Form 8-K
 
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 8-K
 
CURRENT REPORT
 
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported): January 30, 2003
 
 
BearingPoint, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
  
001-31451
  
22-3680505
(State or other jurisdiction
of incorporation)
  
(Commission
File Number)
  
(I.R.S. Employer
Identification No.)
 
1676 International Drive
McLean, VA 22102
(Address of principal executive offices)
 
(703) 747-3000
(Registrant’s telephone number, including area code)
 

 
Item 5.  Other Events
 
      On January 30, 2003, BearingPoint, Inc. (the “Company”) announced its financial results for the second quarter of fiscal 2003.
 
      The Company reported gross revenue of $807.9 million for the second quarter of fiscal year 2003, compared to $593.2 million for the second quarter of the prior year and $747.6 million in the previous quarter of this fiscal year. The increase in gross revenue represents 36.2% growth over the second quarter of the prior year and growth of 8.1% over the previous quarter ended September 30, 2002. Similarly, net revenue increased 43.7% over the second quarter of the prior year and increased 7.7% over the previous quarter. The growth in revenue was in large part the result of recent acquisitions and other transactions.
 
      The Company reported net income of $16.4 million and earnings per share of $0.09 for the second quarter of fiscal year 2003, compared to net income of $6.6 million and earnings per share of $0.04 in the second quarter of fiscal year 2002. The second quarter results for the Company’s prior fiscal year included the impact of a non-operating charge that pertained predominantly to a workforce reduction program. Excluding the impact of this non-operating charge in the prior fiscal year, net income would have been $19.4 million and earnings per share would have been $0.12 for the second quarter of fiscal year 2002.
 
      Highlights from the current quarter results include the following key performance items:
 
 
•
 
Net income per share of $0.09 in the second quarter of fiscal year 2003 is consistent with guidance set forth at the beginning of the quarter. The Company generated $36.1 million in operating income for the quarter. These results reflect the positive impact from revenue growth and ongoing cost control initiatives, which were partially offset by additional expenses associated with the acquisitions and other transactions and rebranding. The cost of our rebranding effort increased from $6.8 million in the first quarter of fiscal year 2003 to $15.0 million, or $0.05 per share, in the second quarter.
 
 
•
 
Gross revenue in the December 2002 quarter for our pre-acquisition business was essentially flat, based on management’s estimates, compared to the quarter ended December 31, 2001 and down slightly compared with the previous quarter. The sequential quarterly decline is primarily a result of the seasonality impact on the December quarter compared with the September quarter. Year over year results were primarily attributable to positive growth of gross revenue in three North America business units (Public Services, Financial Services and Consumer and Industrial Markets) and in our pre-acquisition international units. Our pre-acquisition business includes our operations in North America (including the personnel hired from Andersen Business Consulting U.S.) and our Asia Pacific, Latin America, Israeli and Irish businesses before the acquisitions of international Andersen Business Consulting units and the German, Austrian and Swiss consulting practices formerly known as KPMG Consulting AG (KCA).
 
 
•
 
Public Services, the Company’s largest business unit, generated gross revenue of $261.1 million, a 2.2% decrease from the previous quarter but a 10.4% increase from the quarter ended December 31, 2001. Although revenue declined versus the previous quarter, gross revenue per business day remained steady at $4.2 million and operating income declined only $1.3 million to $76.7 million.
 
 
•
 
Our acquisitions significantly expanded our international presence and diversified our revenue base. For the quarter ended December 31, 2001, North America generated 92.2% of gross revenue, with Asia Pacific, Latin America and Europe, Middle East and Africa (EMEA) contributing 6.0%, 1.4% and 0.4%, respectively. By comparison, for the quarter ended December 31, 2002, North America contributed 66.5% of gross revenue, with Asia Pacific, Latin America and EMEA providing 9.6%, 2.4% and 21.5%, respectively.
 
      The Company continues to effectively manage its cost structure and focus on the following key performance indicators:

 
 
•
 
Other direct contract expenses, as a percentage of gross revenue, decreased to 22.2% compared to 26.2% in the second quarter of the prior year. The improvement as a percentage of gross revenue was primarily due to the Company’s concerted effort to limit the use of subcontractors and travel expenses. Overall, the expenses increased $23.5 million to $179.0 million when compared to $155.5 million in the second quarter of the prior year, which is attributable to the aforementioned acquisitions and other transactions.
 
 
•
 
Professional compensation costs increased by $109.0 million to $356.7 million when compared to the second quarter of the prior year, principally due to the additional headcount from the aforementioned acquisitions and other transactions. The second quarter of the prior year included $17.7 million ($11.3 million post-tax) in charges pertaining to a workforce reduction program. The Company announced on January 15, 2003 that it plans to reduce its current workforce by approximately 450 to 550 employees, or approximately 3% of its total workforce, in order to balance capacity with demand for services. As previously announced, the Company anticipates that the pre-tax charge relating to this action, which will be recorded in the third quarter of this fiscal year, will be in the range of $17 million to $23 million. This charge will be partially offset by savings in professional compensation expense due to the related reduction in staff. Separately, the Company announced a reduction in workforce of approximately 700 personnel in the KCA practices. The expenses associated with this reduction were previously accounted for as part of the acquisition of KCA, and as a result, the Company does not expect to take a non-operating charge to earnings.
 
 
•
 
Other costs of service, as a percentage of gross revenue, decreased to 9.1% compared to 9.6% in the second quarter of the prior year. Although the percentage of gross revenue decreased, the overall expenses increased by $16.4 million to $73.4 million, when compared to the second quarter of the prior year, which included a $2.5 million ($1.5 million post-tax) charge that related to the impairment of third-party software licenses. This increase was primarily due to the additional expenses resulting from the aforementioned acquisitions and other transactions, partially offset by lower levels of bad debt expense and tighter control on discretionary expenses.
 
 
•
 
Selling, general and administrative expenses increased by $47.6 million to $162.6 million compared to the second quarter of the prior year. This increase is principally due to $15.0 million of rebranding costs, which impacted the Company’s earnings per share by $0.05 in the quarter, $7.1 million of amortization expense related to purchased intangibles and the impact of the various acquisitions and other transactions. These increases were partially offset by reduced discretionary spending and cost control initiatives.
 
 
•
 
Days sales outstanding (DSO) of 66 days as of December 31, 2002 was higher than the 56 days in the second quarter of the prior year but lower than the 69 days recorded in the previous quarter. This increase over the prior year was predominantly due to the acquisition of our German consulting practice, as their historic DSO is higher than BearingPoint’s. The increase in DSO was partially offset by the Company’s effort to enhance its cash collections and review processes.
 

 
SELECTED FINANCIAL DATA
 
    
Q2
Dec. 31,
2002
     
Q1
Sept. 30,
2002
     
Q4
Jun. 30,
2002
     
Q3
Mar. 31,
2002
     
Q2
Dec. 31,
2001
  
US dollars in thousands, except per share data
                                             
Revenue
   
$
807,911
 
   
$
747,560
 
   
$
583,213
 
   
$
582,305
 
   
$
593,218
 
Expenses
   
 
774,801
(a)
   
 
716,892
(a)
   
 
560,421
 
   
 
532,831
 
   
 
575,077
 
Net Income - GAAP Basis
   
 
16,389
 
   
 
15,181
 
   
 
404
 
   
 
23,748
 
   
 
6,594
 
Operating Earnings
   
 
16,389
 
   
 
15,181
 
   
 
24,128
(b)
   
 
23,748
 
   
 
19,377
(b)
Net Income Applicable to Common Shares
   
 
16,522
 
   
 
15,314
 
   
 
537
 
   
 
23,862
 
   
 
6,708
 
Common Shares Outstanding (Operating):
                                             
Average - Diluted
   
 
190,488,475
 
   
 
173,044,097
 
   
 
160,200,079
 
   
 
160,488,066
 
   
 
158,340,791
 
Period End
   
 
189,545,120
 
   
 
189,529,120
 
   
 
157,666,159
 
   
 
158,009,240
 
   
 
156,689,722
 
Earnings per Share:
                                             
GAAP Basis - Basic and Diluted
   
$
0.09
 
   
$
0.09
 
   
$
0.00
 
   
$
0.15
 
   
$
0.04
 
Operating Basis - Basic and Diluted
   
$
0.09
 
   
$
0.09
 
   
$
0.15
(b)
   
$
0.15
 
   
$
0.12
(b)
Utilization Rate (Total NA)
   
 
62
%
   
 
64
%
   
 
71
%
   
 
70
%
   
 
65
%
Gross Billing Rate (Total NA)
   
$
217
 
   
$
217
 
   
$
226
 
   
$
229
 
   
$
230
 
Average Billable Headcount (Global)
   
 
14,361
 
   
 
12,692
(c)
   
 
7,815
 
   
 
7,875
 
   
 
8,289
 
Total Headcount (Period End)
   
 
16,689
 
   
 
16,915
 
   
 
9,328
 
   
 
9,176
 
   
 
9,669
 
 
Note: All North America statistics include the impact of the personnel hired from Andersen Business Consulting – U.S. Prior quarter amounts have been reclassified to conform with current year presentation.
(a)
 
Includes rebranding costs of $15.0 million ($8.9 million post-tax) in Q2 FY 2003 and $6.8 million ($4.0 million post-tax) in Q1 FY 2003.
(b)
 
Excludes one-time non-operating items.
(c)
 
Average headcount based upon timing of acquisitions and other transactions.
 
Reconciliation of Net Income to Operating Earnings
 
Net Income - GAAP Basis
   
$
16,389
   
$
15,181
   
$
404
   
$
23,748
   
$
6,594
Non-operating Charges (post-tax):
                                   
Impairment of Equity Investments
   
 
—  
   
 
—  
   
 
16,023
   
 
—  
   
 
—  
Workforce Reduction Program
   
 
—  
   
 
—  
   
 
3,091
   
 
—  
   
 
11,283
Software Licenses Impairment Charge
   
 
—  
   
 
—  
   
 
3,017
   
 
—  
   
 
1,500
Other
   
 
—  
   
 
—  
   
 
1,593
   
 
—  
   
 
—  
    
  
  
  
  
Operating Earnings
   
$
16,389
   
$
15,181
   
$
24,128
   
$
23,748
   
$
19,377
    
  
  
  
  

STATEMENTS OF INCOME—QUARTERLY
 
US dollars in thousands, except per share data
   
Q2
Dec. 31, 2002
     
Pct. of Revenue
     
Q1
Sept. 30, 2002
     
Pct. of Revenue
     
Q2
Dec. 31, 2001
     
Pct. of Revenue
  
Revenue
   
$
807,911
 
   
100.0
%
   
$
747,560
 
   
100.0
%
   
$
593,218
 
   
100.0
 
Other Direct Contract Expenses
   
 
(179,035
)
   
(22.2
)
   
 
(163,398
)
   
(21.9
)
   
 
(155,543
)
   
(26.2
)
    
  
  
  
  
  
Net Revenue
   
 
628,876
 
   
77.8
 
   
 
584,162
 
   
78.1
 
   
 
437,675
 
   
73.8
 
    
  
  
  
  
  
Costs of Service
                                                
Professional Compensation
   
 
356,728
 
   
44.2
 
   
 
344,847
 
   
46.1
 
   
 
247,746
 
   
41.8
 
Other Costs of Service
   
 
73,431
 
   
9.1
 
   
 
65,356
 
   
8.7
 
   
 
57,000
 
   
9.6
 
    
  
  
  
  
  
Total Costs of Service
   
 
430,159
 
   
53.2
 
   
 
410,203
 
   
54.9
 
   
 
304,746
 
   
51.4
 
    
  
  
  
  
  
Gross Margin
   
 
198,717
 
   
24.6
 
   
 
173,959
 
   
23.3
 
   
 
132,929
 
   
22.4
 
Selling, General & Administrative
   
 
162,576
(a)
   
20.1
 
   
 
142,450
(a)
   
19.1
 
   
 
114,990
 
   
19.4
 
    
  
  
  
  
  
Operating Income
   
 
36,141
 
   
4.5
 
   
 
31,509
 
   
4.2
 
   
 
17,939
 
   
3.0
 
Interest Income / (Expense), Net
   
 
(2,753
)
   
(0.3
)
   
 
(1,097
)
   
(0.1
)
   
 
27
 
   
0.0
 
Other
   
 
(278
)
   
(0.0
)
   
 
256
 
   
0.0
 
   
 
175
 
   
0.0
 
    
  
  
  
  
  
Income before Taxes
   
 
33,110
 
   
4.1
 
   
 
30,668
 
   
4.1
 
   
 
18,141
 
   
3.1
 
Income Tax Expense
   
 
16,721
 
   
2.1
 
   
 
15,487
 
   
2.1
 
   
 
11,547
 
   
1.9
 
    
  
  
  
  
  
Net Income—GAAP Basis
   
 
16,389
 
   
2.0
 
   
 
15,181
 
   
2.0
 
   
 
6,594
 
   
1.1
 
Non-operating Charges (post-tax):
                                                
Workforce Reduction Program
   
 
—  
 
   
—  
 
   
 
—  
 
   
—  
 
   
 
11,283
 
   
1.9
 
Software Licenses Impairment Charge
   
 
—  
 
   
—  
 
   
 
—  
 
   
—  
 
   
 
1,500
 
   
0.3
 
    
  
  
  
  
  
Operating Earnings
   
$
16,389
 
   
2.0
 
   
$
15,181
 
   
2.0
 
   
$
19,377
 
   
3.3
 
    
  
  
  
  
  
Performance Metrics
                                                
Net Income Applicable to Common
   
$
16,522
 
          
$
15,314
 
          
$
6,708
 
       
Basic and Diluted Net Income per Share—GAAP Basis
   
$
0.09
 
          
$
0.09
 
          
$
0.04
 
       
Basic and Diluted Operating Earnings per Share
   
$
0.09
 
          
$
0.09
 
          
$
0.12
 
       
Utilization Rate (Total NA)
   
 
62
%
          
 
64
%
          
 
65
%
       
Efficiency Rate (Total NA)
   
 
74
%
          
 
72
%
          
 
76
%
       
Days Sales Outstanding (DSO)
   
 
66
 
          
 
69
 
          
 
56
 
       
 
Note: All North America statistics include the impact of the personnel hired from Andersen Business Consulting—U.S. Prior quarter amounts have been reclassified to conform with current year presentation.
(a)
 
Includes rebranding costs of $15.0 million ($8.9 million post-tax) in Q2 FY 2003 and $6.8 million ($4.0 million post-tax) in Q1 FY 2003.

 
BALANCE SHEET
 
US dollars in thousands
   
Dec. 31,
2002
   
Jun. 30, 2002
ASSETS
              
Current Assets:
              
Cash and Cash Equivalents
   
$
49,307
   
$
203,597
Accounts Receivable, Net
   
 
373,500
   
 
246,792
Unbilled Revenues, Net
   
 
206,501
   
 
128,883
Other Current Assets
   
 
87,342
   
 
67,941
    
  
Total Current Assets
   
 
716,650
   
 
647,213
Property and Equipment, Net
   
 
103,090
   
 
60,487
Goodwill and Other Intangible Assets, Net
   
 
1,061,458
   
 
163,315
Other Assets
   
 
14,818
   
 
24,116
    
  
Total Assets
   
$
1,896,016
   
$
895,131
    
  
LIABILITIES AND EQUITY
              
Current Liabilities:
              
Current Portion of Notes Payable
   
$
39,074
   
$
1,846
Acquisition Obligation
   
 
22,091
   
 
16,653
Accounts Payable and Other Current Liabilities
   
 
464,585
   
 
264,796
    
  
Total Current Liabilities
   
 
525,750
   
 
283,295
Long Term Portion of Notes Payable
   
 
253,300
   
 
—  
Other Long Term Liabilities
   
 
49,616
   
 
9,966
    
  
Total Liabilities
   
 
828,666
   
 
293,261
Total Equity
   
 
1,067,350
   
 
601,870
    
  
Total Liabilities and Equity
   
$
1,896,016
   
$
895,131
    
  

 
Forward-Looking Statements
 
This Current Report on Form 8-K contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to the Company’s operations that are based on the Company’s 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 because they involve risks, uncertainties, and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events or the Company’s 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 the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
The Company’s actual results may differ from the forward-looking statements for many reasons, including:
 
 
—
 
the business decisions of the Company’s clients regarding the use of the Company’s services;
 
 
—
 
the timing of projects and their termination;
 
 
—
 
the availability of talented professionals to provide the Company’s services;
 
 
—
 
the pace of technological change;
 
 
—
 
the strength of the Company’s joint marketing relationships;
 
 
—
 
the actions of the Company’s competitors; and
 
 
—
 
unexpected difficulties associated with the Company’s recent acquisitions, group hires and other transactions involving BearingPoint GmbH and the former Andersen Business Consulting Practices.
 
In addition, the Company’s 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 the Company’s industry. For a more detailed discussion of certain of these factors, see “Factors Affecting Future Financial Results” that is attached as Exhibit 99.1 to the Company’s Form 10-Q for the quarter ended September 30, 2002, “Factors Affecting Future Financial Results” in the Company’s most recent Form 10-K and similar sections in the Company’s filings with the Securities and Exchange Commission, which describe risks and factors that could cause results to differ materially from those projected in such forward-looking statements. The Company cautions the reader that these risk factors may not be exhaustive. The Company operates in a continually changing business environment, and new risk factors emerge from time to time. Management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on the Company’s 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.

 
SIGNATURE
 
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 hereunto duly authorized.
 
Date:    January 30, 2003
      
BearingPoint, Inc.
           
By:
  
/s/    David W. Black
               
David W. Black
Executive Vice President, General Counsel
and Secretary