================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------------
FORM 10-Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for quarterly period ended September 30, 2002.
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period _________ to __________
Commission File Number 001-31451
BearingPoint, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3680505
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
1676 International Drive, McLean, VA 22102
(Address of principal executive office) (Zip Code)
(703) 747-3000
(Registrant's telephone number, including area code)
KPMG Consulting, Inc.
(Former name, if changed since last report)
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 reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
-------------------- ----------------------
The number of shares of common stock of the Registrant outstanding as of October
31, 2002 was 189,529,119.
1
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
TABLE OF CONTENTS
PART I - FINANCIAL STATEMENTS
Item 1: Financial Statements (unaudited)
Consolidated Condensed Statements of Operations for the Three Months Ended
September 30, 2002 and 2001........................................................... 3
Consolidated Condensed Balance Sheets as of September 30, 2002 and June 30, 2002...... 4
Consolidated Condensed Statements of Cash Flows for the Three Months Ended
September 30, 2002 and 2001........................................................... 5
Notes to Consolidated Condensed Financial Statements.................................. 6
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................. 12
Item 3: Quantitative and Qualitative Disclosure about Market Risk.................... 17
Item 4: Controls and Procedures...................................................... 17
PART II - OTHER INFORMATION:
Item 1: Legal Proceedings............................................................ 17
Item 2: Changes in Securities and Use of Proceeds.................................... 17
Item 5: Other Information............................................................ 17
Item 6: Exhibits..................................................................... 17
SIGNATURES............................................................................ 18
CERTIFICATIONS........................................................................ 19
2
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
Three Months Ended
September 30,
2002 2001
------------- -------------
Revenues $ 747,560 $ 608,891
Costs of service:
Professional compensation 344,847 245,086
Other direct contract expenses 163,398 144,193
Other costs of service 65,356 55,648
------------- -------------
Total 573,601 444,927
------------- -------------
Gross margin 173,959 163,964
Amortization of purchased intangible assets 5,034 --
Selling, general and administrative expenses 137,160 119,932
------------- -------------
Operating income 31,765 44,032
Interest (income) expense, net 1,097 (147)
------------- -------------
Income before taxes 30,668 44,179
Income tax expense 15,487 21,863
------------- -------------
Income before cumulative effect of change
in accounting principle 15,181 22,316
Cumulative effect of change in accounting principle -- (79,960)
------------- -------------
Net income (loss) $ 15,181 $ (57,644)
============= =============
Earnings (loss) per share - basic and diluted:
Income before cumulative effect of change in
accounting principle $ 0.09 $ 0.14
Cumulative effect of change in accounting principle -- (0.50)
------------- -------------
Net income (loss) $ 0.09 $ (0.36)
============= =============
Weighted average shares - basic 172,077,633 158,331,525
============= =============
Weighted average shares - diluted 173,044,097 159,306,209
============= =============
The accompanying notes are an integral part of these financial statements.
3
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
September 30, June 30,
2002 2002
----------- -----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 86,341 $ 203,597
Accounts receivable, net 347,096 246,792
Unbilled revenues, net 218,088 128,883
Prepaid and other current assets 95,638 67,941
----------- -----------
Total current assets 747,163 647,213
Property and equipment, net 104,065 60,487
Goodwill and other intangible assets, net 995,114 163,315
Other assets 7,026 24,116
----------- -----------
Total assets $ 1,853,368 $ 895,131
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 334,572 $ 1,846
Accounts payable 93,659 62,810
Accrued payroll and related liabilities 226,789 130,554
Other current liabilities 151,538 88,085
----------- -----------
Total current liabilities 806,558 283,295
Other liabilities 51,197 9,966
----------- -----------
Total liabilities 857,755 293,261
Stockholders' Equity :
Preferred stock, $.01 par value 10,000,000 shares authorized -- --
Common stock, $.01 par value 1,000,000,000 shares authorized,
193,341,369 shares issued on September 30, 2002 and
161,478,409 shares issued on June 30, 2002 1,923 1,605
Additional paid-in capital 1,069,823 689,210
Accumulated deficit (26,240) (41,421)
Notes receivable from stockholders (10,382) (10,151)
Accumulated other comprehensive loss (3,784) (1,646)
Common stock held in treasury, at cost (35,727) (35,727)
----------- -----------
Total stockholders' equity 995,613 601,870
----------- -----------
Total liabilities and stockholders' equity $ 1,853,368 $ 895,131
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
September 30,
2002 2001
--------- ---------
Cash flows from operating activities:
Net income (loss) $ 15,181 $ (57,644)
Adjustments to reconcile to net cash provided by (used in)
operating activities:
Cumulative effect of change in accounting principle -- 79,960
Deferred income taxes and other (4,262) (159)
Stock awards 3,846 466
Depreciation and amortization 16,193 10,084
Changes in assets and liabilities:
Accounts receivable 12,513 6,577
Unbilled revenues (58,321) (5,707)
Prepaid expenses and other current assets (1,875) 7,941
Other assets 4,558 10,744
Accrued payroll and related liabilities 5,918 (48,679)
Accounts payable and other current liabilities (6,530) 27,815
Other liabilities 885 --
--------- ---------
Net cash provided by (used in) operating activities (11,894) 31,398
--------- ---------
Cash flows from investing activities:
Purchase of capital assets from KPMG LLP (30,754) --
Purchases of property and equipment (3,759) (7,049)
Businesses acquired, net of cash acquired (400,828) (6,595)
Purchases of other intangible assets (6,915) (4,403)
--------- ---------
Net cash used in investing activities (442,256) (18,047)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock 12,468 12,226
Repurchases of common stock -- (26,028)
Proceeds from notes payable 330,514 --
Repayment of notes payable (6,001) (3,017)
Repurchase of minority interest in subsidiary -- (2,092)
Notes receivable from stockholders (87) --
--------- ---------
Net cash provided by (used in) financing activities 336,894 (18,911)
--------- ---------
Net decrease in cash and cash equivalents (117,256) (5,560)
Cash and cash equivalents - beginning of period 203,597 45,914
--------- ---------
Cash and cash equivalents - end of period $ 86,341 $ 40,354
========= =========
Supplementary cash flow information:
Interest paid $ 1,143 $ 222
Taxes paid $ 3,803 $ 5,815
Supplemental non-cash investing and financing activities:
Issuance of common stock for business acquisition $ 364,437 $ --
Acquisition obligations from business acquisition $ 5,543 $ --
The accompanying notes are an integral part of these financial statements.
5
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
Note 1. Basis of Presentation
On October 2, 2002, KPMG Consulting, Inc. changed its name to BearingPoint,
Inc. (referred to below as "we," "BearingPoint" or the "Company"). Our brand
name underscores our global commitment to set a clear direction for our clients.
In conjunction with our branding initiative, BearingPoint moved to the New York
Stock Exchange and began trading on October 3, 2002, under the new ticker symbol
"BE." BearingPoint is a global provider of management consulting and business
systems integration services.
The accompanying unaudited interim consolidated condensed financial
statements of BearingPoint, Inc. have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC") for quarterly
reports on Form 10-Q. These statements do not include all of the information and
note disclosures required by generally accepted accounting principles, and
should be read in conjunction with our consolidated financial statements and
notes thereto for the fiscal year ended June 30, 2002, included in the Company's
Annual Report on Form 10-K filed with the SEC. The accompanying consolidated
condensed financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and reflect
adjustments (consisting solely of normal, recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of results for
these interim periods. The results of operations for the three months ended
September 30, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 2003. Certain prior period amounts
have been reclassified to conform with the current period presentation.
Note 2. Segment Reporting
The Company discloses business segment information in accordance with
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 established
standards for the way public business enterprises report information about
operating segments in annual financial statements and required those enterprises
to report selected information about operating segments in interim financial
statements. Performance of the segments is evaluated based on operating income
excluding the costs of infrastructure functions (such as information systems,
finance and accounting, human resources, legal and marketing). Effective in the
fiscal quarter ended September 30, 2002, upon completion of a series of
international acquisitions, the company has six reportable segments in addition
to the Corporate/Other category. Prior year segment data has been reclassified
to reflect the addition of an international segment.
Three Months Ended
September 30,
2002 2001
------------------------------ --------------------------------
Operating Operating
Revenue Income Revenue Income
------------------------------ --------------------------------
Public Services $ 267,125 $ 77,921 $ 218,720 $ 70,649
Communications & Content 96,195 25,501 133,347 41,287
Financial Services 62,012 14,687 67,705 8,136
Consumer & Industrial Markets 102,711 21,486 84,355 22,150
High Technology 37,025 8,577 62,588 12,496
International 180,721 26,015 42,057 1,955
Corporate/Other (1) 1,771 (142,422) 119 (112,641)
------------------------------ --------------------------------
Total $ 747,560 $ 31,765 $ 608,891 $ 44,032
============================== ================================
(1) Corporate/Other operating loss is principally due to infrastructure costs.
6
Note 3. Comprehensive Income (Loss)
The Company accounts for comprehensive income (loss) under SFAS No. 130,
"Reporting Comprehensive Income." Total comprehensive income (i.e., net income
plus foreign currency translation adjustment and other comprehensive income),
for the three months ended September 30, 2002 was $13,043. Total comprehensive
loss for the three months ended September 30, 2001 was $57,004.
Note 4. Earnings Per Share of Common Stock
Basic earnings (loss) per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed using the weighted average number of common shares outstanding
during the period plus the dilutive effect of potential future issues of common
stock relating to the Company's stock option program and other potentially
dilutive securities. In calculating diluted earnings per share, the dilutive
effect of stock options is computed using the average market price for the
period.
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
September 30,
2002 2001
------------- -------------
Net income before cumulative effect of change
in accounting principle - basic $ 15,181 $ 22,316
Convertible debt adjustment 133 114
------------- -------------
Adjusted income before cumulative effect of change
in accounting principle - diluted 15,314 22,430
Cumulative effect of change in accounting principle -- (79,960)
------------- -------------
Adjusted income (loss) - diluted $ 15,314 $ (57,530)
============= =============
Weighted average shares outstanding - basic 172,077,633 158,331,525
Effect of dilutive securities:
Employee stock options 98,408 106,628
Convertible debt 868,056 868,056
------------- -------------
Weighted average shares outstanding - diluted 173,044,097 159,306,209
============= =============
Earnings (loss) per share - basic and diluted $ 0.09 $ (0.36)
============= =============
Common shares related to outstanding stock options and other potentially
dilutive securities that were excluded from the computation of diluted earnings
per share as the effect would have been anti-dilutive were 33,757,628 and
27,222,989 for the three months ended September 30, 2002 and 2001, respectively.
7
Note 5. Business Combinations
KPMG Consulting AG
Effective August 1, 2002, as part of a significant expansion in our
international presence, the Company acquired KPMG Consulting AG ("KCA"), the
consulting practice of the German member firm of KPMG International, with
operations in Germany, Switzerland and Austria, for approximately $643,020. The
purchase of KPMG Consulting AG was paid for through the issuance of 30,471,309
shares of common stock to the sellers at $11.96 per share, $273,583 in cash to
the sellers, and approximately $5,000 in acquisition related transaction costs
incurred to date. The preliminary allocation of the purchase price to assets
acquired and liabilities assumed was as follows:
Preliminary
Allocation of
Purchase Price
--------------
Current assets $ 138,479
Goodwill and other intangible assets 677,424
Other long-lived assets 15,755
--------------
Total assets $ 831,658
Current liabilities (133,886)
Long-term liabilities (54,752)
--------------
Net assets $ 643,020
==============
Purchased intangibles acquired include backlog of $21,084 and trade name of
$1,404. Goodwill is expected to be non-deductible for foreign income tax
purposes. However, the goodwill is expected to have U.S. income tax basis that
may have beneficial impact on future tax credits upon possible repatriation of
earnings.
Effective August 1, 2002, the results of KCA's operations have been
included in the consolidated financial results of the Company. The pro forma
results of operations for the three months ended September 30, 2002, assuming
consummation of the purchase as of July 1, 2002, reflect revenues of $787,301;
net income of $13,301, and earnings per share (basic and diluted) of $0.07.
Significant pro forma adjustments include amortization expense on purchased
intangibles of $999 (net of tax), interest expense on borrowings made in
connection with the KCA acquisition of $377 (net of tax) and an increase in
weighted average shares outstanding (basic and diluted) of 16,891,704 as a
result of including the shares issued as consideration for the purchase of KCA
from July 1, 2002. For the pro forma effects of this acquisition on the
Company's results of operations for the year ended June 30, 2002, and the
Company's financial position at June 30, 2002, refer to the Company's Form 8-K/A
filed with the SEC on October 17, 2002.
Andersen Business Consulting Practices
During the quarter ended September 30, 2002, the Company engaged in a
number of acquisitions, group hires and other transactions involving certain
independent business consulting practices affiliated with member firms of
Andersen Societe Cooperative Worldwide ("Andersen BC Practices").
On July 1, 2002, the Company finalized its previously announced agreement
to hire certain partners and staff formerly associated with the Andersen BC
Practice in the United States for $60,350. The transaction added approximately
1,490 professionals to the Company's U.S. billable workforce. The preliminary
allocation of the transaction price resulted in the allocation of $60,350 to
goodwill.
On August 1, 2002, the Company acquired the business consulting unit of
Arthur Andersen y Cia in Spain for approximately $27,070 of which approximately
$5,500 has been recorded as an acquisition obligation to be paid upon completion
of certain post-closing requirements. The preliminary allocation of the purchase
price to acquired assets and liabilities resulted in the allocation of $28,694
to goodwill.
On August 1, 2002, the Company acquired the assets of the Andersen BC
Practice in Japan for approximately $19,700. The preliminary allocation of the
purchase price to acquired assets and liabilities resulted in $14,612 of
goodwill and $632 of purchased intangibles.
8
Effective September 1, 2002, the Company acquired the Andersen BC Practice
in France for approximately $15,650. The preliminary allocation of the purchase
price to acquired assets and liabilities resulted in the allocation of $29,051
to goodwill and $1,951 to purchased intangibles.
Additionally, during the first quarter of fiscal 2003, the Company
completed the acquisition of all or portions of Andersen BC Practices in
Switzerland, Norway, Finland, Sweden, Singapore, South Korea, and Peru and the
group hire of certain employees formerly associated with the Andersen BC
Practice in Brazil for approximately $13,250. The preliminary allocation of the
purchase price to acquired assets and liabilities resulted in the allocation of
$15,692 to goodwill and $1,335 of purchased intangibles. The pro forma effects
on operations of the Andersen BC Practice transactions were not material.
In connection with the acquisitions of KCA and certain European Andersen BC
Practices, the Company is in the process of finalizing plans of restructuring to
balance resources with market demand for services, including specifically
identifying excess resources, and finalizing the cost of the actions with
appropriate regulatory bodies. The Company also plans to exit redundant office
facilities and consolidate staff in selected facilities. The Company's
preliminary estimate of these acquisition liabilities is $20,130, none of which
was disbursed through September 30, 2002. The plans are expected to be finalized
in the quarter ended December 31, 2002 and fully implemented by the end of the
fiscal year, subject to regulatory approvals.
For all of the acquisitions noted above, the Company is in the process of
finalizing the allocation of the purchase price to the assets acquired and
liabilities assumed based on their fair values at the date of acquisition, in
accordance with SFAS No. 141, "Business Combinations." Any adjustment to the
allocation of the purchase price for these acquisitions upon finalization of our
valuation of these assets acquired and liabilities assumed is not expected to
have a significant effect on our balance sheet.
Note 6. Notes Payable
On August 21, 2002, the Company entered into a $220,000 revolving credit
facility for the purpose of funding a portion of the acquisition cost of KCA.
This credit facility matures on December 15, 2002 and is in addition to the
Company's other credit facilities. Borrowings bear interest at either the prime
rate, the LIBOR rate plus a margin ranging from 0.875% to 1.625% or money market
rates, the option of which is determinable by the Company. On August 22, 2002,
in connection with the closing of the KCA acquisition, the Company borrowed
$220,000 under the new facility and $75,000 under the Company's existing
receivables purchase facility. At September 30, 2002, these borrowings bore
interest at 2.98% and 2.22%, respectively.
On August 30, 2002, the Company expanded its yen-denominated line of credit
facility to an aggregate principal balance not to exceed 2 billion Yen
(approximately $16,800). Borrowings under the facility accrue interest of TIBOR
plus 0.90% and are used to finance working capital for the Company's Japanese
operations. There are no covenants under the facility, and it matures on August
30, 2003. At September 30, 2002, there were borrowings outstanding on this line
of $4,926, which accrue interest at 0.97%.
Note 7. Derivative Instruments and Hedging Agreements
The Company has borrowings outstanding under bank credit facilities, which
carry variable interest rates (see Note 6). These debt obligations expose the
Company to variability in interest payments due to changes in interest rates. If
interest rates increase, interest expense increases. Conversely, if interest
rates decrease, interest expense decreases.
During the second quarter of fiscal 2003, the Company intends to replace
its $220,000 short-term revolving credit facility used to fund recent
acquisitions with fixed rate debt. In anticipation of this refinancing, the
Company entered into treasury rate locks on $125,000 of five year debt. The
treasury locks are derivative instruments as defined by SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and have been
designated as highly effective cash flow hedges. The treasury locks are
anticipated to convert fixed rate cash flows from 6.71% to approximately 6.57%
on $125,000 of the new debt.
9
The accumulated loss related to the treasury locks included in other
comprehensive income as of September 30, 2002 was approximately $887. On
November 6, 2002 the treasury locks were settled, resulting in a gain of $787.
Until the anticipated refinancing is consummated the amount of accumulated gain
that will be reclassified into interest expense over the next twelve months can
not be projected.
Note 8. Transactions with KPMG LLP
During fiscal 2002, the Company began to wind down the services provided by
KPMG LLP under the transition services agreement. In connection with winding
down and terminating services, we are potentially liable for the payment of
termination costs, as defined in the agreement, incurred by KPMG LLP, including
transitioning personnel and contracts from KPMG LLP to our Company. The Company
has given notice to KPMG LLP of its intent to terminate certain services during
fiscal 2003, for which the amount of termination costs have yet to be determined
by KPMG LLP or agreed upon by the parties. Accordingly, the amount of
termination costs that the Company will pay to KPMG LLP in the future cannot be
reasonably estimated at this time. The Company believes that the amount of
termination costs yet to be assessed will not have a material adverse effect on
the Company's consolidated financial position, cash flows, or liquidity. Whether
such amounts could have a material effect on the results of operation in a
particular quarter or fiscal year cannot be determined at this time.
During July 2002, the Company purchased $30,754 of leasehold improvements
from KPMG LLP at its net book value. These assets had been used by the Company
under the transition services agreement (for which usage charges had been
included in the monthly costs under the agreement) and will continue to be used
in our business. Based on information currently available, the Company
anticipates paying KPMG LLP an additional $40,000 to $60,000 for the sale and
transfer of additional capital assets currently used by the Company through the
transition services agreement.
Note 9. Capital Stock and Option Awards
On September 3, 2002, in accordance with the February 1, 2002 tender offer
relating to stock options with an exercise price of $55.50, the Company issued
4,397,775 replacement options at an exercise price of $11.01, which was 110% of
the closing market price on that date.
In connection with the various Andersen BC Practice transactions, the
Company committed to issuing approximately 4,000,000 shares of common stock to
former partners of those practices as a retentive measure and for no monetary
consideration from such persons. The shares will be issued in equal one-third
increments over a three-year period on the anniversary date of the respective
transactions so long as the recipient remains employed by the Company.
Compensation expense will be recorded ratably over the three-year period
beginning in July 2002. Compensation expense for the three months ended
September 30, 2002 was $3,380.
On September 30, 2002, the Company filed with the SEC a registration
statement on Form S-3 relating to the resale of 30,471,309 shares of the
Company's common stock issued in connection with the closing of the KCA
acquisition. The registration statement indicates that the Company will not be
selling any of the shares covered by the registration statement and will not
receive any of the proceeds from the sale of shares to the extent that any of
the shares are sold by the selling shareholders. This registration statement
became effective on October 18, 2002.
Note 10. Commitment to Re-Branding
In August 2002, the Company announced its commitment to a re-branding
initiative, under which the Company expects to spend $20,000 to $40,000 during
fiscal 2003. For the three months ended September 30, 2002, the Company has
incurred costs of $6,790 ($4,016 after tax, or $0.02 per share).
Note 11. Goodwill and Other Intangible Assets
Effective July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," which established financial accounting and reporting
standards for acquired goodwill and other intangible assets and superseded
Accounting Principles Board Opinion ("APB") No. 17, "Intangible Assets." Under
SFAS No. 142, goodwill and indefinite-lived purchased intangible assets are no
longer amortized but are reviewed at least annually for impairment; the Company
has elected to perform this review annually as of April 1. Identifiable
intangible assets that have finite lives, continue to be amortized over their
estimated useful lives.
10
In connection with adopting this standard as of July 1, 2001, the Company
recognized a transitional impairment loss of $79,960, or $0.50 per basic and
diluted earnings per share, as the cumulative effect of an accounting change.
The transitional impairment charge resulted from a change in the criteria for
the measurement of the impairment loss from undiscounted cash flows, a method
required by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," to discounted cash flows as
required by SFAS No. 142.
Goodwill and other identifiable intangible assets consisted of the
following at September 30, 2002 and June 30, 2002:
September 30, June 30,
2002 2002
------------ -------------
Internal-use software $ 91,348 $ 77,033
Purchased intangibles 39,625 13,225
Marketed software 18,371 16,915
Other 2,612 2,612
Total accumulated amortization (43,329) (34,133)
--------- ---------
Other intangible assets, net 108,627 75,652
Goodwill 886,487 87,663
--------- ---------
Total $ 995,114 $ 163,315
========= =========
Identifiable intangible assets include purchased or internally developed
software and finite-lived purchased intangible assets, which primarily consist
of market rights, backlog and software license rights. Identifiable intangible
assets are amortized principally by the straight-line method over their expected
period of benefit.
The changes in the carrying amount of goodwill for the three months ended
September 30, 2002 are as follows:
Balance Balance
June 30, September 30,
2002 Additions Other 2002
-------------- -------------- --------------- ----------------
Public Services $ 11,935 $ 11,467 $ - $ 23,402
Communications & Content 8,242 15,088 - 23,330
Financial Services 2,886 6,035 - 8,921
Consumer & Industrial Markets 8,270 22,933 - 31,203
High Technology 1,926 4,827 - 6,753
International 50,608 735,653 2,821 789,082
Corporate/Other 3,796 - - 3,796
-------------- -------------- --------------- ----------------
Total $ 87,663 $ 796,003 $ 2,821 $ 886,487
============== ============== =============== ================
Note 12. Subsequent Events
On October 1, 2002, the Company acquired the consulting unit of the KPMG
international member firm in Finland for approximately $4,000. The Company is
currently in the process of determining the allocation of the purchase price to
the acquired assets and liabilities.
* * * * *
11
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
information contained in the Consolidated Condensed Financial Statements and
notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. This
Quarterly Report on Form 10-Q contains forward-looking statements that involve
risks and uncertainties. See the discussion relating to "Forward-Looking
Statements" below.
Accounting policies that management believes are most critical to the
Company's financial condition and operating results pertain to revenue
recognition and valuation of unbilled revenues (including estimates of costs to
complete engagements); collectibility of accounts receivable; valuation of
goodwill; and estimates pertaining to discretionary compensation costs and
global effective income tax rates. In deriving accounting estimates, management
considered available information and exercised reasonable judgment. However,
actual results could differ from these estimates. See also "Company Overview --
Financial Statement Presentation -- Critical Accounting Policies and Estimates"
in the Company's Form 10-K for the fiscal year ended June 30, 2002.
Company Overview
We are one of the world's largest business consulting and systems
integration firms with approximately 17,000 employees. We serve Global 2000
companies, small and medium-sized businesses, government agencies and other
organizations. We provide business and technology strategy, systems design and
architecture, applications implementation, network infrastructure and managed
services. Our service offerings are designed to help our clients deploy business
systems to access information on a timely basis, and to create value in their
enterprises.
On October 2, 2002, KPMG Consulting, Inc. changed its name to BearingPoint,
Inc. Our brand name underscores our global commitment to help our clients set
clear direction and achieve results. In conjunction with our branding
initiative, BearingPoint moved to the New York Stock Exchange and began trading
on October 3, 2002, under the new ticker symbol "BE." This move strengthens
BearingPoint's reach to potential international investors.
We have provided consulting services through five industry groups in which
we have significant industry-specific knowledge. These groups are Public
Services, Communications & Content, Financial Services, Consumer & Industrial
Markets and High Technology. In addition, as a result of our significant
international acquisitions, we have established a new International Segment. Our
focus on specific industries provides us with the ability to tailor our service
offerings to reflect an understanding of the marketplaces in which our clients
operate, enabling our clients to achieve their business objectives more quickly
and efficiently.
We now have multinational operations covering North and South America,
Europe and the Asia Pacific region. We utilize this multinational network to
provide consistent integrated service to our clients throughout the world.
During the first quarter of fiscal 2003, we significantly expanded our European
presence with the purchase of KPMG Consulting AG ("KCA"), which has
approximately 3,000 employees in Germany, Switzerland and Austria. We furthered
our global strategy enabling us to better serve our multinational clients by
acquiring all or portions of selected Andersen Business Consulting Practices
("Andersen BC Practices") in Australia, China/Hong Kong, Finland, France, Japan,
Norway, Peru, Singapore, South Korea, Spain, Sweden and Switzerland, as well as
hiring professionals from Andersen BC Practices in the United States and Brazil.
In addition, we strengthened our Latin American business with the acquisition of
Ernst & Young's Brazilian consulting practice.
HISTORICAL RESULTS OF OPERATIONS OVERVIEW
During the three months ended September 30, 2002, the Company completed its
acquisition of KCA and a number of acquisitions and other transactions involving
Andersen BC Practices around the globe, including the group hire of
approximately 1,500 Andersen BC Practice employees in the United States.
The Company realized net income for the three months ended September 30,
2002 of $15.2 million, or $0.09 per share, compared to a net loss of $57.6
million, or $0.36 per share including a transitional impairment charge relating
to the cumulative effect of change in accounting principle of $80.0 million (net
of tax) or $0.50 per share, for the three months ended September 30, 2001. Net
income before cumulative effect of change in accounting principle for the
quarters ended September 30, 2002 and 2001, were $15.2 million and $22.3
million, respectively.
12
This decrease is principally due to the integration of approximately 1,500
personnel hired from the Andersen BC Practice in the United States, as these
professionals were hired on July 1, 2002 and their utilization was, as expected,
significantly below our existing business for most of the quarter.
Three Months Ended September 30, 2002 Compared to Three Months Ended September
30, 2001
Revenues. Revenues increased $138.7 million, or 22.8%, from $608.9 million in
the three months ended September 30, 2001, to $747.6 million in the three months
ended September 30, 2002. The overall increase in revenue is attributable to
international acquisitions ($127.6 million) and the group hire of Andersen BC
Practice personnel in the United States, including collaborative market action
with our core business ($52.0 million). Public Services, the Company's largest
business unit, generated strong revenue growth of $38.1 million, up 17.4%
excluding the impact of acquisitions and other transactions compared to the
prior year. International revenue increased $138.7 million from $42.1 million
for the three months ended September 30, 2001 to $180.7 million for the three
months ended September 30, 2002 due to acquisitions, group hires and other
transactions around the globe. Growth in revenue from Public Services,
acquisitions and other transactions was offset by declines in the High
Technology and Communications & Content business units, whose clients have been
impacted by the uncertain economic environment, thereby impacting their
contributions to our business.
The Company expects this period of economic uncertainty may continue to impact
revenue growth for at least another quarter with the most significant impact
being in the Communications & Content industry. However, this is expected to be
more than offset by the addition of revenues from recent acquisitions, group
hires and other transactions.
Gross Margin. Gross margin as a percentage of gross revenues decreased to 23.3%
from 26.9% for the three months ended September 30, 2002 and 2001, respectively.
This decrease is primarily due to the lower utilization rates for the former
U.S. Andersen BC Practice personnel hired on July 1, 2002. In dollar terms,
gross margin increased by $10.0 million, or 6.1%, from $164.0 million for the
three months ended September 30, 2001, to $174.0 million for the three months
ended September 30, 2002. The increase in gross margin was due to an increase in
revenue of $138.7 million described above, partially offset by:
o A net increase in professional compensation of $99.8 million, or 40.7%, to
$344.8 million compared to $245.1 million in the prior year's quarter. This
increase was predominantly due to the addition of approximately 7,000
billable employees through acquisitions and other transactions (including a
$3.4 million noncash charge relating to common stock awards to be made to
our managing directors from Andersen BC Practices), partially offset
by the Company's workforce actions that have occurred over the last 12
months in response to a challenging economy. Overall the Company's average
billable headcount has increased 51.2% from approximately 8,400 in the
first quarter of fiscal 2002 to 12,700 in the current quarter.
o A net increase in other direct contract expenses of $19.2 million, or
13.3%, to $163.4 million, representing 21.9% of revenue, compared to $144.2
million, or 23.7% of revenue in the prior year's quarter. The $19.2 million
increase is attributable to higher revenue levels while the improvement as
a percentage of revenue is due to the Company's continued efforts to limit
the use of subcontractors and travel expenses as well as historically lower
use of subcontractors internationally.
o A net increase in other costs of service of $9.7 million, or 17.4%, to
$65.4 million from $55.6 million, was primarily due to acquisitions and
other transactions, partially offset by lower levels of bad debt expense
and tighter controls on discretionary expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses and amortization of purchased intangibles was $142.2
million for the three months ended September 30, 2002. This reflects an increase
of $22.3 million, or 18.6%, from $119.9 million for the three month period ended
September 30, 2001. This increase is principally due to $6.8 million of
re-branding costs, $5.0 million of amortization expense related to purchased
intangibles (primarily backlog, which will be fully amortized within 12 months)
and the impact of the various acquisitions and other transactions, partially
offset by reduced discretionary spending and current cost control initiatives.
Interest (Income) Expense, Net. Interest (income) expense, net, increased $1.2
million to $1.1 million of net interest expense from $0.1 million of net
interest income for the three months ended September 30, 2002 and 2001,
13
respectively. This increase in net interest expense is due to the increase in
borrowings outstanding of $322.2 million from $12.3 million at September 30,
2001. The increase in borrowings is primarily due to borrowings of $220.0
million under the Company's new short-term revolving credit facility and $75.0
million of borrowings on its receivables purchase facility predominantly used to
finance a portion of the cost of the acquisition of KCA in August 2002.
Income Tax Expense. For the three month period ended September 30, 2002, the
Company earned income before taxes of $30.7 million and provided income taxes of
$15.5 million resulting in an effective tax rate for the quarter of 50.5%. For
the three months ended September 30, 2001, the Company earned income before
taxes and cumulative effect of change in accounting principle of $44.2 million
and provided income taxes of $21.9 million resulting in an effective tax rate
for the quarter of 49.5%. The tax rates have been impacted by the
non-deductibility of losses associated with certain international operations.
Income before Cumulative Effect of Change in Accounting Principle. Income before
cumulative effect of change in accounting principle decreased by $7.1 million,
from $22.3 million for the three months ended September 30, 2001, to $15.2
million for the three months ended September 30, 2002. This decrease in
profitability reflects lower utilization on billable headcount from acquisitions
and other transactions, increased amortization on finite lived intangibles, and
re-branding costs partially offset by increased revenues, reduced discretionary
spending and cost control initiatives.
Cumulative Effect of Change in Accounting Principle. The Company adopted SFAS
No. 142 during the first fiscal quarter of the prior year (as of July 1, 2001).
This standard eliminated goodwill amortization upon adoption and required an
assessment for goodwill impairment upon adoption and at least annually
thereafter. As a result of adoption of this standard, the Company no longer
amortizes goodwill and during the quarter ended September 30, 2001 incurred a
non-cash transitional impairment charge of $80.0 million (net of tax). This
transitional impairment charge is a result of the change in accounting principle
to measuring impairments on a discounted versus an undiscounted cash flow basis.
Net Income (Loss). For the three months ended September 30, 2002, the Company
realized net income of $15.2 million, or $0.09 per share. For the three months
ended September 30, 2001, the Company realized a net loss applicable to common
stockholders of $57.6 million, or $0.36 per share, largely due to recording a
transitional impairment charge as a result of a cumulative effect of change in
accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Company had a cash balance of $86.3 million,
which is down $117.3 million from June 30, 2002 predominantly due to funding
various acquisitions, group hires and other transactions around the globe. The
Company has funded these transactions and operations through cash generated from
operations, borrowings from various credit agreements of $330.5 million and the
issuance of 30.5 million shares of common stock valued at $11.96 per share. The
Company has borrowing arrangements available including a revolving credit
facility with an outstanding balance of $24.0 million at September 30, 2002 (not
to exceed $250 million), a short-term revolving credit facility with an
outstanding balance of $220.0 million at September 30, 2002 (not to exceed $220
million), and an accounts receivable financing facility with an outstanding
balance of $75.0 million at September 30, 2002 (not to exceed $150 million). The
$250 million and $220 million revolving credit facilities expire on May 29, 2005
and December 15, 2002, respectively. The accounts receivable purchase agreement
permits "sales" of accounts receivable through May 23, 2003, subject to annual
renewal. The accounts receivable purchase agreement is accounted for as a
financing transaction; accordingly, it is not an off-balance sheet financing
arrangement. The Company intends to replace the short-term revolving credit
facility with other financing prior to December 15, 2002.
The $250 million revolving credit facility includes affirmative, negative
and financial covenants, including, among others, covenants restricting the
Company's ability to incur liens and indebtedness, purchase the Company's
securities, and pay dividends and requiring the Company to maintain a minimum
level of net worth ($832.7 million as of September 30, 2002), maintain fixed
charge coverage of at least 1.25 to 1.00 (as defined) and maintain a leverage
ratio not to exceed 2.50 to 1.00 (as defined). We are in compliance with the
financial ratios, covenants and other restrictions imposed by this credit
facility. The credit facility contains customary events of default and a default
(i) upon the acquisition by a person or group of beneficial ownership of 30% or
more of the Company's common stock, or (ii) if within a period of six calendar
months, a majority of the officers of the Company's executive committee cease to
serve on its executive committee, and their terminations or departures
materially affect the Company's business. The receivables purchase agreement
contains covenants that are consistent with the Company's $250 million revolving
credit facility and cross defaults to the $250 million revolving credit
facility. The
14
short-term revolving credit facility provides that upon receipt of proceeds by
the Company from certain dispositions of assets or issuances of equity or debt
securities, the revolving credit commitments will automatically be reduced by
certain amounts in the case of such dispositions, or by the amount of proceeds
received in the case of an issuance of securities, and the Company is required
to repay amounts due that exceed the reduced credit commitments.
Under the transition services agreement with KPMG LLP (which
terminates no later than February 8, 2004 for non-technology services and
February 8, 2005 for technology-related services), the Company contracted to
receive certain infrastructure support services from KPMG LLP until the Company
completes the build-out of its own infrastructure. If the Company terminates
services prior to the end of the term for such services, the Company may be
obligated to pay KPMG LLP termination costs, as defined in the transition
services agreement, incurred as a result of KPMG LLP winding down and
terminating such services. KPMG LLP and the Company have agreed that during the
term of the transition services agreement the parties will work together to
minimize any termination costs (including transitioning personnel and contracts
from KPMG LLP to our Company), and our Company will wind down its receipt of
services from KPMG LLP and develop its own internal infrastructure and support
capabilities or seek third party providers of such services. The Company has
given notice to KPMG LLP of its intent to terminate certain services in fiscal
2003 for which the amount of termination costs have either not been determined
by KPMG LLP or not agreed upon by the parties. In July 2002, the Company paid
KPMG LLP $30.8 million representing KPMG LLP's net book value of leasehold
improvements purchased by KPMG LLP and used exclusively by the Company. Based on
information currently available, the Company anticipates paying KPMG LLP
approximately $40 million to $60 million for the sale and transfer of additional
capital assets (such as computer equipment, furniture and leasehold
improvements) currently used by the Company through the transition services
agreement (for which usage charges are included in the monthly costs under the
agreement). The specific identification and net book value of capital assets
that may or may not be transferred to our Company by KPMG LLP in the future, as
well as the timing of any such transfers, are subject to negotiation and cannot
be readily determined at this time. Until the Company takes ownership of these
capital assets, the transition services agreement provides an off-balance sheet
financing arrangement. The amount of termination costs that the Company will pay
to KPMG LLP in the future cannot be reasonably estimated at this time. The
Company believes that the amount of termination costs yet to be assessed will
not have a material adverse effect on the Company's consolidated financial
position, cash flows, or liquidity. Whether such amounts could have a material
effect on the results of operations in a particular quarter or fiscal year
cannot be determined at this time.
Cash used in operating activities during the three months ended
September 30, 2002 was $11.9 million, principally due to cash operating results
of $31.0 million more than offset by an increase in accounts receivable and
unbilled revenues of $45.8 million. The increase in accounts receivable and
unbilled revenues is primarily due to receivables and unbilled balances from
acquired entities and other transactions for which no balance sheet was
acquired.
Cash used in investing activities during the three months ended
September 30, 2002 was $442.3 million principally due to $3.8 million in
purchases of property and equipment, $30.8 million for the purchase of capital
assets from KPMG LLP, and $400.8 million paid for acquisitions.
Cash provided by financing activities for the three months ended
September 30, 2002 was $336.9 million, principally due to net proceeds from
borrowings of $324.5 million and $12.5 million from the issuance of common stock
primarily relating to the Company's employee stock purchase plan.
While the Company expects this period of economic uncertainty may continue
to impact revenue growth for at least another quarter, we continue to actively
manage client billings and collections and maintain tight controls over
discretionary expenses. The Company believes that the cash provided from
operations, borrowings available under the various existing credit facilities,
and existing cash balances along with additional financing expected to be
completed prior to December 15, 2002 will be sufficient to meet working capital
and capital expenditure needs for at least the next 12 months.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On July 30, 2002, The Financial Accounting Standards Board ("FASB")
issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The statement requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
statement include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. SFAS No. 146 is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The Company is
currently
15
evaluating the requirements and impact of this statement on our consolidated
results of operations and financial position.
On October 25, 2002 the Emerging Issues Task Force ("EITF") reached a
tentative consensus on Issue 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables" which addresses how to account for arrangements that may
involve the delivery or performance of multiple products, services, and/or
rights to use assets. The EITF plans to ratify this decision at its November
20-21, 2002 meeting and make the final consensus applicable to transactions
completed in fiscal years beginning after December 15, 2002. The Company is
currently evaluating the requirements and impact of this issue on our
consolidated results of operations and financial position.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in this 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 that
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"
and similar expressions are used to identify these forward-looking statements.
These 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. 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.
Our actual results may differ from the forward-looking statements for many
reasons, including:
o the business decisions of our clients regarding the use of our
services;
o the timing of projects and their termination;
o the availability of talented professionals to provide our services;
o the pace of technological change;
o the strength of our joint marketing relationships;
o the actions of our competitors; and
o unexpected difficulties associated with our recent acquisitions,
group hires and other transactions involving KCA and the former
Andersen BC Practices.
In addition, our results and forward-looking statements could be
affected by general domestic and international economic and political
conditions, including the current slowdown in the economy, uncertainty as to the
future direction of the economy and vulnerability of the economy to domestic or
international incidents, as well as market conditions in our industry. For a
more detailed discussion of certain of these factors, see Exhibit 99.1 to this
Form 10-Q. We caution the reader that the factors we have identified above may
not be exhaustive. We operate in a continually changing business environment,
and new factors that may affect our forward-looking statements emerge from time
to time. Management cannot predict such new factors, nor can it assess the
impact, if any, of such new factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those implied by any forward-looking statements.
16
PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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.
Our exposure to changes in interest rates arises primarily because our
indebtedness under our bank credit facilities carries variable interest rates.
In anticipation of refinancing our $220 million short-term revolving credit
facility used to fund recent acquisitions, the Company entered into treasury
rate locks on $125 million of five year debt. The treasury locks are expected to
convert fixed rate cash flows at 6.71% associated with the $125 million to a
fixed rate of approximately 6.57%. See also Note 7 in the Notes to Consolidated
Condensed Financial Statements above.
Our exposure to changes in foreign currency rates primarily relates to net
investment exposure, arising from acquisitions in and working capital advances
provided to certain international operations, including risk from the recent
acquisitions, group hires and other transactions in Europe, Asia Pacific and
Latin America.
PART I, ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 day period prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are adequately designed to timely
notify them to material information relating to the Company required to be
disclosed in the Company's SEC filings.
CHANGES IN INTERNAL CONTROLS
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls since the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are from time to time the subject of lawsuits and other claims and
regulatory proceedings arising in the ordinary course of our business. We do not
expect that any of these matters, individually or in the aggregate, will have a
material impact on our financial condition or results of operations.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 22, 2002, as partial consideration for its acquisition of KCA,
the Company issued 30,471,309 shares of its common stock to the former
stockholders of KCA pursuant to a share purchase agreement among the Company,
KPMG DTG, the majority stockholder of KCA, and the minority stockholders of KCA
as set forth in the share purchase agreement. The shares were issued in a
private placement pursuant to the exemption from registration under Section 4(2)
of the Securities Act of 1933.
ITEMS 3-4. NONE
ITEM 5. OTHER INFORMATION
Robert C. Lamb, Jr., Executive Vice President and Chief Financial Officer
of the Company, has accepted a comparable position with FleetBoston Financial.
Mr. Lamb will be Executive Vice President and Chief Financial Officer of
FleetBoston Financial. His responsibilities will be transitioned prior to
calendar year end. Mr. Lamb held a variety of positions during a 14-year career
with FleetBoston Financial, including as its Corporate Controller from 1993 to
2000. In June 2000, he joined our Company in his current position. We have
commenced a search for Mr. Lamb's replacement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -- Reference is made to the Exhibit Index.
b) The Company filed three reports on Form 8-K and one report of
Form 8-K/A during the period of July 1, 2002 through the date of this
report. The Form 8-K that was filed on September 6, 2002 reported the
acquisition of KPMG Consulting AG and a related amendment to the
Rights Agreement between the Company and EquiServe Trust Company,
N.A., as rights agent, dated October 2, 2001. The Form 8-K filed on
September 30, 2002 reported that the Company's Chairman and Chief
Executive Officer had submitted to the SEC statements under oath in
accordance with Commission Order No. 4-460 and provided certifications
pursuant to 18 U.S.C. (S) 1350 adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. The Form 8-K filed on October 4, 2002
reported that the Company had changed its name to BearingPoint, Inc.
and would be listing on the New York Stock Exchange under the trading
symbol "BE." The Form 8-K/A that was filed on October 17, 2002
contained the pro forma financial statements relating to the Company's
acquisition of KCA and the historical financial statements of KCA.
Exhibit Index
3.3 Certificate of Ownership and Merger merging Bones Holding, Inc. into
KPMG Consulting, Inc.
4.1 Amendment No. 1 to the Rights Agreement between BearingPoint, Inc.
(formerly KPMG Consulting, Inc.) and EquiServe Trust Company, N.A.,
which is incorporated herein by reference to Exhibit 99.1 from the
Company's Form 8-K filed on September 6, 2002.
10.1 Revolving Credit Facility Agreement, dated August 21, 2002, between
BearingPoint, Inc. (formerly KPMG Consulting, Inc.), BearingPoint, LLC
(formerly KPMG Consulting, LLC), the guarantors referred to therein,
the banks party thereto, JP Morgan Chase Bank, as the administrative
agent, and J.P. Morgan Securities, Inc., as the sole arranger and book
runner, which is incorporated herein by reference to Exhibit 10.31 from
the Company's Form 10-K filed on September 30, 2002.
10.2 Amendment No. 7 to Receivables Purchase Agreement, dated as of
October 1, 2002, between KCI Funding Corporation, BearingPoint, Inc.
(formerly KPMG Consulting, Inc.), Market Street Funding Corporation and
PNC Bank, National Association.
10.3 Waiver and First Amendment to Credit Agreement, dated as of August 20,
2002, by and among BearingPoint, Inc. (formerly KPMG Consulting, Inc.),
the Guarantors, the Banks, and PNC Bank, National Association, as
Administrative Agent
10.4 Notice and Waiver, dated as of September 30, 2002, by and among
BearingPoint, Inc. (formerly KPMG Consulting, Inc.), the Guarantors,
the Banks, and PNC Bank, National Association, as Administrative Agent.
10.5 Form of Restricted Stock Agreement with certain officers of
BearingPoint, Inc. pursuant to the 2000 Long-Term Incentive Plan.
99.1 Factors Affecting Future Financial Results.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BearingPoint, Inc.
DATE: November 14, 2002 By: /s/ Randolph C. Blazer
------------------------
Randolph C. Blazer,
Chairman of the Board, Chief Executive Officer,
and President
Principal Financial and Accounting Officer
DATE: November 14, 2002 By: /s/ Robert C. Lamb, Jr.
-------------------
Robert C. Lamb, Jr.,
Executive Vice President
and Chief Financial Officer
18
CERTIFICATIONS
I, Randolph C. Blazer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BearingPoint,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ RANDOLPH C. BLAZER
------------------------------------
Randolph C. Blazer
Chairman of the Board,
Chief Executive Officer and President
19
I, Robert C. Lamb, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of BearingPoint,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ ROBERT C. LAMB, JR.
------------------------------------
Robert C. Lamb, Jr.
Executive Vice President &
Chief Financial Officer
20