extent it is not considered performance-based
compensation under the Internal Revenue Code. We have adopted policies and practices to facilitate
compliance with Section 162(m) of the Internal Revenue Code. It is intended that awards granted
under the LTIP to such persons will qualify as performance-based compensation within the meaning of
Section 162(m) and regulations under that section.
59
In making decisions about executive compensation, we also consider the impact of other
regulatory provisions, including the provisions of Section 280G of the Internal Revenue Code. In
accordance with recent IRS guidance interpreting Section 409A, we have amended the relevant
employment agreements and the LTIP so that such agreements and programs will be administered in a
manner that is in good faith compliance with Section 409A. The Board intends that any awards under
the LTIP satisfy the applicable requirements of Section 409A. Generally, Section 409A is
inapplicable to incentive stock options and restricted stock and also to nonqualified stock options
so long as the exercise price for the nonqualified option may never be less than the fair market
value of the common stock on the date of grant.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Board of Directors has reviewed and discussed the
Compensation Discussion and Analysis section of this Annual Report on Form 10-K with the Companys
management and, based on such review and discussion, recommended that the
Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
BOARD
OF DIRECTORS
Frederic F. Brace
F. Edwin Harbach
Roderick C. McGeary
Eddie R. Munson
60
Summary of Cash and Certain Other Compensation
The Summary Compensation Table below sets forth information concerning all compensation for
services in all capacities to the Company for 2006, 2007 and 2008 of those persons who were or
acted as the Chief Executive Officer, Chief Financial Officer and the other most highly compensated
executive officers of the Company for 2008 (collectively, the named executive officers).
Summary Compensation Table
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Non-Equity |
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Incentive |
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Stock |
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Option |
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Plan |
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All Other |
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Name and |
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Salary |
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Bonus |
|
|
Awards |
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Awards |
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Compensation |
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|
Compensation |
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Total |
|
Principal Position |
|
Year |
|
|
($) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($)(2) |
|
|
($) |
|
|
($)(1) |
|
|
($) |
|
F. Edwin Harbach(3) |
|
|
2008 |
|
|
$ |
900,214 |
|
|
$ |
|
|
|
$ |
549,930 |
|
|
$ |
3,401,976 |
|
|
$ |
|
|
|
$ |
625,643 |
|
|
$ |
5,477,763 |
|
Chief Executive Officer |
|
|
2007 |
|
|
|
686,830 |
|
|
|
1,350,046 |
|
|
|
1,710,473 |
|
|
|
|
|
|
|
|
|
|
|
152,364 |
|
|
|
3,899,713 |
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
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David Hunter(4) |
|
|
2008 |
|
|
|
323,691 |
|
|
|
|
|
|
|
|
|
|
|
375,677 |
|
|
|
|
|
|
|
138,424 |
|
|
|
837,792 |
|
Chief Operating Officer |
|
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Kenneth A. Hiltz(5) |
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2008 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eddie R. Munson(6) |
|
|
2008 |
|
|
|
405,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
912 |
|
|
|
406,427 |
|
Former Interim Chief Financial
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judy A. Ethell(7) |
|
|
2008 |
|
|
|
303,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,102 |
|
|
|
374,490 |
|
Former Chief Financial |
|
|
2007 |
|
|
|
520,094 |
|
|
|
260,047 |
|
|
|
1,500,626 |
|
|
|
379,396 |
|
|
|
|
|
|
|
78,579 |
|
|
|
2,738,742 |
|
Officer |
|
|
2006 |
|
|
|
500,000 |
|
|
|
500,000 |
|
|
|
690,700 |
|
|
|
1,131,000 |
|
|
|
|
|
|
|
3,797 |
|
|
|
2,825,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eileen A. Kamerick |
|
|
2008 |
|
|
|
37,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,151 |
|
Former Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurent C. Lutz |
|
|
2008 |
|
|
|
600,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,245 |
|
|
|
612,387 |
|
Former
Chief Legal Officer and |
|
|
2007 2006 |
|
|
|
520,094 411,059 |
|
|
|
635,047 1,311,059 |
|
|
|
1,418,690 |
|
|
|
|
|
|
|
525,000 525,000 |
|
|
|
10,777 78,431 |
|
|
|
3,109,608 2,325,549 |
|
Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Unless otherwise noted, Bonus amounts consist of performance-based cash bonuses accrued in the fiscal year for which the bonus has been earned. We have entered
into employment agreements with Mr. Harbach and Mr. Lutz that set forth the terms of their compensation. Ms. Ethell also had employment agreements that set forth the
terms of their compensation. All Other Compensation does not include matching contributions to be made by the Company under the 401(k) Plan for 2008, since these
amounts are not finalized for payment until the following year. |
|
(2) |
|
Amounts reflected in the table as 2008 equity compensation reflect the amount recognized for financial statement reporting purposes in 2008 in accordance with SFAS
123(R) for equity award expense. These amounts reflect the Companys accounting expense for these awards, and do not correspond to the actual value that may be
recognized by the named executive officers. Whether and to what extent a named executive officer realizes value will depend on various factors, including actual
operating performance, stock price fluctuations and the named executive officers continued employment. For a discussion of the assumptions used by the Company in
calculating these amounts, see Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operation Accounting for Stock-Based
Compensation, and Note 13, Stock-Based Compensation, of the Notes to Consolidated Financial Statements. For information regarding 2008 Stock Awards and Option
Awards, see Grants of Plan-Based Awards below. |
|
(3) |
|
Mr. Harbachs annual base salary for 2008 was
$900,214. Mr. Harbachs All Other Compensation
consists of $129,600 in reimbursements for costs associated with a furnished
apartment in New York City for Mr. Harbachs use (monthly
rental cost of $10,800), and $496,043 in tax equalization payments as |
61
|
|
|
|
|
part of the Companys tax equalization programs provided to all employees
with respect to reimbursement of certain state taxes paid by an employee for work performed outside
his or her state of residence. The significantly higher
tax equalization payments in 2008 resulted from Mr. Harbach spending much of the year in New York City due to the various strategic initiatives pursued by the
Company. For additional information regarding Mr. Harbachs employment
arrangements, see Employment Agreements Employment Agreement for F. Edwin Harbach. |
|
(4) |
|
Mr. Hunters 2009 base compensation will continue to be $750,000, the initial value of Mr. Hunters total base compensation in 2008; however, his compensation in
2009 will be paid in cash rather than in a combination of cash and stock options. Mr. Hunter was paid a base salary of $343,724 AUD (Australia Dollars) in 2008. The
figure listed in the Salary column above is based upon a conversion rate as of March 13, 2008 (the date on which Mr. Hunters 2008 base salary was set). Mr.
Hunters All Other Compensation consists of $87,970 in tax equalization payments with respect to the reimbursement of certain taxes paid by Mr. Hunter resulting
from work performed outside his country of residence and $50,454 for the reasonable travel expenses of Mr. Hunters spouse, pursuant to Mr. Hunters employment agreement. |
|
(5) |
|
Effective November 11, 2008, the Company appointed Mr. Hiltz, a managing director of AlixPartners, LLP, as the Companys Chief Financial Officer. Mr. Hiltz is a
temporary employee of the Company, receives no compensation directly from the Company and does not participate in the Companys employee benefit plans. For
additional information, see Item 13 Certain Relationships and Related Transactions, and Director Independence Related Transactions-AlixPartners. |
|
(6) |
|
Mr. Munsons annual salary for 2008 was $900,000. Mr. Munsons All Other Compensation consists of $912 in tax equalization payments with respect to the
reimbursement of certain state taxes paid by Mr. Munson resulting from work performed outside his state of residence. |
|
(7) |
|
Effective as of May 13, 2008, Ms. Ethell no longer held the positions of Chief Financial Officer and Chief Accounting Officer and as of August 1, 2008, she is no
longer an employee of the Company. Ms. Ethells All Other Compensation consists of (i) $1,102 in tax equalization payments with respect to the reimbursement of
certain state taxes paid by Ms. Ethell resulting from work performed outside her state of residence and (ii) pursuant to Ms. Ethells Separation and Release of
Claims Agreement, dated May 12, 2008, (A) Ms. Ethell was to be paid $70,000 in settlement of her personal and vacation days that were accrued but unused as of July
31, 2008, (B) $1,040,000 as a severance payment (equaling Ms. Ethells annual base salary and target bonus), and (C) $700,000 as an additional lump sum payment for
her continued service through July 31, 2008. Currently, amounts under (B) and (C) above have not been paid to Ms. Ethell. |
|
(8) |
|
Effective as of the close of business on December 31, 2008, Mr. Lutz no longer held the positions of Chief Legal Officer and Secretary. Mr. Lutz entered into an
independent contractor agreement with the Company where he is compensated on an hourly basis of $350.00 per hour from the period of January 1, 2009 to February 15,
2009, for which he earned $58,275. Mr. Lutz will also receive certain reasonable out-of-pocket expenses that he incurs. Mr. Lutzs All Other Compensation
consists of $12,245 in tax equalization payments with respect to the reimbursement of certain state taxes paid by Mr. Lutz resulting from work performed outside his
state of residence. |
62
Grants of Plan-Based Awards
The following table provides information relating to equity awards made in 2008 to our named
executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Awards: |
|
Exercise |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts |
|
Number of |
|
Number of |
|
or Base |
|
of Stock |
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts |
|
Under Equity Incentive |
|
Shares of |
|
Securities |
|
Price of |
|
and |
|
|
|
|
|
|
Compensation |
|
Under Non-Equity Incentive Plan Awards |
|
Plan Awards |
|
Stock |
|
Underlying |
|
Option |
|
Option |
|
|
Grant |
|
Committee |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
or Units |
|
Options |
|
Awards |
|
Awards |
Name |
|
Date |
|
Approval Date |
|
($) |
|
($) |
|
($) |
|
(#) |
|
(#) |
|
(#) |
|
(#) |
|
(#) |
|
($/Sh) |
|
($)(1) |
F. Edwin Harbach (2) |
|
|
1/2/2008 |
|
|
|
12/31/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,985 |
|
|
|
24,652 |
|
|
|
138.00 |
|
|
$ |
3,951,906 |
|
David Hunter ( 3) |
|
|
3/13/2008 |
|
|
|
3/13/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,700 |
|
|
|
83.00 |
|
|
|
2,465,100 |
|
|
|
|
4/1/2008 |
|
|
|
3/13/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926 |
|
|
|
85.50 |
|
|
|
164,673 |
|
|
|
|
7/1/2008 |
|
|
|
3/13/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926 |
|
|
|
39.50 |
|
|
|
76,077 |
|
|
|
|
10/1/2008 |
|
|
|
3/13/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926 |
|
|
|
24.00 |
|
|
|
46,244 |
|
Kenneth A. Hiltz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eddie R. Munson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judy A. Ethell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eileen A. Kamerick |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurent C. Lutz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Please note that the securities listed in the above table and expected vesting schedules do not
take into account the Companys reorganization plan wherein it is contemplated that all outstanding
equity of the Company will be cancelled for no consideration. |
|
(1) |
|
Amounts reflected in the Grant Date Fair Value of Stock and Option
Awards column reflect the amount recognized for financial statement
purposes in 2008 in accordance with SFAS 123(R) for equity award
expense. These amounts reflect the Companys accounting expense for
these awards, and do not correspond to the actual value that may be
recognized by the named executive officers. Whether and to what extent
a named executive officer realizes value will depend on various
factors, including actual operating performance, stock price
fluctuations and the named executive officers continued employment.
For a discussion of the assumptions used by the Company in calculating
these amounts, see Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operation Accounting for
Stock-Based Compensation, and Note 13, Stock-Based Compensation, of
the Notes to Consolidated Financial Statements. |
|
(2) |
|
Mr. Harbach received a grant of 3,985 RSUs on January 2, 2008, and 996
RSUs vested on January 2, 2009 and 996 RSUs will vest on January 2 of
each of 2010 and 2011 and 997 RSUs will vest on January 2, 2010. Mr.
Harbach also received a grant of 24,652 options on January 2, 2008,
25% of which vested on January 2, 2009 and 25% of which will vest on
each of January 2, 2010, 2011 and 2012. |
|
(3) |
|
Mr. Hunter was granted (i) 29,700 options on March 13, 2008 at an
exercise price of $83.00 per share, 25% of which vest on each of March
13, 2009, 2010, 2011 and 2012, (ii) 1,926 options on April 1, 2008 at
an exercise price of $85.50 per share, 100% of which vested on
December 31, 2008, (iii) 1,926 options on July 1, 2008 at an exercise
price of $39.50 per share, 100% of which vested on December 31, 2008
and (iv) 1,926 options on October 2008 at an exercise price of $24.00
per share, 100% of which vested on December 31, 2008, in connection
with his employment arrangements. |
63
Outstanding Equity Awards at Fiscal Year-End (December 31, 2008)
The following table provides information regarding the value of all unexercised options and
unvested restricted stock units previously awarded to our named executive officers as of
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards(1) |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Equity |
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
Awards: |
|
Awards: |
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
Number of |
|
Market or |
|
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number of |
|
Shares or |
|
Unearned |
|
Payout Value of |
|
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Shares or |
|
Units of |
|
Shares, Units |
|
Unearned |
|
|
Underlying |
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
Units of |
|
Stock |
|
or Other |
|
Shares, Units or |
|
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Option |
|
Option |
|
Stock That |
|
That Have |
|
Rights That |
|
Other Rights |
|
|
Options(#) |
|
Options(#) |
|
Unearned |
|
Exercise |
|
Expiration |
|
Have Not |
|
Not |
|
Have Not |
|
That Have Not |
Name |
|
Exercisable |
|
Unexercisable |
|
Options(#) |
|
Price($) |
|
Date |
|
Vested(#) |
|
Vested($) |
|
Vested(#) |
|
Vested($) |
F. Edwin Harbach(2) |
|
|
|
|
|
|
24,652 |
|
|
|
|
|
|
$ |
138.00 |
|
|
|
1/2/2018 |
|
|
|
17,310 |
(2) |
|
$ |
16,027 |
|
|
|
|
|
|
$ |
|
|
David Hunter(3) |
|
|
|
|
|
|
29,700 |
|
|
|
|
|
|
|
83.00 |
|
|
|
3/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926 |
|
|
|
|
|
|
|
|
|
|
|
85.50 |
|
|
|
4/1/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926 |
|
|
|
|
|
|
|
|
|
|
|
39.50 |
|
|
|
7/1/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,926 |
|
|
|
|
|
|
|
|
|
|
|
24.00 |
|
|
|
10/1/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth A. Hiltz |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eddie R. Munson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Judy A. Ethell(4) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eileen A. Kamerick |
|
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|
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|
|
|
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|
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|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
Laurent C. Lutz(5) |
|
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|
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|
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|
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|
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|
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|
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|
|
* |
|
Please note that the securities listed in the above table and expected vesting schedules do not
take into account the Companys reorganization plan wherein it is contemplated that all outstanding
equity of the Company will be cancelled for no consideration. |
|
(1) |
|
Due to the terms of the PSUs and the fact that no determinations
regarding the vesting of PSUs can be made until December 31, 2009, PSU
awards are not included in this table. The Company determined the
performance-based metrics are not probable of achievement. |
|
(2) |
|
Mr. Harbach was granted 24,652 options to purchase common stock on
January 2, 2008, 6,163 options will vest on each of January 2, 2009,
2010, 2011 and 2012. Mr. Harbach received a grant of 17,766 RSUs on
January 8, 2007, of which 4,441 RSUs vested on January 8, 2008 and
4,442 RSUs vested on January 8, 2009 (but for the purposes of the
table above are not considered as exercisable as they did not vest
by December 31, 2008) and of which 4,441 RSUs will vest on January 8,
2010 and 4,442 RSUs will vest on January 8, 2011. In addition, Mr.
Harbach received a grant of 3,985 RSUs on January 2, 2008, and 996
RSUs vested on January 2, 2009 (but for the purposes of the table
above are not considered as exercisable as they did not vest by
December 31, 2008) and 996 RSUs will vest on January 2 of each of 2010
and 2011 and 997 RSUs will vest on January 2, 2010. For information
regarding these grants, see Footnote 1 to Grants of Plan-Based
Awards above. |
|
(3) |
|
Mr. Hunter was granted 29,700 options on March 13, 2008, 7,425 of
which vested on March 13, 2009 (but for the purposes of the table
above are not considered as exercisable as they did not vest by
December 31, 2008) and 7,425 of which will vest on March 13 of each of
2010, 2011 and 2012. Mr. Hunter was also granted 1,926 options on
each of April 1, 2008, July 1, 2008 and October 1, 2008, all of which
vested on December 31, 2008. For information regarding these grants,
see Footnote 1 to Grants of Plan-Based Awards above. |
|
(4) |
|
Pursuant to the Separation and Release of Claims Agreement, executed
by Ms. Ethell and the Company, all outstanding equity awards granted
to Ms. Ethell were accelerated. A total of 1,054 RSUs were
accelerated pursuant to the terms of such agreement on July 1, 2008.
Ms. Ethells stock options all expired as of October 31, 2008. |
|
(5) |
|
Upon Mr. Lutzs resignation from the Company, effective as of the
close of business on December 31, 2008, Mr. Lutz forfeit all
outstanding RSUs and PSUs that had been granted to him. |
64
Option Exercises and Stock Vested
The following table provides information regarding restricted stock units that vested during
2008 with respect to our named executive officers. No options were exercised in 2008.
|
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Option Awards |
|
Stock Awards |
|
|
Number of Shares |
|
|
|
Number of Shares |
|
|
|
|
Acquired on |
|
Value Realized |
|
Acquired on |
|
Value Realized |
Name |
|
Exercise(#) |
|
on Exercise($) |
|
Vesting(#) |
|
on Vesting($)(1) |
F. Edwin Harbach
|
|
|
|
$
|
|
|
4,441 |
|
|
$ |
557,346 |
|
David Hunter
|
|
|
|
|
|
|
5,778 |
|
|
|
7,800 |
|
Kenneth A. Hiltz
|
|
|
|
|
|
|
|
|
|
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|
|
Eddie R. Munson
|
|
|
|
|
|
|
|
|
|
|
|
|
Judy A. Ethell (2)
|
|
|
|
|
|
|
2,108 |
|
|
|
83,266 |
|
Eileen A. Kamerick
|
|
|
|
|
|
|
|
|
|
|
|
|
Laurent C. Lutz
|
|
|
|
|
|
|
732 |
|
|
|
988 |
|
|
|
|
(1) |
|
Amounts reflect the value of awards realized by the named executive
officer and are computed by multiplying the number of vested shares by
the closing price of the Companys stock on the date of vesting. |
|
(2) |
|
Effective as of July 31, 2008, all and options and RSUs granted in Ms.
Ethell employment agreements were accelerated pursuant to a separation
and release of claims agreement. |
Pension Benefits
Our only retirement plan for our U.S.-based associates, including our named executive
officers, is our 401(k) plan. We do not have a pension plan in which our named executive officers
are eligible to participate.
Nonqualified Deferred Compensation Plans
We have a Deferred Compensation Plan and a Managing Directors Deferred Compensation Plan,
which are designed to permit a select group of management and highly compensated employees who
contribute materially to our continued growth, development and future business success to
accumulate additional income for retirement and other personal financial goals through plans that
enable the participants to make elective deferrals of compensation to which they will become
entitled in the future. Our deferred compensation plans are nonqualified and unfunded, and
participants are unsecured general creditors of the Company with respect to their accounts. Our
managing directors, including our named executive officers, and other highly compensated executives
selected by the plans administrative committee are eligible to participate in the plans. To date,
none of our named executive officers have participated in any of our deferred compensation plans.
Employment Agreements
Managing Director Agreements. We have entered into a Managing Director Agreement (a Managing
Director Agreement) with each of our managing directors and named executive officers. Pursuant to
the Managing Director Agreement, we provide up to six months pay for certain terminations of
employment by us. In addition, the Managing Director Agreement contains non-competition and
non-solicitation provisions for a period of up to two years after such executives termination of
employment or resignation.
With respect to our named executive officers, we entered into the following employment
agreements. Generally, each of these arrangements provided for participation in all benefit, fringe
and perquisite plans, practices, programs, policies and arrangements generally provided to senior
executives of the Company at a level commensurate with the executives position.
Employment Agreement for F. Edwin Harbach. Effective December 31, 2007, we entered into the
following arrangements with Mr. Harbach, in connection with his promotion to Chief Executive
Officer. In establishing his new arrangements, as well as terminating or amending the agreements
previously executed with Mr. Harbach when he first joined the Company, we have endeavored to adjust
Mr. Harbachs compensation to reflect his new position as Chief Executive Officer and also to more
closely align most of the terms of his employment agreements with current standard terms utilized
in agreements with our other managing directors. Mr. Harbachs employment agreement provides for
the following:
65
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|
|
Termination of Prior Agreements. Effective as of December 31, 2007, Mr. Harbachs
previous employment agreement, Managing Director Agreement and Special Termination Agreement
were terminated. Mr. Harbachs annual base salary and bonus compensation for 2007 can be
found in the Summary Compensation Table above, and information regarding his equity awards
are included under Outstanding Equity Awards at Fiscal Year-End (December 31, 2007), in
each instance pursuant to his previous employment agreement. |
|
|
|
|
Compensation. Mr. Harbachs compensation for 2009 will be: |
|
|
|
Mr. Harbachs annual base salary for 2009 is $900,214. In addition, in 2009,
Mr. Harbach will be eligible for an annual performance bonus with a target amount of 100%
of his annual base salary for the year with respect to which the performance bonus is
being awarded, based on his ability to achieve all performance objectives as established
for the applicable year by the Committee. |
|
|
|
|
On January 2, 2008, Mr. Harbach received a grant of 3,986 RSUs and a grant of stock
options pursuant to the LTIP, with an exercise price of $138.00 per share, to purchase
24,652 shares of common stock of the Company. The RSUs and the stock options vest in equal
25% increments on each of the next four anniversary dates of such grant date, provided
that Mr. Harbachs employment has not terminated prior to such date. Furthermore, all of
the RSUs will vest upon the termination of Mr. Harbachs employment due to his death,
disability or retirement. |
|
|
|
|
Effective as of December 31, 2007, the terms of Mr. Harbachs prior RSU grant of
17,766 restricted stock units awarded to him in January 2007 was amended to provide that
in the event of a Change in Control (as defined in the LTIP), the RSUs will become 100%
vested and nonforfeitable effective as of the date of such Change in Control, provided
that Mr. Harbachs employment has not terminated prior to such date. This amendment
conforms the vesting of the RSUs upon a change in control to that contained in all other
RSU awards granted by the Company. Previously, the RSUs would have vested only upon (i) a
Change in Control and (ii) Mr. Harbachs termination by the Company for any reason other
than for cause within three years following a Change in Control. |
|
|
|
|
Living Expenses. Mr. Harbach will be reimbursed for monthly rental payments for his
current apartment lease in New York City. The Committee of the Board will review its
decision to provide this reimbursement at each lease renewal date, which is set to end in
September 2009. |
|
|
|
|
Indemnification. We agreed to indemnify Mr. Harbach with respect to his activities on
behalf of the Company to the fullest extent permitted by law and the Companys Articles of
Incorporation. |
|
|
|
|
Termination Payments. Mr. Harbach is entitled to certain termination payments under
his employment agreement, which are described below under Potential Payments upon
Termination of Employment or Change in Control. |
In addition, Mr. Harbach and the Company entered into a new Managing Director Agreement and
Special Termination Agreement, effective as of December 31, 2007.
|
|
|
Managing Director Agreement. Mr. Harbachs Managing Director Agreement is the standard
form currently utilized for all new managing directors of the Company. The Managing Director
Agreement contains non-competition and non-solicitation provisions that apply for a period
of two years after his termination or resignation. |
|
|
|
|
Special Termination Agreement. The term of Mr. Harbachs Special Termination Agreement is
three years (subject to potential one-year extensions) or, if longer, two years after a
Change in Control. If, after a Change in Control and during the term of the Special
Termination Agreement, the Company terminates Mr. Harbachs employment other than for Cause
or Disability (as defined in the Special Termination Agreement) or if he terminates his
employment within 60 days after any decrease of his base salary by 20% or more after such
Change in Control, Mr. Harbach is entitled to certain benefits, including the payment of
approximately one years compensation (based on salary plus potential bonus). |
Employment
Agreement for David R. Hunter. Please see Item 11. Rejection of
Employment Agreements with David R. Hunter above for
information regarding the rejection of certain of Mr. Hunter's
employment agreements. Effective as of March 13, 2008, we
had entered into the
following arrangements with Mr. Hunter:
66
|
|
|
Compensation. Mr. Hunters compensation for
2009 was: |
|
|
|
Mr. Hunters annual base salary for 2009 was $750,000. In addition, in 2009,
Mr. Hunter was eligible for an annual performance bonus with a target amount of 100%
of his annual base salary for the year with respect to which the performance bonus is
being awarded, based on his ability to achieve all performance objectives as established
for the applicable year by the Committee. |
|
|
|
|
The Company granted to Mr. Hunter the following stock options to purchase shares of
common stock of the Company pursuant to the Companys 2000 Long-Term Incentive Plan (the
LTIP): |
|
|
|
Effective as of March 13, 2008, Mr. Hunter was granted stock options to purchase
29,700 shares of common stock (accounting for the reverse stock split) of the Company,
with an exercise price of $83.66 per share. On March 13, 2009, 25% of these stock
options vested and the remainder will vest in equal 25% increments on each of the next
three anniversary dates of such grant date. |
|
|
|
|
In addition, as part of his 2008 compensation, on each of April 1, 2008, July 1,
2008 and October 1, 2008, Mr. Hunter was granted stock options to purchase 1,926, 1,926
and 1,926 shares of common stock (accounting for the reverse stock split) of the
Company, respectively, as he was an employee of the Company on such dates, with an
exercise price per share equal to the closing price of the Companys common stock on the
New York Stock Exchange on such grant dates. Each of these stock options vested on
December 31, 2008. |
|
|
|
All unvested stock options will vest as of the date of any Change in Control (as
defined in the LTIP). |
|
|
|
Benefits/Long-Term Incentives. Mr. Hunter was entitled to participate in all employee
benefit (including long-term incentive), fringe and perquisite plans, practices, programs,
policies and arrangements generally provided to executives of the Company at a level
commensurate with his position and location. |
|
|
|
|
Living Expenses. The Company agreed to provide reasonable living accommodations for
Mr. Hunter during extended stay periods at the Companys New York, New York location. In
addition, the Company agreed to reimburse Mr. Hunter for the reasonable travel expenses
of his spouse, up to four times per year, while Mr. Hunter is on Company business. |
|
|
|
|
Severance. Upon termination of Mr. Hunters employment by the Company other than Summary
Termination (as defined in Mr. Hunters Managing Director Agreement), and in lieu of any
amounts payable under Mr. Hunters Managing Director Agreement, the Company will pay to Mr.
Hunter, within 30 days after the Companys receipt of a fully executed release, a lump sum
cash payment in the amount of $1,500,000 USD. |
|
|
|
|
Indemnification. The Company agreed to indemnify Mr. Hunter with respect to his
activities on behalf of the Company to the fullest extent permitted by law and the Companys
Certificate of Incorporation. |
In addition, Mr. Hunter and the Company entered into a Managing Director Agreement and Special
Termination Agreement.
|
|
|
Managing Director Agreement. Effective as of March 13, 2008, the Company and Mr. Hunter
entered into a Managing Director Agreement that contains non-competition and
non-solicitation provisions for a period of two years after his termination or resignation. |
|
|
|
|
Special Termination Agreement. Effective as of March 13, 2008, the Company and Mr. Hunter
entered into a Special Termination Agreement. The term of the Special Termination Agreement
was three years (subject to potential one-year extensions) or, if longer, two years after a
Change in Control. If, after a Change in Control and during the term of the Special
Termination Agreement, the Company terminates Mr. Hunters employment other than as a
Summary Termination (as defined in the Managing Director Agreement) or for Disability (as
defined in the Special Termination Agreement) or if he terminates his employment within
60 days after any decrease of his base salary by 20% or more after such Change in Control,
Mr. Hunter is entitled to certain benefits, including a lump sum cash payment of $1,500,000
USD. |
Judy A. Ethell. As of May 13, 2008, Judy A. Ethell no longer held the positions of Chief
Financial Officer and Chief Accounting Officer; however, Ms. Ethell agreed to continue as an
employee until July 31, 2008 to assist with the transition to our new chief
67
financial officer. As of August 1, 2008, Ms. Ethell was no longer an employee of the Company.
We have entered into an Separation and Release of Claims Agreement dated as of May 12, 2008 with
Ms. Ethell that includes the terms set forth below. The terms of the agreement are in lieu of
certain applicable provisions of Ms. Ethells existing employment arrangements, including severance
payments and payment upon a change of control.
|
|
|
Lump Sum Payment. Ms. Ethell was scheduled to receive a payment in the amount of
$1,740,000 to be paid in a lump sum on or about February 1, 2009. This amount has not yet
been paid. We expect that Ms. Ethell will have a claim as an unsecured creditor with
respect to such payment and that she will file such claim with the Bankruptcy Court. |
|
|
|
|
Restricted Stock Units. On July 1, 2008, all of Ms. Ethells RSUs that were scheduled to
vest on July 1, 2009 vested. As such, as of July 31, 2008, all 7,720 RSUs granted in Ms.
Ethells two RSU agreements (taking into account the reverse stock split) had vested. |
|
|
|
|
Stock Options. On July 1, 2008, Ms. Ethells stock options that were scheduled to vest
on July 1, 2009 pursuant to the BearingPoint Stock Option Agreement and the terms of Ms.
Ethells September 19, 2006 Award Notice vested. |
|
|
|
|
Change of Control Payment. If we had experienced a change of control prior to January
31, 2009, we would have had to make a lump sum payment of $1,400,000 to Ms. Ethell. As no
such change of control occurred, Ms. Ethell did not receive any payments pursuant to this
provision. |
|
|
|
|
Release of Claims. In consideration of the above listed payments and actions, Ms. Ethell
has agreed to release us of all claims (other than those limited types of claims expressly
set forth in the agreement) related to her employment, including amounts potentially owed to
Ms. Ethell pursuant to her existing employment arrangements. |
Potential Payments upon Termination or Change of Control
Severance Payments under Managing Director Agreements. Under our Managing Director Agreements,
we provide up to six months pay for terminations of employment by us other than for cause, as
defined in the agreements. In addition, these agreements contain non-competition and
non-solicitation provisions that apply for a period of up to two years after such executives
termination of employment or resignation.
Severance Payments under Employment Agreements. Under our employment agreements with
Mr. Harbach and Mr. Hunter, we state that upon termination of the individuals employment by us
without cause (as defined in the agreements), within 30 days after our receipt of a fully
executed release, we will make a severance payment to the individual. These severance payments are
significantly higher than those that we would pay under our Managing Director Agreements.
Termination Payments under Special Termination Agreements. We have entered into special
termination agreements (each, a Special Termination Agreement) with certain key personnel. The
purpose of the Special Termination Agreement is to ensure that these executives are properly
protected in the event of a change in control of the Company, thereby enhancing our ability to hire
and retain them. The terms of the Special Termination Agreements vary up to a maximum of three
years, which terms automatically renew for additional one-year terms unless we give notice that the
agreement will not be renewed, or, if later, two years after a change in control. The protective
provisions of the Special Termination Agreement become operative only upon a change in control, as
defined in the agreement.
All Special Termination Agreements signed on or after August 1, 2006 specify that if, after a
change in control and during the term of the agreement, we terminate the executives employment
other than for cause (as defined in the agreements) or the executive terminates his employment
because his salary was reduced by at least 20%, the executive is entitled to certain benefits.
Generally, Special Termination Agreements signed before August 1, 2006 specify that if, after a
change in control and during the term of the agreement, we terminate the executives employment
other than for cause or if the executive terminates his employment for specified reasons
(including if his responsibilities have been materially reduced or adversely modified or his
compensation has been reduced), the executive is entitled to certain benefits. Under the Special
Termination Agreements, these benefits generally include the payment of approximately one years
compensation, based on salary plus bonus as specified in the agreement, continued coverage under
our welfare benefit plans (e.g., medical, life insurance and disability insurance) for up to two
years at no cost, and outplacement counseling.
68
Potential Payments
Upon Termination of Employment or Change-in-Control
as of December 31, 2008
The table below sets forth the potential payments that generally would have been payable to
each of our named executive officers as of December 31, 2008 if:
|
|
|
the named executive officers employment were terminated by us without Cause (as
defined in such named executive officers employment agreement) or by the named executive
officer for Good Reason (as defined in such named executive officers employment
agreement); and |
|
|
|
|
the named executive officers employment (a) were terminated by us within two years after
a Change in Control (as defined in such named executive officers Special Termination
Agreement) for any reason other than Cause (as defined in such named executive officers
Special Termination Agreement) or if the executive became permanently disabled or was unable
to work for a period of 180 consecutive days, (b) (i) were involuntarily terminated by us
(other than for Cause) or (ii) were terminated by the named executive officer following a
reduction or adverse change in the named executive officers duties or compensation, in each
case within six months prior to a Change in Control and in anticipation of a Change in
Control or (c) were terminated by the named executive officer during the term of the Special
Termination Agreement but after a Change in Control if one of the events specified in such
named executive officers Special Termination Agreement has occurred. |
|
|
|
|
|
|
|
|
|
|
|
Termination of |
|
Change in |
Name |
|
Employment(1)(2) |
|
Control(2)(3) |
F. Edwin Harbach |
|
$ |
3,739,198 |
(4) |
|
|
1,841,392 |
(5) |
David R. Hunter |
|
|
1,536,812 |
(6) |
|
|
2,070,591 |
(7) |
|
|
|
* |
|
The Company has not provided information regarding Ms. Kamerick as she
is no longer an employee of the Company and was not paid any
termination fees upon her resignation as Chief Financial Officer.
Upon Ms. Kamericks resignation, all her employment arrangements were
terminated, including the Managing Director Agreement and Special
Termination Agreement. Mr. Munson is no longer acting as Chief
Financial Officer of the Company and was not a party to any employment
or change of control agreements and, as such, would not receive any
amounts upon his termination of employment or upon a change of control
of the Company. Mr. Hiltz is also not a party to any employment or
change of control agreements and therefore will not receive any
amounts upon a termination of employment or a change of control of the
Company. Mr. Lutz did not receive any additional compensation upon
his resignation of employment, effective as of the close of business
on December 31, 2008. Ms. Ethell executed a Separation and Release of
Claims Agreement on May 12, 2008. For more information about payments
made to Ms. Ethell, please see Employment Agreements - Judy Ethell
and Footnote 7 to the Summary Compensation Table above. |
|
(1) |
|
Amounts set forth in the table for Messrs. Harbach and Hunter reflect
the severance payments payable under their respective employment
agreements. If Messrs. Harbach and Hunters employment is not
terminated (i) by us without Cause (as defined in such named
executive officers employment agreement) or (ii) by the named
executive officer for Good Reason (as defined in such named
executive officers employment agreement), then such named executive
officer may still be eligible to receive payments representing earned
but unpaid salary and bonus amounts, any unpaid accrued personal days
or unreimbursed business expenses and any other amounts due under the
Companys benefit plans. If Messrs. Harbach and Hunter does not
qualify for payment under any of the provisions of their respective
employment agreements, they may be eligible to receive severance
payments under their respective Managing Director Agreements if their
employment is terminated other than for Cause (as defined in the
respective Managing Director Agreement) or for no reason. In Mr.
Harbachs case, such payment would generally consist of all earned and
unpaid base salary plus a payment equal to three months pay at his
current base salary. In the case of Mr. Hunter, under his agreement,
he would be only be entitled to all earned and unpaid base salary and
any accrued but untaken annual leave. Amounts payable under the
Managing Director Agreements for Messrs. Harbach and Hunter as of
December 31, 2008 would have been $225,054 and $36,812, respectively. |
|
(2) |
|
The dollar amounts in the table with respect to RSUs and PSUs that
accelerate upon a termination, Change in Control or other triggering
event assume a $1.35 per share price for our common stock (the closing
price on December 31, 2008). |
|
(3) |
|
Amounts set forth in the table for Messrs. Harbach and Hunter reflect
the termination payments payable governed under their respective
Special Termination Agreements upon a Change of Control (as defined in
such agreements). Even if Messrs. Harbach or Hunter is not eligible to
receive the payments set forth in the table above upon a change in
control (as defined in the Special Termination Agreements), all
unvested options and RSUs held will immediately vest upon the
occurrence of a Change of Control |
69
|
|
|
|
|
(as defined under the LTIP) pursuant
to such named executive officers employment agreement. In addition,
the Change of Control provisions under the LTIP generally provide that
any unvested portion of stock option grants and RSUs will vest upon
the occurrence of a Change of Control (as defined in the LTIP). See
Change of Control Provisions Under the LTIP below. Furthermore, if
such named executive officer is not eligible to receive the payments
and other benefits specified in his or her Special Termination
Agreement upon a change in control, such named executive officer may
be eligible to receive the payments payable upon termination of
employment under such individuals employment agreement, as specified
in this table and the related footnotes. |
|
(4) |
|
Under Mr. Harbachs employment agreement in effect as of December 31,
2008, Mr. Harbach would have been entitled to the following:
(i) payment equal to two times the sum of his (A) annual base salary
($900,214) and (B) bonus compensation of $900,214, (ii) payment of
accrued and unused personal days ($116,461), (iii) payment of premiums
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended for a period of 18 months after termination ($14,540), and
(iv) the vesting of an additional 5,438 RSUs that would have vested
within the first anniversary of the termination date ($7,341). |
|
(5) |
|
Under Mr. Harbachs Special Termination Agreement in effect as of
December 31, 2008, Mr. Harbach would have been entitled to the
following: (i) payment equal to the sum of his (A) annual base salary
in 2008 ($900,214) and (B) bonus compensation of $900,214, (ii) for a
period of 2 years after his termination, continuation of medical,
dental, life insurance, disability, accidental death and dismemberment
benefits and other welfare benefits, subject to certain exceptions
($17,595), (iii) pursuant to the terms of Mr. Harbachs RSU grant, in
the event of a Change in Control, the vesting of all unvested RSUs (an
additional 17,310 RSUs valued at $23,369), (iv) reimbursement for
outplacement services and (v) payment of any earned but unpaid salary,
bonus or incentive compensation. |
|
(6) |
|
Under Mr. Hunters employment agreement, Mr. Hunter would have been
entitled to (i) payment equal to the sum of $1,500,000, (ii) payment
of accrued and unused personal days ($36,812), and (iii) the vesting
of an additional 35,478 options that would have vested within the
first anniversary of the termination date ($0). |
|
(7) |
|
Under Mr. Hunters Special Termination Agreement, Mr. Hunter would
have been entitled to the following: (i) payment equal to the sum of
$1,500,000, (ii) for a period of 2 years after his termination,
continuation of medical, dental, life insurance, disability,
accidental death and dismemberment benefits and other welfare
benefits, subject to certain exceptions ($17,595), (iii) pursuant to
the terms of Mr. Hunters option grant, in the event of a Change in
Control, the vesting of all unvested options (an additional 35,478
options valued at $0), (iv) reimbursement for outplacement services,
(v) payment of any earned but unpaid salary, bonus or incentive
compensation and (vi) an additional tax gross-up payment of
$552,996. |
Change of Control Provisions Under the LTIP. In addition to the provisions in the agreements
referred to above, in the event of certain Changes of Control of the Company, any non-vested
portion of stock option grants, RSUs and other awards made under the LTIP will generally vest, and
any contractual transfer restrictions on restricted stock or other shares issued upon the
settlement of RSUs will be released except under the PSU awards. If such a Change of Control were
to occur, all stock options not yet exercisable, including those of our named executive officers
set forth in the table captioned Outstanding Equity Awards at Fiscal Year-End (December 31, 2008)
would vest. Upon a Change of Control, for PSU awards, the growth target in CBUC will be waived and
the acquiring company may (i) substitute the PSUs for the right to receive the acquiring companys
stock with the same vesting and settlement schedule, (ii) accelerate and settle in cash the ratable
number of PSUs that would vest through the date of Change in Control and replace the remaining PSUs
with a cash incentive bonus program that provides for an opportunity to earn up to the value of the
remaining PSUs, or (iii) if neither of the above options is selected, then the PSUs will vest and
settle and be payable within 10 days of the Change of Control. No PSUs were ever granted to
Messrs. Harbach and Hunter.
Managing Director Compensation Plan
In January 2006, the Committee approved and authorized the development of our MD Compensation
Plan. The MD Compensation Plan was designed to be a comprehensive cash and equity-based
compensation program for the managing directors of the Company and was intended to replace the
previous cash-based compensation program for such individuals. Generally, all managing directors,
including our named executive officers, are eligible to participate in the MD Compensation Plan.
The primary goal of the MD Compensation Plan is to align the compensation of our managing directors
with those of our stockholders, and the plan is designed to offer transparency into the Companys
executive compensation program, align Company performance and individual performance, provide a
fair and objective basis for assessing performance, link managing director roles and
responsibilities to the Companys business objectives, and enhance the accountability of the
Companys executives. Under the MD Compensation Plan, a managing directors compensation may
include the following components: (i) RSUs; (ii) target compensation (which may be cash or equity);
(iii) performance compensation; and (iv) additional breakthrough awards.
70
For 2006 and 2007, our MD Compensation Plan was not fully activated because we were not
current in the filing of our SEC periodic reports. Even though the target levels of profitability
under the MD Compensation Plan were not achieved in either year, we decided to pay
performance-based cash bonuses for retention purposes and because we were able to sustain our
underlying operations and our core business continued to perform, despite the issues we continue to
face with respect to our financial accounting systems and efforts to become timely in our SEC
periodic reports.
In 2007, upon the recommendation of our Chief Executive Officer, the Compensation Committee of
our Board agreed, for 2008, not to activate the provision of our MD Compensation Plan that provides
for 20% of a managing directors salary to be paid two fiscal quarters after the compensation has
been earned, as determined by the Companys performance.
Director Compensation
Non-employee directors, those who are not employed by us on a full-time or other basis,
receive compensation for their service on our Board. The goals for non-employee director
compensation are to fairly pay directors for their service, to align directors interests with the
long-term interests of our stockholders and to have a structure that is transparent. An employee
director receives no additional compensation for their service on the Board.
In 2008, non-employee director compensation included the following elements:
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an annual fee of $40,000; |
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a meeting fee of $2,000 for attendance in person at any meeting of the Board or a
committee of the Board and $1,000 for attendance by telephone (members of the Audit
Committee are paid $2,000 for attendance at any Audit Committee meeting, whether they
attended in person or by telephone); |
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a fee of $40,00 to each of Messrs. Lord and McGeary and a fee of $50,000 to Mr. Strange
for their participation in a Special Committee of the Board; |
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a grant of stock options to purchase up to 300 shares of common stock upon initial
election to the Board; and |
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a grant of stock options to purchase up to 100 shares of common stock upon initial
election as the Chair of the Audit Committee. |
Under the 2000 Amended and Restated LTIP, automatic grants of restricted stock awards ceased
as of January 1, 2007. The Company may, in its discretion, provide discretionary grants. The
Committee did not grant any shares of restricted common stock or stock options to any non-employee
director for service performed in 2008.
On December 31, 2007, Roderick McGeary, Chairman of the Board, retired as an employee of the
Company. On January 1, 2008, the Compensation Committee of the Board approved an annual fee of
$150,000 payable to Mr. McGeary, as compensation for his ongoing services as Chairman of the Board.
This fee is in addition to the $40,000 annual fee payable to the Companys non-employee directors.
In January 2008, the Nominating and Corporate Governance Committee of the Board performed a
review of our non-employee director compensation policy and determined not to make any changes to
non-employee director compensation for 2008, although it agreed to consider re-addressing the
policy later in the year.
Eddie R. Munson, a director and former member of the Audit Committee, agreed to serve as our
Chief Financial Officer, effective as of June 4, 2008, on an interim basis. Effective November 11,
2008, the Company appointed Kenneth A. Hiltz as Chief Financial Officer and Mr. Munson resumed his
service on the Audit Committee. Effective July 15, 2008, Spencer Fleischer resigned from our
Board. Effective as of January 1, 2009, Frederic F. Brace was appointed to the Board as a Class
III Director.
71
2008 Director Compensation Table
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Fees Earned |
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or Paid |
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in Cash |
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Stock Awards |
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Option Awards |
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Total |
Name* |
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($)(1) |
|
($)(5) |
|
($)(5)(6) |
|
($) |
Douglas C. Allred |
|
$ |
88,000 |
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$ |
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$ |
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$ |
88,000 |
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Betsy J. Bernard |
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86,000 |
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86,000 |
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Frederic F. Brace(2) |
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Jill S. Kanin-Lovers |
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88,000 |
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88,000 |
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Wolfgang H. Kemna |
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81,000 |
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81,000 |
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Albert L. Lord |
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125,000 |
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125,000 |
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Roderick C. McGeary(3) |
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261,000 |
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261,000 |
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Eddie R. Munson |
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77,000 |
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77,000 |
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J. Terry Strange |
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151,000 |
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151,000 |
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Spencer C. Fleischer(4) |
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69,000 |
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69,000 |
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* |
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For information regarding the current composition of our
Board, please see Item 10 Reduction in Size of
Board of Directors above. |
(1) |
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Unless otherwise noted, Fees Earned or Paid in Cash amounts consist of amounts paid for Board service rendered in 2008. |
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(2) |
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Effective as of January 1, 2009, Frederic F. Brace was appointed to the Board as a Class III Director and, as such,
received no compensation for service in 2008. |
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(3) |
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On January 1, 2008, the Compensation Committee of the Board approved an annual fee of $150,000 payable to Mr. McGeary,
as compensation for his ongoing services as Chairman of the Board. This fee is in addition to the $40,000 annual fee
payable to the Companys non-employee directors. |
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(4) |
|
Mr. Fleischer resigned from the Board effective July 15, 2008. |
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(5) |
|
No awards of stock or options were granted to the directors for their service on the Board in 2008. |
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(6) |
|
Outstanding equity awards for each non-employee director is as follows (for a complete description of the beneficial
ownership by our directors, see Security Ownership of Certain Beneficial Owners and Management): |
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|
Outstanding |
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Outstanding |
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Stock Awards at |
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Option Awards at |
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December 31, |
|
December 31, |
Name |
|
2008(1) |
|
2008 |
Douglas C. Allred |
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|
880 |
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|
300 |
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Betsy J. Bernard |
|
|
640 |
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|
300 |
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Frederic F. Brace(2) |
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Jill S. Kanin-Lovers |
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160 |
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|
300 |
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Wolfgang H. Kemna |
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|
880 |
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|
300 |
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Albert L. Lord |
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|
800 |
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|
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300 |
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Roderick C. McGeary(3) |
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4,230 |
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9,458 |
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Eddie R. Munson |
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160 |
|
|
|
300 |
|
J. Terry Strange |
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|
800 |
|
|
|
400 |
|
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(1) |
|
No awards of stock or options were granted to the directors for their service on the Board in 2008. |
|
(2) |
|
Effective as of January 1, 2009, Frederic F. Brace was appointed to the Board as a Class III
Director and as part of his appointment received 300 option awards. |
|
(3) |
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Mr. McGearys outstanding stock awards consist of (i) 2,430 Founders shares, (ii) 600 shares due
to purchases on December 5, 2007, (iii) 101 shares due to a settlement of 147 RSUs on December 12,
2007, subtracting 46 for net share delivery, (iv) 398 shares due to a settlement of 583 RSUs on
July 1, 2008, subtracting 185 for net share delivery, (v) 301 shares due to a settlement of 441
RSUs on July 1, 2008, subtracting 140 for net share delivery and (vi) 400 shares of restricted
stock issued to Mr. McGeary for his service on the Board. Mr. McGearys outstanding option awards
consist of (i) 158 options, granted on June 30, 2000, at an exercise price of $2,775.50 per share,
all of which vested on June 30, 2001, (ii) 300 options, granted on April 24, 2001, at an exercise
price of $819.00 per share, all of which vested on April 24, 2002, and (iii) 9,000 options,
granted on November 19, 2004, at an exercise price of $450.00 per share, 50% of which vested on
March 21, 2005 and 50% of which vested on March 21, 2006. |
72
We also reimburse directors for reasonable travel expenses related to attending a Board,
Committee or other Company-related business meetings, and provide liability insurance for our
directors and officers.
73
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ITEM 12. |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Beneficial Ownership of More Than Five Percent
The following table sets forth the only persons known by us, as of May 1, 2009, to be
beneficial owners or more than five percent of our common stock.
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Common Stock |
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Percentage of |
Name and Address of 5% Holders of Common Stock |
|
Number of Shares |
|
Shares Outstanding |
Glenview Capital Management, LLC(1) |
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606,681 |
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13.7 |
% |
767 Fifth Avenue, 44th Floor
New York, NY 10153 |
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Ariel Investments, LLC (2) |
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522,482 |
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11.8 |
% |
200 E. Randolph Drive, Suite 2900
Chicago, IL 60601 |
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Silver Point Capital, L.P.(3) |
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399,977 |
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9.1 |
% |
Two Greenwich Plaza
Greenwich, CT 06830 |
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Thornburg Investment Management, Inc.(4) |
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360,068 |
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8.2 |
% |
119 E. Marcy Street
Santa Fe, NM 87501 |
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Tracer Capital Management L.P.(5) |
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316,986 |
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7.2 |
% |
540 Madison Avenue, 33rd Floor
New York, NY 10022 |
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Whitebox Advisors, LLC(6) |
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278,213 |
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6.3 |
% |
3033 Excelsior Boulevard, Suite 300
Minneapolis, MN 55416 |
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Franklin Resources, Inc.(7) |
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248,707 |
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5.6 |
% |
One Franklin Parkway
San Mateo, CA 94403-1906 |
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(1) |
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Represents shares beneficially held by Glenview Capital Management,
LLC (Glenview) and Lawrence M. Robbins, as reported on a Schedule
13G/A filed on February 17, 2009. Glenview serves as investment
manager to various entities and Mr. Robbins is the Chief Executive
Officer of Glenview. As such, each of Glenview and Mr. Robbins may
be deemed to have shared voting power and shared dispositive power
with respect to all 606,681 of such shares, of which 115,103 shares
are issuable upon conversion of certain convertible debentures of
the Company. |
|
(2) |
|
Represents shares beneficially held by Ariel Investments, LLC
(Ariel), as reported on a Schedule 13G/A filed on June 10, 2008.
Ariel has sole voting power with respect to 198,323 of such shares
and sole dispositive power with respect to all 522,482 of such
shares. These shares are beneficially owned by investment advisory
clients of Ariel. |
|
(3) |
|
Represents shares beneficially held by Silver Point Capital, L.P.
(Silver Point), Mr. Edward A. Mulé and Mr. Robert J. OShea, as
reported on a Schedule 13G/A on February 17, 2009. Silver Point
serves as investment manager t various entities and Messrs. Mulé and
OShea are members of Silver Point Capital Management, LLC, the
general partner of Silver Point. As such, Silver Point may be
deemed to have sole voting and dispositive power over all 399,977
shares and Messrs. Mulé and OShea may be deemed to have shared
voting and dispositive power over all 399,977 shares. |
|
(4) |
|
Represents shares beneficially held by Thornburg Investment
Management, Inc. (Thornburg), as reported on a Schedule 13G/A
filed on April 19, 2007. Thornburg has sole voting power with
respect to 220,162 of such shares and sole dispositive power with
respect to all 360,068 of such shares. These shares are beneficially
owned by investment advisory clients of Thornburg. |
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(5) |
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Represents shares beneficially held by Tracer Capital Management
L.P. (Tracer), Riley McCormack and Matt Hastings, as reported on a
Schedule 13G/A filed on February 17, 2009. Tracer serves as an
investment manager to various entities. Mr. McCormack and Mr.
Hastings are the sole limited partners of Tracer. As such, each of
Tracer, Mr. McCormack and Mr. Hastings may be deemed to have shared
voting power and shared dispositive power with respect to all
316,986 of such shares. |
74
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(6) |
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Represents shares beneficially held by Whitebox Advisors, LLC
(Whitebox) and its various related entities, as reported on a
Schedule 13G filed on February 25, 2009. Whitebox serves as
investment manager to various entities and as such may be deemed to
have shared voting power and shared dispositive power with respect
to all of such shares, all of which are issuable upon the
conversion of certain convertible debentures of the Company. |
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(7) |
|
Represents shares beneficially held by Franklin Resources, Inc.
(FRI), Charles B. Johnson, Rupert H. Johnson, Jr. and Franklin
Templeton Investments Corp. (Franklin Templeton), as reported on a
Schedule 13G/A filed on February 6, 2009. The shares are
beneficially owned by one or more open or closed end investment
companies or other managed accounts that are investment management
clients of investment managers that are direct and indirect
subsidiaries of FRI. Mr. Charles Johnson and Mr. Rupert Johnson are
the principal stockholders of FRI. As reported on the Schedule
13G/A, Franklin Templeton has sole voting and dispositive power with
respect to 248,707 of such shares. The address for Franklin
Templeton is 200 King Street W, Suite 1500, Toronto, ON, Canada M5H
3T4. |
75
Security Ownership of Directors and Executive Officers
The following
table sets forth, as of May 1, 2009, information regarding the beneficial
ownership of our common stock held by (i) each of our directors,
including those directors who voluntarily resigned effective
June 1, 2009, and named executive officers and
(ii) all of our directors and executive officers as a group. To our knowledge, except as otherwise
indicated, each of the persons or entities listed below has sole voting and investment power with
respect to the shares beneficially owned by him or her. Beneficial ownership is determined in
accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons
is deemed to have beneficial ownership of any shares that he or she has the right to acquire
within 60 days of May 1, 2009. Any shares that a person has the right to acquire within 60 days of
May 1, 2009 are deemed to be outstanding but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person.
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Common Stock |
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Percentage of |
Name and Address (1) |
|
Number of Shares |
|
Shares Outstanding |
F. Edwin Harbach (2) |
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16,042 |
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|
* |
|
David R. Hunter(3) |
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13,203 |
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|
|
* |
|
Kenneth A. Hiltz |
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|
|
|
|
|
* |
|
Douglas C. Allred(4) |
|
|
1,180 |
|
|
|
* |
|
Betsy J. Bernard(5) |
|
|
940 |
|
|
|
* |
|
Frederic F. Brace(6) |
|
|
|
|
|
|
* |
|
Jill S. Kanin-Lovers(7) |
|
|
460 |
|
|
|
* |
|
Wolfgang H. Kemna(8) |
|
|
1,180 |
|
|
|
* |
|
Albert L. Lord (9) |
|
|
1,332 |
|
|
|
* |
|
Roderick C. McGeary(10) |
|
|
13,688 |
|
|
|
* |
|
Eddie R. Munson (11) |
|
|
460 |
|
|
|
* |
|
J. Terry Strange(12) |
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|
1,300 |
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|
|
* |
|
All current executive officers and directors as a group (12 persons) |
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49,785 |
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|
* |
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* |
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Less than 1% of our common stock outstanding. |
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(1) |
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The address for all persons listed is c/o BearingPoint, Inc., 100 Crescent Court, Suite 700, Dallas, Texas 75201. |
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(2) |
|
Includes 6,163 shares of common stock that may be acquired through the exercise of stock options. |
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(3) |
|
Includes 13,203 shares of common stock that may be acquired through the exercise of stock options. |
|
(4) |
|
Includes 300 shares of common stock that may be acquired through the exercise of stock options. |
|
(5) |
|
Includes 300 shares of common stock that may be acquired through the exercise of stock options. |
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(6) |
|
Effective as of January 1, 2009, Frederic F. Brace was appointed to the Board a Class III Director. Mr. Brace
was granted 300 shares of common stock that may be acquired through the exercise of stock options, however, such
options will not vest until January 1, 2010. |
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(7) |
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Includes 300 shares of common stock that may be acquired through the exercise of stock options. |
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(8) |
|
Includes 300 shares of common stock that may be acquired through the exercise of stock options. |
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(9) |
|
Includes 300 shares of common stock that may be acquired through the exercise of stock options. |
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(10) |
|
Includes 9,458 shares of common stock that may be acquired through the exercise of stock options. |
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(11) |
|
Includes 300 shares of common stock that may be acquired through the exercise of stock options. |
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(12) |
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Includes 400 shares of common stock that may be acquired through the exercise of stock options. |
76
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ITEM 13. |
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Related Party Transaction Policies
Prior
to the reduction of the size of our Board on June 1, 2009, the
Audit Committee of our Board had, and our Board currently has, the primary responsibility for reviewing, approving or
ratifying any related party transactions, which include certain transactions that we may enter into
with our directors or executive officers (or their immediate family members), or certain
shareholders of the Company. Our legal department assisted the Audit
Committee and will assist the Board in implementing
procedures and processes to obtain information regarding any such related party transactions,
including information obtained from our directors and officers
through annual questionnaires. Prior to the reduction of the size of
our Board on June 1, 2009, the
Audit Committee made, and our Board currently makes, all decisions with respect to whether a transaction meets the criteria of a
related party transaction.
Related Transactions
Friedman Fleischer & Lowe, LLC /Spencer C. Fleischer
On July 15, 2005, we issued $40,000,000 aggregate principal amount of our July 2005
Convertible Debentures and common stock warrants to purchase up to 3,500,000 shares of our common
stock pursuant to a securities purchase agreement, dated July 15, 2005 (the FF&L Purchase
Agreement), among the Company and certain affiliates of Friedman Fleischer & Lowe, LLC (the FF&L
Purchasers). In accordance with the terms of the FF&L Purchase Agreement, Mr. Spencer C. Fleischer
was appointed to our Board as a Class I Director, effective July 15, 2005. Mr. Fleischer is a
senior managing member and Vice Chairman of Friedman Fleischer & Lowe GP II, LLC, the general
partner of Friedman Fleischer & Lowe GP II, LP, which is the general partner of several investment
funds that make investments in private and public companies in the United States and Bermuda; he
has served in this capacity since 1998. Mr. Fleischer resigned from the Board effective July 15,
2008. Under the terms of the FF&L Purchase Agreement, if Mr. Fleischer ceases to be affiliated with
the FF&L Purchasers or ceases to serve on the Board, so long as the FF&L Purchasers together hold
at least 40% of the original principal amount of the July 2005 Senior Debentures, the FF&L
Purchasers or their designees have the right to designate a replacement director to our Board. The
FF&L Purchasers have informed the Company that they have no current intention of exercising their
right to appoint a replacement director to the Board at this time. In connection with the
Supplemental Indentures entered into for the Subordinated Debentures and the April 2005 Convertible
Debentures and the payment of a consent fee to the holders of the April 2005 Convertible Debentures
equal to 1.00% of the outstanding principal amount of the April 2005 Convertible Debentures on
November 9, 2006 and an additional consent fee of 0.25% on October 27, 2007, we paid to the holders
of the July 2005 Convertible Debentures an amount equal to 1.00% of the outstanding principal
amount of the July 2005 Convertible Debentures and an additional 0.25%, respectively.
AlixPartners
In September of 2008, the Company signed an Agreement for Interim Management Services with
AlixPartners, LLP, an internationally recognized business and financial advisory firm to assist the
Company in developing its 2009 plan, participate in its upcoming discussions to restructure its
indebtedness and lead a number of key cash management initiatives. Effective November 11, 2008, the
Company appointed Kenneth A. Hiltz, a managing director of AlixPartners, LLP, as the Companys
Chief Financial Officer. On February 5, 2009, the Company entered into an Interim Management and
Restructuring Services Agreement with AP Services, LLC, an affiliate of AlixPartners, LLP for the
engagement of AP Services to provide certain temporary employees to the Company to assist it in its
restructuring. This agreement was approved by the Bankruptcy Court and replaced in its entirety
the agreement between AlixPartners, LLP and the Company. The Company pays AP Services a fee based
on an hourly rate for time worked by Mr. Hiltz and pays or reimburses AP Services for reasonable
out-of-pocket expenses. In addition, pursuant to the Interim Management and Restructuring Services
Agreement with AP Services, AP Services is entitled to a fee of $4,500,000 upon the consummation of
certain transactions. The Company believes that upon the consummation of the Sale Transactions,
AP Services will be entitled to the payment of such fee. Mr. Hiltz is a temporary employee of the
Company, receives no compensation directly from the Company and does not participate in the
Companys employee benefit plans. As of March 31, 2009, the Company has paid AlixPartners and AP
Services a cumulative total of $5,632,062 and has an outstanding payable balance of $1,950,000 for
all financial advisory services provided by the firm, including for Mr. Hiltzs services. In
addition, AlixPartners was paid a retainer of $1,000,000 on October 1, 2008, which was transferred
to AP Services on February 5, 2009.
77
Director Independence
The Board has reviewed each directors independence. As a result of this review, the Board
affirmatively determined that each of Messrs. Brace and Munson has no material relationship with the Company (either directly or as
a partner, shareholder or officer of an organization that has a relationship with the Company).
Mr. Harbach is an employee of the Company and,
while Mr. McGeary resigned as an employee of the Company as of December 31, 2007, he is not
considered an independent director due to his recent employment
with the Company.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Pre-Approval Policies
Prior
to the reduction of the size of our Board on June 1, 2009, the Audit Committee adopted policies and procedures for approving all audit and
permissible non-audit services performed by our independent auditors. Consistent with these
policies, all engagements of the independent auditor to perform any audit services and non-audit
services were pre-approved by the Audit Committee. No services provided by our independent
auditor were approved by the Audit Committee pursuant to the de minimis exception to the
pre-approval requirement set forth in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Independent Registered Public Accountants Fees
For fiscal years 2008 and 2007, our independent registered public accountants, Ernst & Young
LLP, billed us the fees and expenses set forth below
in connection with services rendered:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31, |
|
Type of Fee |
|
2008 |
|
|
2007 |
|
Audit Fees(1) |
|
$ |
24,875,000 |
|
|
$ |
31,595,000 |
|
Audit-Related Fees(2) |
|
|
1,200,000 |
|
|
|
805,000 |
|
Tax Fees(3) |
|
|
1,700,000 |
|
|
|
449,000 |
|
All Other Fees(4) |
|
|
20,000 |
|
|
|
2,187,000 |
|
|
|
|
|
|
|
|
Total |
|
$ |
27,795,000 |
|
|
$ |
35,036,000 |
|
|
|
|
|
|
|
|
|
|
|
(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 and other consultations. |
78
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) The financial statements of the Company required in response to this Item are
incorporated by reference from Item 8 of this Report.
(a)(3) See the exhibits listed below under Item 15(b).
(b) Exhibit Index
|
|
|
Exhibit No. |
|
Description |
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation, dated as of February 7, 2001, which is incorporated
herein by reference to Exhibit 3.1 from the Companys Form 10-Q for the quarter ended March 31, 2001. |
|
|
|
3.2
|
|
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 Companys Form 10-Q for the quarter ended
September 30, 2002. |
|
|
|
3.3
|
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated as of December 10,
2008, which is incorporated herein by reference to Exhibit 3.1 from the Companys Form 8-K filed with the
SEC on December 10, 2008. |
|
|
|
3.4
|
|
Amended and Restated Bylaws, amended and restated as of December 5, 2008, which is incorporated herein by
reference to Exhibit 3.1 from the Companys Form 8-K filed with the SEC on December 5, 2008. |
|
|
|
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 Companys 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 A to Exhibit 1.1 from the Companys 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 Companys Form 8-K filed on September 6, 2002. |
|
|
|
4.4
|
|
Second Amendment to the Rights Agreement, dated as of October 27, 2007, between the Company and
Computershare Trust Company, N.A. (formerly EquiServe Trust Company, N.A.), which is incorporated herein by
reference to Exhibit 4.4 from the Companys Form 10-Q for the quarter ended June 30, 2007. |
|
|
|
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 Companys Form 10-Q
for the quarter ended 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 Companys Form 10-Q for the
quarter ended March 31, 2001. |
|
|
|
10.3
|
|
Stock Purchase Agreement dated as of December 29, 1999, among Cisco Systems, Inc., KPMG LLP and the
Company, which is incorporated herein by reference to Exhibit 10.11 from the Companys Form S-1.
(Registration No. 333-36328) (referred to below as the Companys Form S-1). |
|
|
|
10.4
|
|
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 Companys Form S-1. |
|
|
|
10.5
|
|
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 Companys Form S-1/A (Registration No.
333-100199). |
|
|
|
10.6
|
|
Credit Agreement dated as of May 18, 2007, as amended and restated on June 1, 2007, among the Company,
BearingPoint, LLC, the guarantors party thereto, the lenders party thereto, UBS Securities LLC, Morgan
Stanley Senior |
79
|
|
|
Exhibit No. |
|
Description |
|
|
|
|
|
Funding, Inc., UBS AG, Stamford Branch and Wells Fargo Foothill, LLC, which is incorporated
herein by reference to Exhibit 10.6 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.7
|
|
Security Agreement dated as of May 18, 2007, among the Company, BearingPoint, LLC, the guarantors party
thereto and UBS AG, Stamford Branch, as Collateral Agent, which is incorporated herein by reference to
Exhibit 10.7 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.8
|
|
Form of Term Note under the Credit Agreement dated as of May 18, 2007, which is incorporated herein by
reference to Exhibit 10.8 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.9
|
|
Form of 2.50% Series A Convertible Subordinated Debentures due 2024, which is incorporated by reference to
Exhibit 10.66 from the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.10
|
|
Form of 2.75% Series B Convertible Subordinated Debentures due 2024, which is incorporated by reference to
Exhibit 10.67 from the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.11
|
|
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 Companys Form 10-K for the year
ended December 31, 2004. |
|
|
|
10.12
|
|
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 Companys Form 8-K filed on March 10, 2006. |
|
|
|
10.13
|
|
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 Companys Form 8-K filed on November 8, 2006. |
|
|
|
10.14
|
|
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 Companys Form 10-K for the year
ended December 31, 2004. |
|
|
|
10.15
|
|
Form of 5.00% Convertible Senior Subordinated Debentures due 2025, which is incorporated by reference to
Exhibit 10.71 from the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.16
|
|
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 Companys Form 10-K for the year
ended December 31, 2004. |
|
|
|
10.17
|
|
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 99.2 from the Companys Form 8-K filed on March 10, 2006. |
|
|
|
10.18
|
|
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, which is incorporated by reference to
Exhibit 99.2 from the Companys Form 8-K filed on November 3, 2006. |
|
|
|
10.19
|
|
Registration Rights Agreement, dated April 27, 2005, between the Company and the placement agents named
therein, which is incorporated by reference to Exhibit 10.74 from the Companys Form 10-K for the year
ended December 31, 2004. |
|
|
|
10.20
|
|
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 Companys Form 10-K for
the year ended December 31, 2004. |
|
|
|
10.21
|
|
Form of 0.50% Convertible Senior Subordinated Debentures due July 2010, which is incorporated by reference
to Exhibit 10.76 from the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.22
|
|
Form of Warrant Certificate, dated July 15, 2005, which is incorporated by reference to Exhibit 10.77 from
the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.23
|
|
Registration Rights Agreement, dated July 15, 2005, between the Company and certain affiliates of Friedman
Fleischer & Lowe, LLC, which is incorporated by reference to Exhibit 10.78 from the Companys Form 10-K for
the year ended December 31, 2004. |
|
|
|
10.24*
|
|
Amended and Restated 2000 Long-Term Incentive Plan, effective as of November 19, 2008. |
80
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.25
|
|
Employee Stock Purchase Plan, as amended and restated as of February 1, 2007, which is incorporated herein
by reference to Exhibit 10.25 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.26
|
|
Amended and Restated 401(k) Plan dated August 21, 2003, which is incorporated herein by reference to
Exhibit 10.19 from the Companys Form 10-K for the year ended June 30, 2003. |
|
|
|
10.27
|
|
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 Companys Form S-1/A (Registration No. 333-100199). |
|
|
|
10.28
|
|
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 Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.29
|
|
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 Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.30
|
|
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 Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.31
|
|
Amendment No. 5 to Amended and Restated 401(k) Plan, effective as of September 14, 2006, which is
incorporated herein by reference to Exhibit 10.31 from the Companys Form 10-K for the year ended December
31, 2006. |
|
|
|
10.32
|
|
Amendment No. 6 to Amended and Restated 401(k) Plan, effective as of January 1, 2006, which is incorporated
herein by reference to Exhibit 10.32 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.33
|
|
Amendment No. 7 to Amended and Restated 401(k) Plan, effective as of May 1, 2007, which is incorporated
herein by reference to Exhibit 10.33 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.34*
|
|
Amendment No. 8 to Amended and Restated 401(k) Plan, effective as of February 1, 2008. |
|
|
|
10.35*
|
|
Amendment No. 9 to Amended and Restated 401(k) Plan, effective as of May 1, 2009. |
|
|
|
10.36*
|
|
Amendment No. 10 to Amended and Restated 401(k) Plan, effective as of January 1, 2009. |
|
|
|
10.37
|
|
Deferred Compensation Plan, as amended and restated as of August 1, 2003, which is incorporated herein by
reference to Exhibit 10.20 from the Companys Form 10-K for the year ended June 30, 2003. |
|
|
|
10.38
|
|
Amendment to Deferred Compensation Plan effective as of December 31, 2004, which is incorporated by
reference to Exhibit 10.28 from the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.39
|
|
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 Companys Form 10-K for the year ended
December 31, 2004. |
|
|
|
10.40*
|
|
First Amendment to Amended and Restated BearingPoint, Inc. Managing Directors Deferred Compensation Plan
dated January 1, 2006. |
|
|
|
10.41*
|
|
Amended and Restated BearingPoint, Inc. Managing Directors Deferred Compensation Plan, effective December
31, 2008. |
|
|
|
10.42
|
|
Form of Member Distribution Agreement for KPMG Consulting Qualified Employees, which is incorporated herein
by reference to Exhibit 10.6 from the Companys Form S-1 (including for Richard Roberts). |
|
|
|
10.43
|
|
Form of Amendment to the Managing Director Agreement, dated as of January 31, 2005, between the Company and
certain executive officers (including for Richard Roberts), which is incorporated by reference to Exhibit
10.8 from the Companys Form 10-K for the year ended December 31, 2004. |
|
|
|
10.44
|
|
Form of Managing Director Agreement (including for Roderick C. McGeary), which is incorporated herein by
reference to Exhibit 10.39 from the Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.45
|
|
Form of Managing Director Agreement, which is incorporated herein by reference to Exhibit 10.40 from the
Companys Form 10-K for the year ended December 31, 2006. |
|
|
|
10.46*
|
|
Form of Managing Director Agreement. |
81
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.47*
|
|
Amendment to Managing Director Agreement, Member Distribution Agreement and Member Agreement. |
|
|
|
10.48
|
|
Form of Special Termination Agreement (including for Richard Roberts), which is incorporated by reference
to Exhibit 10.93 from the Companys Form 10-K for the year ended December 31, 2005. |
|
|
|
10.49*
|
|
Amendment to Special Termination Agreement. |
|
|
|
10.50*
|
|
Form of Special Termination Agreement. |
|
|
|
10.51
|
|
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 Companys Form 10-Q for
the quarter ended September 30, 2002. |
|
|
|
10.52
|
|
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
Companys Form 10-Q for the quarter ended December 31, 2002. |
|
|
|
10.53
|
|
Form of Restricted Stock Unit Agreement under the Companys 2000 Long-Term Incentive Plan for managing
directors and employees, which is incorporated by reference to Exhibit 10.81 from the Companys Form 10-K
for the year ended December 31, 2004. |
|
|
|
10.54*
|
|
Amendment to Restricted Stock Unit Agreement under the Companys 2000 Long-Term Incentive Plan for managing
directors and employees. |
|
|
|
10.55
|
|
Form of Performance Share Award Unit Agreement, which is incorporated by reference to Exhibit 99.1 from the
Companys Form 8-K filed with the SEC on February 8, 2007. |
|
|
|
10.56*
|
|
Amendment to Performance Share Award Unit Agreement. |
|
|
|
10.57
|
|
Form of Performance Cash Award Agreement, which is incorporated by reference to Exhibit 99.2 from the
Companys
Form 8-K filed with the SEC on February 8, 2007. |
|
|
|
10.58*
|
|
Amendment to Performance Cash Award Agreement. |
|
|
|
10.59
|
|
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 Companys Form 10-K for the year ended December 31,
2004. |
|
|
|
10.60
|
|
Managing Director Agreement, dated as of July 1, 2005, between the Company and Judy A. Ethell, which is
incorporated herein by reference to Exhibit 10.54 from the Companys Form 10-K for the year ended December
31, 2006. |
|
|
|
10.61
|
|
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 Companys Form 10-K for the year ended December 31,
2004. |
|
|
|
10.62
|
|
Letter Agreement dated October 3, 2006, between the Company and Judy A. Ethell, which is incorporated by
reference to Exhibit 10.95 from the Companys Form 10-K for the year ended December 31, 2005. |
|
|
|
10.63
|
|
Restricted Stock Unit Agreement, dated September 19, 2006, between the Company and Judy A. Ethell, which is
incorporated by reference to Exhibit 10.96 from the Companys Form 10-K for the year ended December 31,
2005. |
|
|
|
10.64
|
|
Restricted Stock Unit Agreement, dated September 19, 2006, between the Company and Judy A. Ethell, which is
incorporated by reference to Exhibit 10.97 from the Companys Form 10-K for the year ended December 31,
2005. |
|
|
|
10.65
|
|
Employment Letter, effective as of February 24, 2006, between the Company and Laurent C. Lutz, which is
incorporated by reference to Exhibit 10.91 from the Companys Form 10-K for the year ended December 31,
2005. |
|
|
|
10.66
|
|
Managing Director Agreement, dated as of February 24, 2006, between the Company and Laurent C. Lutz, which
is incorporated by reference to Exhibit 10.92 from the Companys Form 10-K for the year ended December 31,
2005. |
|
|
|
10.67
|
|
Special Termination Agreement, dated as of February 24, 2006, between the Company and Laurent C. Lutz,
which is incorporated by reference to Exhibit 10.94 from the Companys Form 10-K for the year ended
December 31, 2005. |
|
|
|
10.68*
|
|
Independent Contractor Agreement, effective January 1, 2009, between the Company and Laurent C. Lutz. |
82
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.69
|
|
Employment Letter, effective as of December 31, 2007, between the Company and F. Edwin Harbach,
incorporated by reference to Exhibit 10.62 from the Companys Form 10-K for the year ended December 31,
2007. |
|
|
|
10.70*
|
|
Amendment to Employment Letter, effective as of December 31, 2008, between the Company and F. Edwin Harbach. |
|
|
|
10.71
|
|
Managing Director Agreement, effective as of December 31, 2007, between the Company and F. Edwin Harbach,
incorporated by reference to Exhibit 10.6 from the Companys Form 10-K for the year ended December 31,
2007. |
|
|
|
10.72
|
|
Special Termination Agreement, dated as of December 31, 2007, between the Company and F. Edwin Harbach,
incorporated by reference to Exhibit 10.64 from the Companys Form 10-K for the year ended December 31,
2007. |
|
|
|
10.73
|
|
Restricted Stock Unit Agreement, dated January 8, 2007, between the Company and F. Edwin Harbach, which is
incorporated by reference to Exhibit 99.5 from the Companys Form 8-K filed with the SEC on January 12,
2007. |
|
|
|
10.74
|
|
Amendment No. 1 to the Restricted Stock Unit Agreement with F. Edwin Harbach dated January 8, 2007, dated
as of December 31, 2007, incorporated by reference to Exhibit 10.66 from the Companys Form 10-K for the
year ended December 31, 2007. |
|
|
|
10.75
|
|
Restricted Stock Unit Agreement, dated January 7, 2008, between the Company and F. Edwin Harbach,
incorporated by reference to Exhibit 10.67 from the Companys Form 10-K for the year ended December 31,
2007. |
|
|
|
10.76
|
|
Stock Option Agreement, dated January 7, 2008, between the Company and F. Edwin Harbach, incorporated by
reference to Exhibit 10.68 from the Companys Form 10-K for the year ended December 31, 2007. |
|
|
|
10.77
|
|
Employment Letter, effective as of March 13, 2008, between the Company and David Hunter, incorporated by
reference to Exhibit 10.1 from the Companys Form 10-Q for the quarter ending March 31, 2008. |
|
|
|
10.78*
|
|
Amendment to Employment Letter, effective as of December 31, 2008, between the Company and David Hunter. |
|
|
|
10.79
|
|
Managing Director Agreement, effective as of March 13, 2008, between the Company and David Hunter,
incorporated by reference to Exhibit 10.2 from the Companys Form 10-Q for the quarter ending March 31,
2008. |
|
|
|
10.80
|
|
Special Termination Agreement, effective as of March 13, 2008, between the Company and David Hunter,
incorporated by reference to Exhibit 10.3 from the Companys Form 10-Q for the quarter ending March 31,
2008. |
|
|
|
10.81
|
|
Stock Option Agreement, dated March 17, 2008, between the Company and David Hunter, incorporated by
reference to Exhibit 10.4 from the Companys Form 10-Q for the quarter ending March 31, 2008. |
|
|
|
10.82
|
|
Employment Letter dated April 24, 2008, effective as of May 13, 2008, between the Company and Eileen A.
Kamerick, incorporated by reference to Exhibit 10.5 from the Companys Form 10-Q for the quarter ending
March 31, 2008. |
|
|
|
10.83
|
|
Supplemental Employment Letter dated May 12, 2008, between the Company and Eileen A. Kamerick, incorporated
by reference to Exhibit 10.6 from the Companys Form 10-Q for the quarter ending March 31, 2008. |
|
|
|
10.84
|
|
Special Termination Agreement, effective as of May 13, 2008, between the Company and Eileen A. Kamerick,
incorporated by reference to Exhibit 10.7 from the Companys Form 10-Q for the quarter ending March 31,
2008. |
|
|
|
10.85
|
|
Form of Restricted Stock Unit Agreement (including for Eileen A. Kamerick) , incorporated by reference to
Exhibit 10.8 from the Companys Form 10-Q for the quarter ending March 31, 2008. |
|
|
|
10.86
|
|
Employment Letter dated July 1, 2008, effective as of June 4, 2008, between the Company and Eddie R.
Munson, incorporated by reference to Exhibit 10.5 from the Companys Form 10-Q for the quarter ending June
30, 2008. |
|
|
|
10.87
|
|
Managing Director Agreement dated July 1, 2008, effective as of June 4, 2008, between the Company and Eddie
R. Munson, incorporated by reference to Exhibit 10.6 from the Companys Form 10-Q for the quarter ending
June 30, 2008. |
|
|
|
10.88
|
|
Separation and Release of Claims Agreement dated as of May 12, 2008, between the Company and Judy A.
Ethell, incorporated by reference to Exhibit 10.7 from the Companys Form 10-Q for the quarter ending June
30, 2008. |
|
|
|
10.89
|
|
Form of BearingPoint, Inc. Performance Cash Award Agreement, incorporated by reference to Exhibit 10.8 from
the Companys Form 10-Q for the quarter ending June 30, 2008. |
83
|
|
|
Exhibit No. |
|
Description |
|
|
|
10.90
|
|
Form of BearingPoint, Inc. Performance Share Unit Award Agreement, incorporated by reference to Exhibit
10.9 from the Companys Form 10-Q for the quarter ending June 30, 2008. |
|
|
|
10.91
|
|
Agreement for Interim Management Services dated November 10, 2008, between the Company and AlixPartners,
LLP, incorporated by reference to Exhibit 10.3 from the Companys Form 10-Q for the quarter ending
September 30, 2008. |
|
|
|
10.92*
|
|
Agreement for Interim Management and Restructuring Services, dated February 5, 2009, between the Company
and AP Services, LLC. |
|
|
|
10.93
|
|
Joint Plan of Reorganization of BearingPoint, Inc. and its Subsidiaries under Chapter 11 of the Bankruptcy
Code, dated February 18, 2009, incorporated by reference to Exhibit 99.1 from the Companys Form 8-K filed
with the SEC on February 23, 2009. |
|
|
|
10.94
|
|
Asset Purchase Agreement by and among Deloitte LLP, BearingPoint Inc. and certain subsidiaries of
BearingPoint, Inc. that are signatories thereto, dated as of March 23, 2009, incorporated by reference to
Exhibit 99.1 from the Companys Form 8-K filed with the SEC on April 10, 2009. |
|
|
|
10.95
|
|
Amendment No. 1 to the Asset Purchase Agreement by and among Deloitte LLP, BearingPoint Inc. and certain
subsidiaries of BearingPoint, Inc. that are signatories thereto, dated as of April 3, 2009, incorporated by
reference to Exhibit 99.2 from the Companys Form 8-K filed with the SEC on April 10, 2009. |
|
|
|
10.96
|
|
Amended and Restated Purchase Agreement among PricewaterhouseCoopers LLP, BearingPoint, Inc. and certain subsidiaries of
BearingPoint, Inc. that are signatories thereto, dated as of May 28, 2009, incorporated by reference to Exhibit
99.1 from the Companys Form 8-K filed with the SEC on June 1, 2009. |
|
|
|
10.97
|
|
Share Sale Agreement relating to BearingPoint Co., Ltd (Chiyoda-ku) among BearingPoint International
Bermuda Holdings Limited and PwC Advisory Co., Ltd., dated April 2, 2009, incorporated by reference to
Exhibit 99.3 from the Companys Form 8-K filed with the SEC on April 23, 2009. |
|
|
|
14.1
|
|
Standards of Business Conduct, which is incorporated by reference to Exhibit 14.1 from the Companys Form
10-K for the year ended December 31, 2006. |
|
|
|
16.1
|
|
Letter dated June 28, 2007, from PricewaterhouseCoopers LLP to the Securities and Exchange Commission,
which is incorporated by reference to Exhibit 16.1 from the Companys Form 10-K for the year ended December
31, 2006. |
|
|
|
21.1*
|
|
List of subsidiaries of the Registrant, as of December 31, 2008. |
|
|
|
23.1*
|
|
Consent of Ernst & Young LLP. |
|
|
|
31.1*
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a). |
|
|
|
31.2*
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a). |
|
|
|
32.1*
|
|
Certification of Chief Executive Officer pursuant to Section 1350. |
|
|
|
32.2*
|
|
Certification of Chief Financial Officer pursuant to Section 1350. |
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf on June 5, 2009 by the
undersigned, thereunto duly authorized.
|
|
|
|
|
BEARINGPOINT, INC.
|
|
|
By: |
/s/ F. Edwin Harbach
|
|
|
|
Name: |
F. Edwin Harbach |
|
|
|
Title: |
Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below on June 5, 2009 by the following persons on behalf of the Registrant and in the
capacities indicated.
|
|
|
Signature |
|
Title |
|
/s/ F. Edwin Harbach
F. Edwin Harbach
|
|
Director, President and Chief Executive
Officer (principal executive officer) |
|
|
|
/s/ Kenneth A. Hiltz
Kenneth A. Hiltz
|
|
Chief Financial Officer (principal
financial and accounting officer) |
|
|
|
/s/ Roderick C. McGeary
Roderick C. McGeary
|
|
Chairman of the Board of Directors |
|
|
|
/s/ Frederic F. Brace
Frederic F. Brace
|
|
Director |
|
|
|
/s/ Eddie R. Munson
Eddie R. Munson
|
|
Director |
85
|
|
ITEM 8:
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
BEARINGPOINT,
INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
|
|
|
|
|
F-4
|
|
|
|
|
|
|
|
|
|
F-5
|
|
|
|
|
|
|
|
|
|
F-6
|
|
|
|
|
|
|
|
|
|
F-8
|
|
|
|
|
|
|
|
|
|
F-9
|
|
F-1
REPORT OF
ERNST & YOUNG LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of BearingPoint, Inc.:
We have audited the accompanying consolidated balance sheets of
BearingPoint, Inc. as of December 31, 2008 and 2007, and
the related consolidated statements of operations, changes in
stockholders deficit, and cash flows for each of the two
years in the period ended December 31, 2008. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 2008 and 2007 financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of BearingPoint, Inc. at
December 31, 2008 and 2007, and the consolidated results of
its operations and its cash flows for each of the two years in
the period ended December 31, 2008, in conformity with
U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that BearingPoint, Inc. will continue as a
going concern. As more fully described in Note 1 to the
consolidated financial statements, on February 18, 2009,
the Company and certain of its U.S. subsidiaries filed a
voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code. Uncertainties inherent in the
bankruptcy process raise substantial doubt about BearingPoint,
Inc.s ability to continue as a going concern.
Managements plans with respect to these matters are also
described in Note 1. The accompanying consolidated
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 14 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, effective January 1, 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
BearingPoint, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated March 30, 2009
(included in Item 9A) expressed an adverse opinion thereon.
/s/
Ernst & Young LLP
McLean, Virginia
March 30, 2009,
except for Note 22, as to which the date is
June 4, 2009
F-2
REPORT OF
PRICEWATERHOUSE COOPERS LLP,
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of BearingPoint, Inc.:
In our opinion, the consolidated statements of operations,
changes in stockholders deficit and of cash flows for the
year ended December 31, 2006, before the effects of the
adjustments to retrospectively reflect the reverse stock split
described in Note 1, present fairly, in all material
respects, the results of operations and cash flows of
BearingPoint, Inc. and its subsidiaries (the
Company) for the year ended December 31, 2006,
in conformity with accounting principles generally accepted in
the United States of America (the 2006 financial statements
before the effects of the adjustments discussed in Note 1
are not presented herein). These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit, before
the effects of these adjustments described above, of these
statements in accordance with the standards of the Public
Company Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
We were not engaged to audit, review, or apply any procedures to
the adjustments to retrospectively reflect the reverse stock
split described in Note 1 and accordingly, we do not
express an opinion or any other form of assurance about whether
such adjustments are appropriate and have been properly applied.
Those adjustments were not audited.
As discussed in Note 2 to the consolidated financial
statements, the Company changed the manner in which it accounts
for defined benefit pension and other post retirement plans
effective December 31, 2006.
/s/ PricewaterhouseCoopers
LLP
Boston, Massachusetts
June 27, 2007
F-3
BEARINGPOINT,
INC.
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
349,664
|
|
|
$
|
466,815
|
|
Restricted cash (note 2)
|
|
|
3,468
|
|
|
|
1,703
|
|
Accounts receivable, net of allowance for doubtful accounts of
$2,287 at December 31, 2008 and $5,980 at December 31,
2007
|
|
|
294,069
|
|
|
|
356,178
|
|
Unbilled revenue
|
|
|
228,828
|
|
|
|
319,132
|
|
Income tax receivable
|
|
|
11,854
|
|
|
|
8,869
|
|
Deferred income taxes
|
|
|
13,555
|
|
|
|
11,521
|
|
Prepaid expenses
|
|
|
43,060
|
|
|
|
36,500
|
|
Other current assets
|
|
|
22,761
|
|
|
|
43,172
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
967,259
|
|
|
|
1,243,890
|
|
Property and equipment, net
|
|
|
102,187
|
|
|
|
103,671
|
|
Goodwill
|
|
|
478,545
|
|
|
|
494,656
|
|
Deferred income taxes, less current portion
|
|
|
17,008
|
|
|
|
25,179
|
|
Other assets
|
|
|
89,916
|
|
|
|
114,008
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,654,915
|
|
|
$
|
1,981,404
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of notes payable
|
|
$
|
203,997
|
|
|
$
|
3,700
|
|
Accounts payable
|
|
|
153,121
|
|
|
|
215,999
|
|
Accrued payroll and employee benefits
|
|
|
295,253
|
|
|
|
368,208
|
|
Deferred revenue
|
|
|
69,489
|
|
|
|
115,961
|
|
Income tax payable
|
|
|
30,116
|
|
|
|
58,304
|
|
Current portion of accrued lease and facilities charges
|
|
|
14,956
|
|
|
|
17,618
|
|
Deferred income taxes
|
|
|
8,339
|
|
|
|
15,022
|
|
Accrued legal settlements
|
|
|
6,591
|
|
|
|
8,716
|
|
Other current liabilities
|
|
|
83,149
|
|
|
|
108,364
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
865,011
|
|
|
|
911,892
|
|
Notes payable, less current portion
|
|
|
772,919
|
|
|
|
970,943
|
|
Accrued employee benefits
|
|
|
124,335
|
|
|
|
118,235
|
|
Accrued lease and facilities charges, less current portion
|
|
|
25,226
|
|
|
|
48,066
|
|
Deferred income taxes, less current portion
|
|
|
36,933
|
|
|
|
9,581
|
|
Income tax reserve
|
|
|
238,548
|
|
|
|
242,308
|
|
Other liabilities
|
|
|
138,174
|
|
|
|
149,668
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
2,201,146
|
|
|
|
2,450,693
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (notes 9, 10, 11)
|
|
|
|
|
|
|
|
|
Stockholders deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value 10,000,000 shares
authorized
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value 1,000,000,000 shares
authorized, 4,514,555 shares issued and
4,417,553 shares outstanding on December 31, 2008 and
4,397,803 shares issued and 4,303,122 shares
outstanding on December 31, 2007
|
|
|
2,244
|
|
|
|
2,186
|
|
Additional paid-in capital
|
|
|
1,387,154
|
|
|
|
1,438,369
|
|
Accumulated deficit
|
|
|
(2,212,650
|
)
|
|
|
(2,180,578
|
)
|
Accumulated other comprehensive income
|
|
|
315,297
|
|
|
|
308,857
|
|
Treasury stock, at cost (97,002 shares on December 31,
2008 and 94,681 shares on December 31, 2007)
|
|
|
(38,276
|
)
|
|
|
(38,123
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders deficit
|
|
|
(546,231
|
)
|
|
|
(469,289
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders deficit
|
|
$
|
1,654,915
|
|
|
$
|
1,981,404
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-4
BEARINGPOINT,
INC.
(in
thousands, except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue
|
|
$
|
3,197,041
|
|
|
$
|
3,455,562
|
|
|
$
|
3,444,003
|
|
Costs of service:
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional compensation
|
|
|
1,564,250
|
|
|
|
1,858,480
|
|
|
|
1,725,479
|
|
Other direct contract expenses
|
|
|
674,627
|
|
|
|
807,709
|
|
|
|
888,152
|
|
Lease and facilities restructuring (benefit) charges
|
|
|
(3,524
|
)
|
|
|
20,869
|
|
|
|
29,621
|
|
Other costs of service
|
|
|
282,377
|
|
|
|
299,979
|
|
|
|
250,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs of service
|
|
|
2,517,730
|
|
|
|
2,987,037
|
|
|
|
2,893,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
679,311
|
|
|
|
468,525
|
|
|
|
550,526
|
|
Amortization of purchased intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,545
|
|
Selling, general and administrative expenses
|
|
|
550,818
|
|
|
|
701,317
|
|
|
|
748,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
128,493
|
|
|
|
(232,792
|
)
|
|
|
(199,269
|
)
|
Interest income
|
|
|
7,374
|
|
|
|
12,084
|
|
|
|
8,749
|
|
Interest expense
|
|
|
(61,023
|
)
|
|
|
(61,216
|
)
|
|
|
(37,182
|
)
|
Insurance settlement
|
|
|
|
|
|
|
|
|
|
|
38,000
|
|
Other (expense) income, net
|
|
|
(38,162
|
)
|
|
|
(8,566
|
)
|
|
|
8,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before taxes
|
|
|
36,682
|
|
|
|
(290,490
|
)
|
|
|
(181,043
|
)
|
Income tax expense
|
|
|
68,754
|
|
|
|
72,233
|
|
|
|
32,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,072
|
)
|
|
$
|
(362,723
|
)
|
|
$
|
(213,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7.18
|
)
|
|
$
|
(83.90
|
)
|
|
$
|
(50.30
|
)*
|
Weighted average shares basic and diluted
|
|
|
4,468,179
|
|
|
|
4,323,343
|
|
|
|
4,243,093
|
*
|
|
|
|
* |
|
Unaudited for reverse stock split, see Note 1,
Reverse Stock Split. |
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-5
BEARINGPOINT,
INC.
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
receivable
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
from
|
|
|
comprehensive
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
issued
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
stockholders
|
|
|
income (loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (loss)
|
|
|
Total
|
|
|
Balance at December 31, 2005
|
|
|
4,107
|
*
|
|
$
|
2,044
|
|
|
$
|
1,261,797
|
|
|
$
|
(1,484,199
|
)
|
|
$
|
(7,578
|
)
|
|
$
|
218,091
|
|
|
|
(76
|
)*
|
|
$
|
(35,727
|
)
|
|
|
|
|
|
$
|
(45,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable from stockholders, including $3 in interest and
forgiveness of loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
Restricted stock awards to Board of Directors
|
|
|
1
|
*
|
|
|
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460
|
|
Compensation recognized for stock options and restricted stock
units
|
|
|
|
|
|
|
|
|
|
|
52,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,933
|
|
SFAS 158 adjustment, net of tax benefit of $3,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,417
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,417
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(213,440
|
)
|
|
|
(213,440
|
)
|
Minimum pension liability, net of tax of $2,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,880
|
|
|
|
|
|
|
|
|
|
|
|
8,880
|
|
|
|
8,880
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,743
|
|
|
|
|
|
|
|
|
|
|
|
30,743
|
|
|
|
30,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(173,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
4,108
|
*
|
|
$
|
2,044
|
|
|
$
|
1,315,190
|
|
|
$
|
(1,697,639
|
)
|
|
$
|
(7,466
|
)
|
|
$
|
246,297
|
|
|
|
(76
|
)*
|
|
$
|
(35,727
|
)
|
|
|
|
|
|
$
|
(177,301
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation recognized for stock options, restricted stock
units, performance share units, Employee Stock Purchase Plan, BE
an Owner and restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
97,062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,062
|
|
Sale of common stock under Employee Stock Purchase
Plan BE an Owner
|
|
|
51
|
|
|
|
26
|
|
|
|
10,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,148
|
|
Sale of common stock under Employee Stock Purchase Plan
|
|
|
62
|
|
|
|
31
|
|
|
|
12,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,374
|
|
Restricted stock awards to Board of Directors
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of notes receivable from stockholders
|
|
|
|
|
|
|
(3
|
)
|
|
|
(6,649
|
)
|
|
|
|
|
|
|
7,466
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(782
|
)
|
|
|
|
|
|
|
32
|
|
Settlement of Softline acquisition obligation
|
|
|
11
|
|
|
|
6
|
|
|
|
10,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,389
|
|
Settlement of restricted stock units
|
|
|
165
|
|
|
|
82
|
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
(1,614
|
)
|
|
|
|
|
|
|
(1,614
|
)
|
FSP 00-19-2
adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(371
|
)
|
FIN 48 adoption
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(119,845
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(362,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(362,723
|
)
|
|
|
(362,723
|
)
|
Prior service cost, net of tax benefit of $1,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
1,800
|
|
|
|
1,800
|
|
Net actuarial gain, net of tax of $6,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,056
|
|
|
|
|
|
|
|
|
|
|
|
13,056
|
|
|
|
13,056
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,704
|
|
|
|
|
|
|
|
|
|
|
|
47,704
|
|
|
|
47,704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(300,163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
4,398
|
|
|
$
|
2,186
|
|
|
$
|
1,438,369
|
|
|
$
|
(2,180,578
|
)
|
|
$
|
|
|
|
$
|
308,857
|
|
|
|
(95
|
)
|
|
$
|
(38,123
|
)
|
|
|
|
|
|
$
|
(469,289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-6
BEARINGPOINT,
INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT
(Continued)
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
receivable
|
|
|
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
from
|
|
|
comprehensive
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
issued
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
stockholders
|
|
|
income (loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (loss)
|
|
|
Total
|
|
|
Balance at December 31, 2007
|
|
|
4,398
|
|
|
$
|
2,186
|
|
|
$
|
1,438,369
|
|
|
$
|
(2,180,578
|
)
|
|
$
|
|
|
|
$
|
308,857
|
|
|
|
(95
|
)
|
|
$
|
(38,123
|
)
|
|
|
|
|
|
$
|
(469,289
|
)
|
Compensation recognized for stock options, restricted stock
units, performance share units, Employee Stock Purchase Plan, BE
an Owner and restricted stock awards, net of adjustments
|
|
|
|
|
|
|
|
|
|
|
(52,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(52,778
|
)
|
Sale of common stock under Employee Stock Purchase Plan
|
|
|
46
|
|
|
|
23
|
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,695
|
|
Restricted stock awards to Board of Directors
|
|
|
1
|
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
Settlement of restricted stock units
|
|
|
70
|
|
|
|
35
|
|
|
|
(233
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
(153
|
)
|
|
|
|
|
|
|
(351
|
)
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,072
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(32,072
|
)
|
|
|
(32,072
|
)
|
Prior service cost, net of tax of $110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
|
1,126
|
|
|
|
1,126
|
|
Net actuarial loss, net of tax benefit of $(1,442)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,983
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,983
|
)
|
|
|
(3,983
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,297
|
|
|
|
|
|
|
|
|
|
|
|
9,297
|
|
|
|
9,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(25,632
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
4,515
|
|
|
$
|
2,244
|
|
|
$
|
1,387,154
|
|
|
$
|
(2,212,650
|
)
|
|
$
|
|
|
|
$
|
315,297
|
|
|
|
(97
|
)
|
|
$
|
(38,276
|
)
|
|
|
|
|
|
$
|
(546,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Unaudited for reverse stock split, see Note 1,
Reverse Stock Split. |
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-7
BEARINGPOINT,
INC.
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,072
|
)
|
|
$
|
(362,723
|
)
|
|
$
|
(213,440
|
)
|
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
21,976
|
|
|
|
4,060
|
|
|
|
(13,406
|
)
|
(Benefit) provision for doubtful accounts
|
|
|
(1,343
|
)
|
|
|
2,465
|
|
|
|
(464
|
)
|
Stock-based compensation, net of adjustments
|
|
|
(52,654
|
)
|
|
|
97,062
|
|
|
|
53,393
|
|
Depreciation and amortization of property and equipment
|
|
|
45,915
|
|
|
|
63,472
|
|
|
|
74,023
|
|
Amortization of purchased intangible assets
|
|
|
|
|
|
|
|
|
|
|
1,545
|
|
Lease and facilities restructuring (benefit) charges
|
|
|
(3,524
|
)
|
|
|
20,869
|
|
|
|
29,621
|
|
Loss on disposal and impairment of assets
|
|
|
4,929
|
|
|
|
9,575
|
|
|
|
3,769
|
|
Amortization of debt issuance costs and debt accretion
|
|
|
12,410
|
|
|
|
13,955
|
|
|
|
8,936
|
|
Reversal of global tax equalizations
|
|
|
(36,959
|
)
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange losses (gains)
|
|
|
16,935
|
|
|
|
11,326
|
|
|
|
(8,549
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
57,808
|
|
|
|
17,353
|
|
|
|
84,124
|
|
Unbilled revenue
|
|
|
85,560
|
|
|
|
28,510
|
|
|
|
19,814
|
|
Income tax receivable, prepaid expenses and other current assets
|
|
|
9,084
|
|
|
|
20,188
|
|
|
|
(22,557
|
)
|
Other assets
|
|
|
17,205
|
|
|
|
(13,917
|
)
|
|
|
(4,565
|
)
|
Accounts payable
|
|
|
(62,182
|
)
|
|
|
(58,711
|
)
|
|
|
(26,322
|
)
|
Income tax payable, accrued legal settlements and other current
liabilities
|
|
|
(63,814
|
)
|
|
|
(51,421
|
)
|
|
|
(12,715
|
)
|
Accrued payroll and employee benefits
|
|
|
(25,240
|
)
|
|
|
(5,501
|
)
|
|
|
48,099
|
|
Deferred revenue
|
|
|
(57,025
|
)
|
|
|
(18,941
|
)
|
|
|
(38,605
|
)
|
Income tax reserve and other liabilities
|
|
|
(867
|
)
|
|
|
29,084
|
|
|
|
78,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(63,858
|
)
|
|
|
(193,295
|
)
|
|
|
60,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(48,221
|
)
|
|
|
(38,227
|
)
|
|
|
(52,871
|
)
|
(Increase) decrease in restricted cash
|
|
|
(1,765
|
)
|
|
|
1,393
|
|
|
|
118,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(49,986
|
)
|
|
|
(36,834
|
)
|
|
|
65,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,695
|
|
|
|
12,374
|
|
|
|
|
|
Treasury stock through net share delivery
|
|
|
(118
|
)
|
|
|
(1,614
|
)
|
|
|
|
|
Net proceeds from issuance of notes payable
|
|
|
2,141
|
|
|
|
284,015
|
|
|
|
|
|
Repayments of notes payable
|
|
|
(5,391
|
)
|
|
|
(4,209
|
)
|
|
|
(6,506
|
)
|
Increase (decrease) in book overdrafts
|
|
|
1,106
|
|
|
|
|
|
|
|
(810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(567
|
)
|
|
|
290,566
|
|
|
|
(7,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(2,740
|
)
|
|
|
16,807
|
|
|
|
15,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(117,151
|
)
|
|
|
77,244
|
|
|
|
134,231
|
|
Cash and cash equivalents beginning of period
|
|
|
466,815
|
|
|
|
389,571
|
|
|
|
255,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
349,664
|
|
|
$
|
466,815
|
|
|
$
|
389,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
50,150
|
|
|
$
|
43,733
|
|
|
$
|
27,582
|
|
Taxes paid, net of refunds
|
|
$
|
69,108
|
|
|
$
|
18,427
|
|
|
$
|
21,333
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of notes receivable from stockholders
|
|
$
|
|
|
|
$
|
7,466
|
|
|
$
|
|
|
Settlement of Softline acquisition obligation
|
|
$
|
|
|
|
$
|
10,389
|
|
|
$
|
|
|
Sale of common stock BE an Owner
|
|
$
|
|
|
|
$
|
10,148
|
|
|
$
|
|
|
The accompanying notes are an integral part of these
Consolidated Financial Statements.
F-8
BEARINGPOINT,
INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
The information set forth in Notes 1 through 21 below is as of
March 31, 2009. These Notes should be read in conjunction
with Note 22, Subsequent Events, which provides
information regarding BearingPoint, Inc. since March 31,
2009 and supplements the information provided in Notes 1 through
21.
1. Description
of the Business, Chapter 11 Reorganization Proceedings and
Basis of Presentation
The
Company
BearingPoint, Inc. (the Company) is one of the
worlds leading providers of management and technology
consulting services to Forbes Global 2000 companies as well
as government organizations. The Companys core services,
which include management consulting, technology solutions, as
well as application services and managed services, are designed
to help its clients generate revenue, increase
cost-effectiveness, manage regulatory compliance, integrate
information and transition to next-generation
technology. The Company had approximately 15,200 employees
at December 31, 2008.
In North America, the Company delivers consulting services
through its Public Services, Commercial Services and Financial
Services industry groups, which provide significant
industry-specific knowledge and service offerings. Outside of
North America, the Company is organized on a geographic
basis Europe, the Middle East and Africa
(EMEA), the Asia Pacific region and Latin America.
As of January 1, 2009, the Company combined three of its
business segments, Commercial Services, Financial Services and
Latin America, into Commercial Services and will manage the
operations of these three segments as one combined segment
reporting to a single segment leader, and realign resources and
internal management to gain synergies in both costs and revenue.
Reverse
Stock Split
At the annual meeting of st