UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 22, 2002
BearingPoint, Inc.
(formerly KPMG Consulting, Inc.)
(Exact name of Registrant as specified in its charter)
Delaware Commission File Number 001-31451 22-3680505
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
1676 International Drive
McLean, Virginia 22102
(703) 747-3000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 747-3000
Explanatory Note
On September 6, 2002, BearingPoint, Inc., formerly KPMG Consulting, Inc. (the
"Company") filed a Current Report on Form 8-K (the "Original Filing") to
announce that the Company had completed the acquisition of KPMG Consulting AG
("KCA") on August 22, 2002. This Amendment amends Item 7 of the Original Filing
to include the financial statements required by Item 7(a) and 7(b).
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of the Business Acquired
(i) Audited Financial Statements of the Business Acquired
The following audited financial statements are included in
this Amendment to the Current Report on Form 8-K:
KPMG CONSULTING AG AND SUBSIDIARIES-Consolidated Financial
Statements as of and for the years ended December 31, 2001 and
2000
Report of Independent Auditors........................ 4
Consolidated Balance Sheets as of
December 31, 2001 and 2000............................ 5
Consolidated Statements of Operations for the
years ended December 31, 2001 and 2000................ 6
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 2001 and 2000........ 7
Consolidated Statements of Cash Flows for the
years ended December 31, 2001 and 2000................ 8
Notes to Consolidated Financial Statements............ 9
(ii) Unaudited Financial Statements of the Business Acquired
The following unaudited financial statements are included
in this Amendment to the Current Report on Form 8-K:
KPMG CONSULTING AG AND SUBSIDIARIES-Unaudited Consolidated
Financial Statements as of June 30, 2002 and for the
six months ended June 30, 2002 and 2001
Consolidated Balance Sheets as of June 30, 2002
(unaudited) and December 31, 2001..................... 31
Unaudited Consolidated Statements of Operations for
the six months ended June 30, 2002 and 2001........... 32
2
Unaudited Consolidated Statements of Cash Flows for
the six months ended June 30, 2002 and 2001........... 33
Notes to Unaudited Consolidated Financial
Statements............................................ 34
(b) Pro Forma Financial Information and Other Data
The following unaudited pro forma financial information for
BearingPoint, Inc. is included in this Amendment to the
Current Report on Form 8-K:
Unaudited Pro Forma Financial Information............. 42
Pro Forma Consolidated Condensed Statement of
Operations for the year ended June 30,
2002 (unaudited)...................................... 43
Pro Forma Consolidated Condensed Balance Sheet as of
June 30, 2002 (unaudited)............................. 44
Notes to Pro Forma Consolidated Financial
Information (unaudited)............................... 46
(c) Exhibits
2.1 Share Purchase Agreement, dated June 8, 2002, among KPMG
Consulting, Inc., KPMG DTG and the minority
shareholders, which is incorporated by reference to
Exhibit 2.1 from the Company's Form 8-K filed on
September 6, 2002.
23.1* Consent of Ernst & Young.
* Filed herewith
3
Item 7(a)(i). Audited Financial Statements of the Business Acquired
Report of Independent Auditors
KPMG Deutsche Treuhand - Gesellschaft
Aktiengesellschaft Wirtschaftsprufungsgesellschaft
We have audited the accompanying consolidated balance sheets of KPMG Consulting
AG (a subsidiary of KPMG Deutsche Treuhand - Gesellschaft Aktiengesellschaft
Wirtschaftsprufungsgesellschaft) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of KPMG Consulting AG
and subsidiaries at December 31, 2001 and 2000, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young
March 15, 2002
Frankfurt, Germany
4
KPMG CONSULTING AG AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
December 31
------------------------------
2001 2000
----------- -----------
(euros) (euros)
Assets
Current assets:
Cash and cash equivalents 9,350 18,165
Accounts receivable, net of allowance for doubtful accounts of
(Euros)4,245 and (Euros)4,838 as of December 31, 2001
and 2000, respectively 131,705 111,412
Unbilled revenue 15,757 11,779
Unbilled revenue from related parties 395 209
Receivable from related parties 1,213 14,203
Prepaid expenses and other current assets 4,433 4,192
Deferred income taxes 93 80
----------- -----------
Total current assets 162,946 160,040
Fixed assets, net 12,209 9,379
Other assets 7,174 7,539
Long-term investments 7,965 6,416
Deferred income taxes 607 796
Intangible assets, net 32,770 29,359
Goodwill, net 28,763 21,631
----------- -----------
Total assets 252,434 235,160
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Short term borrowings 8,278 4,884
Accounts payable 21,268 12,743
Accrued expenses and other current liabilities 45,171 41,539
Accrued personnel incentives 40,885 29,332
Deferred revenue 8,492 5,311
Payable to related parties 16,623 17,818
Income taxes payable 5,437 6,895
Deferred income taxes 390 5,747
----------- -----------
Total current liabilities 146,544 124,269
Other liabilities 33,896 30,489
Deferred income taxes 7,803 4,216
----------- -----------
Total liabilities 188,243 158,974
Commitments and contingencies - -
Minority interests 4,110 6,075
Shareholders' equity:
Share capital:
Class A, (Euros)1.00 par value: authorized, issued and
outstanding 7,560,000 shares 7,560 7,560
Class B, (Euros)1.00 par value: authorized, issued and
outstanding 840,000 shares 840 840
Additional paid-in capital 46,971 46,971
Retained earnings 4,566 14,760
Accumulated other comprehensive (loss) income 144 (20)
----------- -----------
Total shareholders' equity 60,081 70,111
----------- -----------
Total liabilities and shareholders' equity 252,434 235,160
=========== ===========
See accompanying notes to consolidated financial statements.
5
KPMG CONSULTING AG AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)
Year Ended December 31
-----------------------
2001 2000
---- ----
(euro) (euro)
Revenues:
Third parties 561,272 348,688
Related parties 17,065 33,671
------- -------
Total revenues 578,337 382,359
Cost of revenues (excluding depreciation):
Professional compensation 244,569 169,475
Other direct contract expenses 104,032 63,510
Other direct contract expenses - related parties 17,743 12,558
Other costs of services 47,093 32,032
Other costs of services - related parties 11,570 9,704
------- -------
Total cost of revenues (excluding depreciation) 425,007 287,279
------- -------
Gross margin (excluding depreciation) 153,330 95,080
Selling, general and administrative expenses 61,587 23,120
Selling, general and administrative expenses - related parties 26,944 30,688
Depreciation and amortization 11,206 5,262
------- -------
Operating income 53,593 36,010
Other income (expense):
Interest income 628 314
Interest expense (1,609) (364)
Net loss from equity method investee (2,336) (511)
Gain on settlement of vendor commitments 1,278 3,835
Other income (expenses), net (1,410) (54)
------- -------
Income before income tax expense and minority interests 50,144 39,230
Income tax expense 19,802 17,980
------- -------
Income before minority interests 30,342 21,250
Minority interests 6,476 2,749
------- -------
Net income 23,866 18,501
======= =======
See accompanying notes to consolidated financial statements.
6
KPMG CONSULTING AG AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
(in thousands)
Ordinary Shares Additional
-------------------------- Paid-in
Share Capital Class A Class B Capital
------------- ------- ------- -------
(euro) (euro)
Balance, January 1, 2000 5,138 - - 2,556
Conversion of share capital to ordinary shares (5,113) 5,113 - -
Reclassification to convert to euro par value - 935 - (935)
Issuance of Class A shares - 1,512 - 40,537
Issuance of Class B shares - - 840 4,788
Dividend paid to related party - - - -
Capital transactions with related party, net (25) - - 25
Shared services - - - -
Net income - - - -
Other comprehensive loss:
Translation adjustment - - - -
Comprehensive loss - - - -
Balance, December 31, 2000 - 7,560 840 46,971
------ ----- ------ ------
Dividend paid to related party - - - -
Capital transactions with related party, net - - - -
Net income - - - -
Other comprehensive income:
Translation adjustment - - - -
Comprehensive income - - - -
Balance, December 31, 2001 - 7,560 840 46,971
===== ===== ====== ======
Accumulated
Other Total
Comprehensive Shareholders' Comprehensive
Retained Earnings Income (Loss) Equity Income
----------------- ------------- ------ ------
(euro) (euro) (euro) (euro)
Balance, January 1, 2000 11,367 (5) 19,056 -
Conversion of share capital to ordinary shares - - - -
Reclassification to convert to euro par value - - - -
Issuance of Class A shares - - 42,049 -
Issuance of Class B shares - - 5,628 -
Dividend paid to related party (32,296) - (32,296) -
Capital transactions with related party, net 10,701 - 10,701 -
Shared services 6,487 - 6,487 -
Net income 18,501 - 18,501 18,501
Other comprehensive loss:
Translation adjustment - (15) (15) (15)
------
Comprehensive loss - - - 18,486
------ --- ------- ======
Balance, December 31, 2000 14,760 (20) 70,111
------ --- -------
Dividend paid to related party (40,393) - (40,393) -
Capital transactions with related party, net 6,333 - 6,333 -
Net income 23,866 - 23,866 23,866
Other comprehensive income:
Translation adjustment - 164 164 164
------
Comprehensive income - - - 24,030
------ --- ------- ======
Balance, December 31, 2001 4,566 144 60,081
====== === ======
See accompanying notes to consolidated financial statements.
7
KPMG CONSULTING AG AND SUBSIDIARIES
Consolidated Statements Of Cash Flows
(in thousands)
Year Ended December 31
-----------------------------------
2001 2000
--------------- ---------------
(euro) (euro)
Cash flows from operating activities:
Net income 23,866 18,501
Adjustments to reconcile net income to net cash
provided by operating activities:
Income tax expense with related party, non-cash 6,333 8,234
Minority interests' share of net income 6,476 2,749
Depreciation and amortization of fixed assets 4,945 2,950
Amortization of intangible assets 6,261 2,312
Reduction in carrying value of investments 607 -
Deferred income taxes (1,758) (1,236)
Net loss from equity method investees 2,336 511
Shared service costs with related party, non-cash - 6,487
Bad debt expense 2,257 2,686
Changes in operating assets and liabilities:
Related parties 11,795 28,237
Accounts receivable (22,573) (19,246)
Unbilled revenue (4,164) (487)
Prepaid expenses and other current assets (241) 6,406
Other assets (373) -
Accounts payable 8,525 (15,143)
Deferred revenue 3,181 (3,504)
Income taxes payable (1,458) 1,966
Accrued expenses and other current liabilities 3,632 4,149
Accrued personnel incentives 11,553 (3,148)
Other liabilities 3,407 7,820
--------------- ---------------
Net cash provided by operating activities 64,607 50,244
--------------- ---------------
Cash flows from investing activities:
Purchases of fixed assets (7,775) (5,647)
Acquisitions, net of cash acquired (9,899) (35,773)
Investments in affiliates (4,325) (9,492)
Purchases of other assets (241) -
Issuance of note receivable to related party - (3,002)
Capitalized software development costs (6,153) -
--------------- ---------------
Net cash used in investing activities (28,393) (53,914)
--------------- ---------------
Cash flows from financing activities:
(Repayments of) proceeds from line of credit, net 3,394 4,884
Proceeds from the sale of Class A shares - 42,051
Proceeds from the sale of Class B shares - 5,628
Dividends paid to minority interest shareholders (8,194) -
Dividends paid to related party (40,393) (32,296)
--------------- ---------------
Net cash (used in) provided by financing activities (45,193) 20,267
Effect of exchange rates on cash and cash equivalents 164 (15)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents (8,815) 16,582
Cash and cash equivalents, beginning of the period 18,165 1,583
--------------- ---------------
Cash and cash equivalents, end of the period 9,350 18,165
=============== ===============
Supplemental cash flow information:
Cash paid during the period for:
Interest 1,524 364
Income taxes 15,573 13,639
See accompanying notes to consolidated financial statements.
8
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
1. Description of Business and Basis of Presentation
KPMG Consulting AG (together with its subsidiaries, the "Company") is engaged in
the business of management consulting and technology consulting, both within
Germany and abroad. The Company is a subsidiary of KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft
("DTG").
The Company was formed as a limited liability company (Gesellschaft mit
beschrankter Haftung or GmbH) under German Law on February 19, 1969. Effective
October 25, 2000, the Company converted from a limited liability company to a
joint stock corporation (Aktiengesellschaft or AG).
The consolidated financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("US GAAP"). The Company maintains its financial records in accordance
with German law, which requires the application of accounting principles
generally accepted in Germany ("German GAAP"). German GAAP varies in certain
significant respects from US GAAP. Accordingly, the Company made certain
adjustments to prepare these consolidated financial statements in accordance
with US GAAP.
The Company's partners and managing directors are employees of the Company.
Accordingly, partners' remuneration has been reflected as an expense in the
consolidated financial statements.
On December 22, 2000, the Company and DTG entered into a shared services
agreement that took effect on January 1, 2001. The agreement sets out a legal
basis for the provision of, and remuneration for, the following services: tax
and legal support, information technology, knowledge management, human
resources, marketing, occupancy and communication, accounting services, and
other administrative and executive functions. The shared service agreement was
implemented retroactively, as if it had been in place since January 1, 2000. The
allocation methods defined in the agreement, and more fully described in Note
12, are based on headcount, revenues, and billable hours, and in the opinion of
management, materially reflect the actual overhead costs attributable to the
Company. The accompanying financial statements include amounts accrued under the
agreement, classified according to the terms of the agreement.
In 2001 and 2000, the Company was included in DTG's consolidated tax return.
Income taxes are presented for all periods as if the Company had filed, or will
file, separate income tax returns.
2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements reflect the operations of the Company and
its majority-owned subsidiaries after elimination of intercompany accounts and
transactions. Certain subsidiaries of the Company have minority interest
holders. If losses applicable to the minority interest holders in a subsidiary
exceed the minority interest in the equity capital of the subsidiary, those
losses would be included in the Company's results, as the minority interest
holders have no obligation to provide further financing to the subsidiary.
All subsidiaries are consolidated for the periods ended December 31, 2001 and
2000, with the exception of the accounts of Informationstechnologie und
Systementwicklung Gesellschaft m.b.H., Graz, Austria ("Infonova"), which are
included in the Company's results of operations for 2000 for the period from its
acquisition on July 1, 2000, until its fiscal year end of October 31, 2000. The
9
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
respective Infonova operations for the two month period ended December 31, 2000,
have been combined with the full year 2001 results and included in the December
31, 2001, consolidated financial statements. The two month period consisted of
(euro)5,660 and (euro)619 in revenues and net income, after minority interest,
respectively.
Investments in which the Company has the ability to exercise significant
influence, but not control, over the investee are accounted for under the equity
method. Under this method, the Company's proportional share of the investee's
earnings or loss is included in consolidated operating results. Investments over
which the Company does not have a significant influence are accounted for using
the cost method.
(b) Use of Estimates
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates affecting the financial
statements include recoverability of investments (see Note 3), accounts
receivable collectibility, accruals and costs on unfinished consulting projects.
Actual results could differ from those estimates.
(c) Revenue Recognition
The Company primarily provides consulting services under both time-and-material
and fixed price arrangements. Revenues under time-and-material arrangements are
recognized as services are performed and costs are incurred. Revenues under
fixed price contracts are recognized under the percentage-of-completion method,
based on the ratio of total costs incurred to date compared to total estimated
costs over the life of the project. Contract costs include all direct material
and labor. Indirect costs related to contract performance, such as indirect
labor, supplies and depreciation, are charged to expense as incurred.
Revenue recognized in excess of billings is recorded as unbilled revenue and
represents costs and estimated earnings in excess of billings. Billings in
excess of cost and estimated earnings are recorded as deferred revenue until the
above described revenue recognition criteria are met. Anticipated losses on
contracts are accrued as soon as the potential loss becomes evident.
Reimbursements, including those relating to travel and other out-of-pocket
expenses, and other similar third party costs, such as the cost of hardware and
software resale, are included in revenues, and an equivalent amount of
reimbursable expenses are included in cost of services.
Revenues from software and hardware sales are recognized after installation is
completed and the customer has accepted the software or hardware. Such sales
amounted to (euro)20,525 and (euro)2,994 for the years ended December 31, 2001
and 2000, respectively. Maintenance contract revenues are recognized ratably
over the term of the underlying agreement. When consulting engagements have
multiple elements, each element is separately evaluated and allocated among each
deliverable based on the relative fair value of each of the deliverables, which
reflects the prices at which those elements are sold separately to third
parties.
(d) Costs of Revenues, Excluding Depreciation
Professional compensation consists of payroll costs and related benefits
associated with professional staff. Other direct contract expenses include
travel, subcontracting and direct contract expenses.
10
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
Other costs of service include expenses attributable to support and professional
staff, and the cost of software and hardware purchased from third parties.
Substantially all of the Company's research and development activities have been
incurred pursuant to specific client contracts and, accordingly, are included in
costs of service incurred.
(e) Cash and Cash Equivalents
Cash equivalents consist of demand deposits and highly liquid investments with
original maturities of three months or less, from the date of purchase.
(f) Fixed Assets
Fixed assets are recorded at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets. Furniture, equipment and software costs
are depreciated over three to five years. Leasehold improvements are amortized
over the term of the respective lease or the useful life of the asset, whichever
is shorter. Equipment under capital leases is stated at the present value of
minimum lease payments or fair value at the inception of the lease, whichever is
lower. Equipment held under capital leases is amortized using the straight-line
method over the shorter of the lease term or estimated useful life of the
assets, with the related amortization included in depreciation and amortization
expense.
(g) Goodwill and Intangible Assets
Goodwill represents the cost of acquired companies in excess of the fair value
of the net assets acquired including intangible assets. Goodwill was amortized
by the straight-line method over the expected periods of benefit, ranging from
eight to ten years, for the years ended December 31, 2001 and 2000. In
accordance with the requirements of Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets," goodwill resulting
from acquisitions completed after June 30, 2001, has not been amortized.
Prior to January 1, 2002, intangible assets included the portion of the cost of
acquired companies assigned to the assembled workforce. On January 1, 2002, the
Company adopted SFAS No. 142 and accordingly the carrying value of the assembled
workforce, which was previously accounted for as an intangible asset, was
subsumed into goodwill. The net book value of this reclassification, as of
January 1, 2002, was (euro) 7,889.
Intangible assets, which do not have identifiable lives, are amortized by the
straight-line method over their expected period of benefit ranging from four to
ten years. See Note 5 for the carrying amount of each major intangible asset
class.
(h) Capitalized Software
The Company capitalizes certain external and internal costs incurred to acquire
or develop, respectively, internal use software in accordance with Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." Capitalized software is included in fixed assets and
is amortized using the straight line method over its useful life, ranging from
three to five years, commencing when the software is placed in service.
11
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
(i) Software Development Costs
Software development costs were capitalized, as required pursuant to SFAS No.
86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed," in the amount of (euro)6,153 in 2001. No costs were
capitalized in 2000. Upon completion of development, the costs are amortized
using the straight-line method over the product life of the respective software,
ranging from three to five years. Capitalized software, that is under
development or has been developed and is ready for sale, is included in
intangible assets. No amortization occurred prior to January 1, 2002.
(j) Impairment Evaluation
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets," which addresses financial
accounting and reporting for the impairment and disposal of long-lived assets,
and SFAS No. 142, with respect to impairment of goodwill. The adoption of these
standards did not have a material impact on its consolidated financial position
or results of operations.
The Company reviews the carrying value of its long-lived assets, including fixed
assets, investments, goodwill, and intangible assets, for impairment whenever
events or changes in circumstances indicate that the carrying amount of such
assets may not be fully recoverable. Recoverability of long-lived assets,
excluding goodwill, is assessed by a comparison of the carrying amount of the
asset (or the group of assets, including the asset in question, that represents
the lowest level of separately-identifiable cash flows) to the total estimated
undiscounted cash flows expected to be generated by the asset or group. If the
estimated future net undiscounted cash flows is less than the carrying amount of
the asset or group, the asset or group is considered impaired and expense is
recognized equal to the amount required to reduce the carrying amount of the
asset to its then fair value. Fair value is determined by discounting the cash
flows expected to be generated by the asset, when the quoted market prices are
not available for the long-lived assets.
On January 1, 2002, the Company adopted SFAS No. 142, which prohibits the
amortization of goodwill and indefinite life intangible assets. Instead,
goodwill and indefinite life intangible assets will be tested for impairment at
least annually and on an interim basis when an event occurs or circumstances
change between annual tests that would more-likely-than-not result in
impairment. Under SFAS No. 142, goodwill is assessed for impairment by using the
fair value based method. The Company determines fair value by utilizing
discounted cash flows. The fair value test required by SFAS No.142 for goodwill
and indefinite lived intangible assets includes a two-step approach. Under the
first step, companies must compare the fair value of a "reporting unit" to its
carrying value. A reporting unit is the level at which goodwill impairment is
measured and it is defined as an operating segment or one level below it if
certain conditions are met. If the fair value of the reporting unit is less than
its carrying value, goodwill is impaired and companies must proceed with step
two. Under step two, the amount of goodwill impairment is measured by the amount
that the reporting unit's goodwill carrying value exceeds the "implied" fair
value of goodwill. The implied fair value of goodwill can only be determined by
deducting the fair value of all tangible and intangible net assets (including
unrecognized intangible assets) of the reporting unit from the fair value of the
reporting unit (as determined in step one). In this step, companies must
allocate the fair value of the reporting unit to all of the reporting unit's
assets and liabilities (a hypothetical purchase price allocation).
12
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
SFAS No. 142 requires companies to perform the impairment test at least annually
and also upon adoption. Any impairment loss resulting from the adoption of SFAS
No. 142 is treated as a change in accounting principle.
Calendar year companies such as ourselves adopted SFAS No. 142 as of January 1,
2002, for goodwill and intangible assets arising from business combinations
completed prior to July 1, 2001, and we have applied SFAS No. 142 for goodwill
and indefinite-lived intangible assets arising from business combinations
completed after June 30, 2001. Upon adoption of SFAS No. 142, for U.S. GAAP
purposes, we stopped amortizing goodwill. The Company did not have any
impairment loss as a result of adopting SFAS No. 142 and performing the required
impairment test.
See Recently Issued Accounting Standards, for further discussion of the adoption
of SFAS No. 142.
(k) Foreign Currency Translation
Assets and liabilities of foreign subsidiaries are translated into Euro using
the exchange rates as quoted at the period end. Revenues and expenses are
translated using the average exchange rate for the respective period. The
resulting translation adjustments comprise the only component of accumulated
other comprehensive income in the consolidated financial statements.
(l) Fair Value of Financial Instruments
Financial instruments of the Company consist primarily of cash, accounts
receivable, accounts payable, accrued liabilities, and a put and call purchase
option, more fully described in Note 3. The carrying values of financial
instruments approximate their fair values because of the short maturity period
of these instruments, except for the put and call option, for which the fair
value exceeds the carrying value.
(m) Concentrations of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily
of accounts receivable and unbilled revenues. The Company had no customer that
amounted to more than 10% of consolidated revenue in the years ended December
31, 2001 or 2000. The Company had one customer comprising greater than 10% of
total accounts receivable, aggregating 11% and 16% as of December 31, 2001 and
2000, respectively. Other concentrations of credit risk are limited due to the
Company's number of clients and their dispersion across many different
industries.
As of and for the year ended December 31, 2001, the Company had net assets of
(euro)53,288 and total revenues of (euro)510,985 in Euro denominated countries.
The Company also had (euro)6,783 and (euro)66,735 of net assets and total
revenues, respectively, in Switzerland. Net assets and total revenues outside of
Europe were (euro)10 and (euro)617, respectively.
(n) Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
13
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The taxable profits of certain of the Company's German operations have been
included in the tax returns of DTG. In lieu of paying income tax to DTG, the
Company is required to distribute its entire German GAAP net income, determined
under statutory guidelines, to DTG. The provision for income taxes in these
financial statements is based on the amount of tax the Company would have
incurred if calculated on a separate return basis. The provision is recorded as
a contribution to the Company.
(o) Accrued Personnel Incentives
Accrued personnel expenses include accruals for the annual bonuses to partners
and employees. The partners' bonus award is based largely on the results of
operations of the Company as a whole, and to some extent, on the result of the
DTG group. The bonus award pool for partners and other employees is based
primarily upon a formula, based on the achievement of certain profit targets and
objectives. The final determination of the bonus award may be modified and is
subject to the final approval by the Company's Supervisory Board, which includes
representatives from DTG. Accordingly, DTG has significant influence over the
determination of the bonus award pool. The bonus award pool is allocated based
on a point system, awarded for additional time worked and other incentive
related work. The bonus for managers is based on a combination of the German
GAAP results of operations and a point based bonus system.
(p) Advertising
Advertising costs are expensed as incurred and represent costs incurred through
various mediums directed at potential clients and employees. Advertising costs
amounted to (euro)4,402 and (euro)1,189 for the years ended December 31, 2001
and 2000, respectively.
(q) Pension and Other Post-Retirement Benefit Plans
The Company maintains defined benefit pension plans and other post-retirement
benefit plans covering certain employees. The benefits are based on years of
service and the employee's compensation prior to retirement. The valuation of
pension liabilities is based upon the projected unit credit method in accordance
with SFAS No. 87 "Employers' Accounting for Pensions." The valuation of
post-retirement benefits which consists of deferred compensation, is accounted
for under APB No. 12, as amended by SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
14
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
(r) Other
The Company recorded gains resulting from a settlement dispute of (euro)1,278
and (euro)3,835 in the years ended December 31, 2001 and 2000, respectively. The
gains arose from a claim dating back to 1998. For the years ended December 31,
2001 and 2000, no costs were incurred by the Company in relation to this dispute
and the Company has no future obligations relating to the settlement.
(s) Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board approved SFAS No. 141,
"Business Combination" and SFAS No. 142. As a result of SFAS No. 141, all
acquisitions completed after June 30, 2001, are accounted for using the purchase
method of accounting. The adoption of SFAS No. 141 had no material impact on the
Company's consolidated financial statements.
On January 1, 2002, the Company adopted SFAS 142, ceased amortizing goodwill,
reclassified the net balance of intangible assembled work force assets into
goodwill, and assessed goodwill for impairment. Amortization expense of goodwill
and assembled workforce for the years ended December 31, 2001 and 2000, amounted
to (euro)4,039 and (euro)1,559, respectively. The net book value of the
assembled workforce, which was subsumed into goodwill as of January 1, 2002, was
(euro)7,889.
In October 2001, the FASB issued SFAS No. 144. This U.S. accounting standard
addresses financial accounting and reporting for the impairment of long-lived
assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." However, SFAS No. 144 retains the
fundamental provisions of Statement 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. SFAS No. 144 is effective January
1, 2002, for the Company. The adoption of SFAS No. 144 did not have a material
impact to our U.S. GAAP results of operations or financial position.
3. Acquisitions and Transfer
KPMG Global Solutions Delivery GmbH, Berlin
In September 2000, DTG transferred KPMG Global Solutions Delivery GmbH ("GSD")
to the Company. GSD was formed by DTG in 1999 and delivers SAP consultancy
services to international clients. Because the Company and GSD are entities
under the common control of DTG, the transfer was accounted for at DTG's
carrying value on the date of formation.
Swiss Consultancy Practice, Zurich and Ritro Risk Management and Treasury
Outsourcing AG, Zug, Switzerland ("Ritro")
Effective December 31, 2000, the Company acquired the net assets of the business
consultancy practice of KPMG Fides from KPMG Fides and KPMG Holding, Zurich,
Switzerland and a 67% stake-holding in Ritro in exchange for aggregate cash
consideration of (euro)10,798. The Swiss consultancy practice offers business
consulting products to clients in various industries primarily in Switzerland.
Ritro is a company which offers consultancy and outsourcing in the area of
corporate treasury and corporate finance, including cash management,
netting/pooling, controlling and back office and risk management. Ritro was sold
in 2001 for an immaterial amount.
The acquisitions of the Swiss branch in Zurich and Ritro were accounted for
using the purchase method of accounting. Accordingly, their results of
operations have been included in the financial
15
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
statements since the date of acquisition, and their assets and liabilities were
recorded based upon their fair value at the date of acquisition. The Company has
allocated the excess purchase price over the fair value of net tangible assets
acquired to goodwill and certain identifiable intangible assets. As a result of
the acquisition, the Company recognized goodwill of (euro)2,860 and intangible
assets of (euro)9,939, which were being amortized on a straight-line basis over
periods of five to ten years, through December 31, 2001. In accordance with SFAS
No. 142, as of January 1, 2002, only intangible assets continue to be amortized.
KPMG Consulting GmbH, Vienna, Austria
Effective August 31, 2000, the Company acquired 100% of the shares in
S-Beteiligungsverwaltung GmbH ("S-Beteiligung"), KPMG Consulting GmbH ("KCG")
and Triacon Management Consulting GmbH ("Triacon"). KCG and Triacon both offer
business consulting services to clients in diverse industries located primarily
in Austria.
The aggregate cash purchase price for S-Beteiligung, KCG and Triacon amounted to
(euro)8,962. The acquisitions were accounted for using the purchase method of
accounting. Accordingly, their results of operations have been included in the
financial statements since the date of acquisition, and their assets and
liabilities were recorded based upon their fair values at the date of
acquisition. The Company has allocated the excess purchase price over the fair
value of net tangible assets acquired to goodwill and certain identifiable
intangible assets. As a result of the acquisition, the Company recognized
goodwill of (euro)7,349 and intangible assets of (euro)9,758, which were being
amortized on a straight-line basis over periods of five to ten years. In
accordance with SFAS No. 142 as of January 1, 2002, only the intangible assets
continue to be amortized.
Infonova Group, Graz, Austria
In a series of transactions on July 1, 2000, the Company acquired a 51% interest
in three entities including Infonova, InfoDesign GmbH ("InfoDesign"), and
Michael Blaschitz GmbH ("MBGmbH"), for a total purchase price of (euro)18,532,
(collectively, "Infonova Group").
Infonova offers internet services such as internet protocol ("IP") network
design, IP system integration, IP system support, IP server technology, IP
telephony, e-business & security, interactive TV & multimedia, and IP training
to Network-Providers, Service Providers and Content Providers. InfoDesign is
mainly active in the areas of web competence and design, E-commerce,
geo-marketing and E-publishing.
The acquisitions were accounted for under the purchase method of accounting.
Accordingly, their results of operations have been included in the financial
statements since the date of acquisition, and their assets and liabilities were
recorded based upon their fair values at the date of acquisition. The Company
has allocated the excess purchase price over the fair value of net tangible
assets acquired to goodwill and certain identifiable intangible assets. As a
result of the acquisitions, the Company recognized goodwill of (euro)9,187 and
intangible assets of (euro)8,938, which were being amortized on a straight-line
basis over periods of five to ten years. In accordance with SFAS No. 142, as of
January 1, 2002, only the intangible assets continue to be amortized. The net
results attributable to the Company's non-owned portion of earnings from
Infonova and MBGmbH have been reflected as earnings allocated to minority
shareholders.
In July 2001, the Company purchased the remaining 49% minority interest of
InfoDesign and an additional 10% of MBGmbH for total cash consideration of
(euro)10,249, excluding acquisition costs. The acquisitions were accounted for
under the purchase method of accounting.
16
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
As a result of the additional purchases of the interests in InfoDesign and
MBGmbH, the Company recognized goodwill of (euro)9,615 and intangible assets of
(euro)981. In accordance with SFAS No. 142, goodwill acquired in the July 2001,
transaction has not been amortized. Intangible assets with definite lives are
being amortized on a straight-line basis over ten years.
Concurrent with the acquisition on August 31, 2000, the Company executed, with
the sellers of Infonova Group, a put and a call option for the remaining 49% of
the Infonova Group. In the event that the Company undertakes an initial public
offering on a domestic or foreign stock exchange, and in case the Company sells
a majority of its shares to a third party before June 30, 2002, and in any case
after such date, the Company has the option to purchase from the minority
shareholders ("call") and the minority shareholders have the option to sell to
the Company ("put") the minority's 49% interest in Infonova at 85% of fair
value, as determined by an independent valuation expert. Such contingent price
is payable in cash, or in stock or shares of the Company or the Company's
majority owned subsidiaries at the Company's election. On August 31, 2000, the
Company recorded the fair value of this option of (euro)2,565, which was
adjusted to (euro)1,830 as a result of the July 2001 purchase of the remaining
49% minority interest in InfoDesign. The carrying value of the put and call
option at December 31, 2001, was (euro)1,830, and is included in other
non-current assets.
ProLogic EDV-Beratung und -Schulung GmbH, Dusseldorf-Erkrath
On December 13, 2000, the Company acquired ProLogic EDV-Beratung und -Schulung
GmbH ("ProLogic"), a provider of consulting, programming and education services,
for a total cash purchase price, including direct acquisition costs, of
(euro)409. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the assets and liabilities were recorded based upon
their fair values at the date of acquisition. The Company has allocated the
excess purchase price over the fair value of net tangible assets acquired to
goodwill and certain identifiable intangible assets. As a result of the
acquisition, the Company recognized goodwill of (euro)310 and intangibles assets
of (euro)112, which were being amortized on a straight-line basis over periods
of five to ten years. In accordance with SFAS No. 142, as of January 1, 2002,
only the intangible assets continue to be amortized.
Pro Forma Information - Unaudited
The following unaudited pro forma information has been prepared assuming that
the purchases of the Swiss Consultancy Practice, Ritro, S-Beteiligung, KCG,
Triacon, Infonova Group, and ProLogic had occurred as of January 1, 2000 and
2001, respectively. The unaudited pro forma financial information is not
necessarily indicative of the consolidated results that would have occurred had
the acquisitions taken place at such date, nor is it necessarily indicative of
results that may occur in the future.
Year ended
December 31
----------------------
2001 2000
------- -------
Unaudited
(euro) (euro)
Revenues 578,337 458,354
Income from operations 53,562 39,457
Net income 23,927 18,321
17
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
Investments in Affiliates
In March 2000, DTG loaned (euro)762 to KPMG Consulting France B.V. Netherlands
("KPMG France"), which was contributed to the Company and included in capital
transactions with related parties. On October 20, 2000, the Company purchased a
10% equity interest in KPMG France for a total cash purchase price of (euro)155.
In September 2001, through the conversion of outstanding loans, the Company
purchased 111,633 additional shares of KPMG France for (euro) 4,325 increasing
its share to 16.5%. An impairment, in the amount of (euro)440, was recorded
against the investment in KPMG France for the year ended December 31, 2001,
based on the Company's impairment accounting policy. The carrying value of the
investment was (euro)4,802 and (euro)917 as of December 31, 2001 and 2000,
respectively. The investment has been accounted for using the cost method.
On December 18, 2000, the Company purchased a 28.6% interest in KPMG Spain B.V.,
Netherlands ("KPMG Spain") for a total cash purchase price of (euro)6,010. The
investment has been accounted for in accordance with the equity method. The
carrying value of the investment in KPMG Spain was (euro)3,163 and (euro)5,499
as of December 31, 2001 and 2000, respectively.
4. Fixed Assets, net
Fixed assets consisted of the following:
December 31
------------------------------
2001 2000
-------- --------
(euro) (euro)
Leasehold improvements 1,955 1,452
Furniture and fixtures 18,308 14,174
Other equipment 2,715 1,354
------- ------
22,978 16,980
Less accumulated depreciation (10,769) (7,601)
------- ------
Fixed assets, net 12,209 9,379
======= ======
18
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
5. Intangible Assets, net
Intangible assets consisted of the following:
December 31
------------------------------
2001 2000
-------- --------
(euro) (euro)
Trade name 12,639 12,228
Customer base 9,003 8,876
Assembled workforce 9,948 9,585
Software 6,153 -
Other 272 124
------- -------
38,015 30,813
Less accumulated amortization:
Trade name (1,881) (616)
Customer base (1,233) (350)
Assembled workforce (2,059) (417)
Software - -
Other (72) (71)
------- -------
(5,245) (1,454)
------ -------
Intangible assets, net 32,770 29,359
======= =======
Amortization of intangible assets for the years ended December 31, 2001 and
2000, are (euro)3,792 and (euro)1,097, respectively.
The aggregate annual amortization expense of intangible assets per each of the
five succeeding years is as follows:
(euro)
2002 4,009
2003 4,364
2004 4,364
2005 4,364
2006 2,564
2007 2,105
Assembled workforce intangible assets in the consolidated financial statements
totalled (euro) 9,948 at December 31, 2001. Under SFAS No. 142, the assembled
workforce intangibles were subsumed into goodwill. As of January 1, 2002, the
carrying value of assembled workforce was (euro)7,889, net of accumulated
amortization. Deferred taxes associated with non-deductible assembled workforce
of (euro)1,054 was also subsumed into goodwill.
19
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
In accordance with SFAS No. 142, the Company is disclosing the following
reconciliation of reported net income to adjusted net income assuming SFAS No.
142 had been adopted as of the beginning of the years presented.
Year ended December 31
------------------------------
2001 2000
-------- --------
(euro) (euro)
Reported net income 23,866 18,501
Add back amortization of goodwill 2,397 1,257
Add back amortization of assembled workforce
subsumed into goodwill 1,642 302
------ ------
Adjusted net income 27,905 20,060
====== ======
6. Goodwill, net
Acquisition costs and accumulated amortization of goodwill consisted of the
following:
December 31
------------------------------
2001 2000
-------- --------
(euro) (euro)
Goodwill acquired 33,040 23,424
Less accumulated amortization, through December 31st (4,277) (1,793)
------ ------
Goodwill, net 28,763 21,631
====== ======
7. Short Term Borrowings
In 2000, the Company entered into a line of credit with a commercial bank that
enables the Company to borrow up to (euro)12,354, bearing a fixed interest rate
of 5.25%. The facility has no expiration date and can be terminated by either
party at any time. The borrowed balance of this line of credit at December 31,
2001 and 2000, the balance was (euro)7,958 and (euro)2,289, respectively.
An additional line of credit was established in 2000, which permits the Company
to borrow up to (euro)1,454 throughout the year, bearing a fixed interest rate
of 4.25%. This facility has no expiration date and can be terminated by either
party at any time. The borrowed balance of the line of credit at December 31,
2001 and 2000, it was (euro)320 and (euro)2,595, respectively. Although the
Company exceeded the original line of credit limit in 2000, no additional fees
were incurred on the excess borrowings through the years ended December 31, 2001
and 2000.
Interest expense incurred as a result of the lines of credit was (euro)221 and
(euro)72 for the years ended December 31, 2001 and 2000, respectively.
20
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
December 31, 2001
8. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
December 31
------------------------------
2001 2000
-------- --------
(euro) (euro)
Accrued overtime and vacation 18,834 14,288
Accrued benefits and payroll related expenses 12,324 7,896
Accrued losses on uncompleted contracts 1,642 6,759
Pension liability, current portion 500 -
Value-added tax 3,007 5,784
Accrued travel expenses 2,409 976
Customer bonus - 1,167
Lease commitments 489 39
Other 5,966 4,630
------ ------
Accrued expenses and other current liabilities 45,171 41,539
====== ======
9. Other Liabilities
Other non-current liabilities consisted of the following:
December 31
------------------------------
2001 2000
-------- --------
(euro) (euro)
Long term employee benefits including pensions 25,542 22,433
Early option to retire 1,867 1,978
Anniversary payments 2,098 2,094
Employee related taxes and social security 3,272 3,272
Other non-current liabilities 1,117 712
------ ------
Other liabilities 33,896 30,489
====== ======
21
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
10. Shareholders' Equity
The Company was converted from a limited liability company to a joint stock
corporation in October 2000. The nominal capital amount of (euro)8,400 at
December 31, 2001 and 2000, is subdivided into 8,400,000 individual (euro)1.00
par value share certificates and consists of the following:
Class A Shares
Nr. 1 - 6,048,000 shares Original share certificates upon conversion of the Company from a
Nr. 6,048,000 limited liability company to a joint stock corporation under
German Law.
The original nominal capital of the limited liability company of
DM 10,000 ((euro)5,113) was increased by a reclassification from
additional paid-in capital of (euro)935 to the new nominal
capital of the joint stock corporation of (euro)6,048.
Nr. 6,048,001 - 1,512,000 shares Additional share certificates issued to German partners and
Nr. 7,560,000 managers for (euro)27.81 per share, which resulted in an increase in
nominal capital of (euro)1,512 and in additional paid-in capital of
(euro)40,537.
Class B Shares
Nr. 7,560,001 - 840,000 shares Additional share certificates issued to Swiss partners and
Nr. 8,400,000 consulting managers for (euro)6.70 per share, which resulted in an
increase in nominal capital of (euro)840 and in additional paid-in
capital of (euro)4,788.
Shares of both Class A and Class B ordinary shares entitle the holder to one
vote per share at the Company's shareholders' meeting. However, Class B shares
are subject to the following limitation on dividends. A Class B ordinary share
entitles the holder to a maximum annual dividend equal to one fourth of that
share's proportional interest (calculated on the basis of voting rights) in the
net income of KPMG Consulting AG in its German GAAP stand-alone financial
statements ("German GAAP Net Income"). The remainder of KPMG Consulting AG's
German GAAP Net Income (i.e. after consideration of the dividends to Class B
shareholders) may then be distributed to the Class A shareholders. This
limitation on Class B dividends will cease, and Class B shares will be entitled
to full dividend rights equal to Class A shares, when the accumulated aggregate
difference, starting from January 1, 2001, between one-tenth of all dividends
paid to both Class A and Class B shareholders and all dividends paid to Class B
shareholders equals or exceeds (euro)16,719 (dividend basket).
Dividends are limited to retained earnings shown in the Company's German GAAP
stand-alone financial statements, and these amounts differ from US GAAP
consolidated retained earnings.
The Company has no stock-based compensation programs.
22
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
11. Income Taxes
Income before taxes and minority interest was attributable to geographic regions
for the years ended as follows:
Year ended
December 31
---------------------------
2001 2000
------------ -----------
(euro) (euro)
Germany 39,451 32,139
Foreign 10,693 7,091
------ ------
Total income before taxes and minority interest 50,144 39,230
====== ======
The income tax expense (benefit) consisted of the following:
Current Deferred Total
------- -------- ------
(euro) (euro) (euro)
Year ended December 31, 2001:
German corporate 8,929 (1,298) 7,631
German trade 8,817 (1,385) 7,432
Foreign 3,814 925 4,739
------ ------ ------
Total expense (benefit) 21,560 (1,758) 19,802
====== ====== ======
Year ended December 31, 2000:
German corporate 9,426 (1,019) 8,407
German trade 6,997 (3) 6,994
Foreign 2,793 (214) 2,579
------ ------ ------
Total expense (benefit) 19,216 (1,236) 17,980
====== ====== ======
23
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
The significant components of deferred income tax benefit consisted of the
following:
Year ended
December 31
--------------------------
2001 2000
----------- -----------
(euro) (euro)
Deferred tax expenses (benefit) exclusive of the effect of changes
in tax laws and rates (1,406) (1,550)
Adjustments to deferred tax assets and liabilities for enacted
changes in tax laws and rates - (887)
Prior to 2001, German tax law applied a split rate imputation system to the
income of a corporation and its shareholders. Undistributed earnings were
subject to a corporate tax of 40%, plus a solidarity surcharge of 5.5% on
certain earnings, for a total effective statutory corporate tax rate of 42.2%.
Upon distribution of certain retained earnings generated in Germany, the
corporate income tax rate on the earnings is adjusted to 30%, plus a solidarity
surcharge of 5.5% on certain earnings, for a total effective statutory corporate
tax rate of 31.65%. The tax benefit of the lower tax rate on distributed
earnings is recognized as a reduction of income tax expense in the period that
the tax credits are included in the Company's tax return. Corporations in
Germany are also subject to a trade tax, which is deductible for federal
corporate tax purposes.
In 2000, the German government enacted new tax legislation, effective beginning
in 2001, which reduced the Company's statutory corporate tax rate from 40% on
retained earnings and 30% on distributed earnings to a uniform 25%. Including
the impact of the solidarity surcharge of 5.5% on certain earnings, the
effective statutory corporate tax rate became 26.375%. The effects of the
legislation on the Company's deferred tax assets and liabilities were recognized
in 2000, the year of enactment.
The provision for income taxes in these financial statements is based on the
amount of tax the Company would have incurred if calculated on a separate return
basis. In determining the income tax benefit for the credit for the lower tax
rate on distributed earnings the Company has assumed it would have paid the
maximum distribution allowable under German law. The income tax provision;
included the credit it would have received if it had made distributions of
(euro)20,653 and (euro)20,145 in the years ended December 31, 2001 and 2000,
respectively. The Company does not have any income tax-related balances due to
or from DTG as of any of the balance sheet dates presented. The Company does not
have any material remaining accumulated earnings eligible for credits for the
lower tax rate on the distribution of earnings accumulated prior to January 1,
2002.
24
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Deferred tax assets:
Goodwill - 305
Accounts receivable 693 -
Unbilled revenue - -
Other assets, non-current - 1,869
Other current assets and prepaid expenses 25 2,443
Other liabilities, non-current 2,266 1,147
Accounts payable 2,474 198
Accrued expenses and other current liabilities 353 650
Deferred revenue - -
Operating loss carryforward 814 859
------ ------
Total deferred tax assets 6,625 7,471
Less valuation allowance - (100)
------ -------
Net deferred tax assets 6,625 7,371
====== ======
Deferred tax liabilities:
Intangible assets 6,160 6,684
Accounts receivable 67 297
Unbilled revenue - -
Other current assets 249 100
Deferred revenue 2,440 -
Fixed assets 1,407 768
Other non current assets 2,604 -
Accounts payable - 688
Accrued expenses and other current liabilities 1,191 7,364
Other liabilities, non-current - 557
------ ------
Total deferred tax liabilities 14,118 16,458
------ ------
Net deferred tax liability 7,493 9,087
====== ======
Deferred tax assets and liabilities are reflected in the consolidated balance
sheets as follows:
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Deferred tax asset, current 93 80
Deferred tax asset, non-current 607 796
Deferred tax liability, current (390) (5,747)
Deferred tax liability, non-current (7,803) (4,216)
------ ------
Net deferred tax liability (7,493) (9,087)
====== ======
The net change in the total valuation allowance for the year ended December 31,
2001, was a decrease of (euro)100. Management has reviewed the realizability of
the deferred tax assets within each tax
25
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
jurisdiction and, accordingly, at December 31, 2000, provided a valuation
allowance against a portion of the operating loss carryforwards.
12. Related Party Balances and Transactions
Related party receivables
Receivables from related parties were consisted of the following:
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
DTG, short term operating account 303 13,987
Other 910 216
----- ------
Receivables from related parties 1,213 14,203
===== ======
Related party payables
Payables to related parties were consisted of the following:
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
DTG, short term loan - 8,750
DTG, short term operating account 9,330 3,467
KPMG Alpen Treuhandgesellschaft 14 1,350
KPMG Prufungs- und Beratungs-gesellschaft fur den Offentlichen Sektor AG,
short term operating account 1,079 1,079
Bayerische Treuhandgesellschaft AG, short term operating account 655 650
Payable to minority interest holders 2,031 870
KPMG Fides Peat 850 422
KPMG Treuhand and Goerdeler GmbH 2,060 300
Other 604 930
------ ------
Payables to related parties 16,623 17,818
====== ======
The DTG short term loan was paid in full on April 1, 2001, and bore interest of
EURIBOR + 0.5%, which resulted in an interest rate at April 1, 2001, of
approximately 5.1%. The related interest expense was (euro)196 and (euro)35 for
the years ended December 31, 2001 and 2000, respectively. As the Company does
not have a general cash bank account for operations, the short term operating
account is used between the Company and DTG. Interest is calculated quarterly
based on the average balance, and interest is recorded as income or expense,
depending on whether the balance is a receivable or payable, respectively. The
interest rate, determined quarterly and based the EONIA rate, for the year ended
December 31, 2001 ranged from 3.3% to 5.34%, and resulted in interest expense of
(euro)940. No interest was charged on this account for the year ended December
31, 2000.
26
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
Transfer of Guarantee
In the past, DTG had issued guarantees on behalf of the Company. The balances of
these guarantees were (euro) 10,249 and (euro) 5,948 as of December 31, 2001 and
2000, respectively. No transaction fees were incurred on behalf of the Company
relating to these guarantees.
Shared Service Expenses
Historically, certain services relating to DTG's assurance, financial advisory
services, tax and consulting businesses have been provided by DTG on a
centralized basis. These services include the following functions: Tax advice,
IT services (including equipment lease), Knowledge Management, Accounting,
Marketing and Communication, Human Resources and Other Consulting Services
(e.g., issuance and management of the Company shares, car leasing, etc.).
The shared service agreement was executed as of January 1, 2001, for the period
through June 30, 2004. Subsequently, the contract is automatically extended by
one year, if it is not terminated with at least nine months advance notice. If
the Company terminates any services under the shared service agreement, the
Company is obligated to reimburse resulting additional costs incurred by DTG on
related long term contracts with third parties. The financial statements for all
periods include allocations of these centralized costs, based on the actual cost
of such services, as represented by DTG, on substantially the same basis as
provided for in the shared service agreement, as discussed below.
Costs are allocated among DTG and the Company based on the actual costs incurred
by DTG, as represented by DTG. The allocation methods defined in the agreement
are based on headcount, revenues, and billable hours, and reflect the actual
overhead costs attributable to the Company, as represented by DTG. Management
believes that the basis used for allocation of the costs of shared services, as
represented by, DTG is reasonable and reflects the portion of such costs
attributable to the Company.
Occupancy Expenses
The Company is allocated most of its office space from DTG. Occupancy costs are
allocated based upon actual square footage used by the Company at estimated
market rates. In addition to rental expense, allocated occupancy costs also
include all facility-related charges.
Professional Services
The Company has periodically provided consulting services directly to DTG and
other affiliates. Additionally, DTG's assurance and tax businesses periodically
utilize the Company's consultants in servicing their assurance and tax
engagements. Correspondingly, the Company sometimes utilizes DTG assurance and
tax professionals in servicing their consulting engagements. Management believes
that the revenues earned and fees paid between DTG's assurance and tax
businesses and other affiliates, and the Company were determined on a basis
substantially equivalent to what would have been earned and paid in similar
transactions with unrelated parties.
27
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
Revenue and Expenses
Total revenue and expenses allocated to the Company with regard to shared
services, occupancy, interest, and professional services for the years ended as
follows:
Year ended
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Shared services expenses 24,164 32,727
Occupancy expenses 14,350 7,665
Interest (income) expense 1,136 35
Professional service
Revenue 17,065 33,671
Other direct contract expenses 17,743 12,558
Shared services expenses are included in selling, general and administrative
expenses. Occupancy expenses are allocated to other cost of services and
selling, general and administrative expenses based on headcount.
13. Lease Commitments
Operating Leases
The Company leases certain office space and equipment under operating lease
agreements that expire at various dates through 2013. Aggregate minimum rental
payments to be made under these agreements at December 31, 2001, are as follows:
(euro)
2002 17,827
2003 8,111
2004 6,262
2005 4,370
2006 3,881
2007 3,786
Thereafter 18,830
------
Total 63,067
======
Total rent expense for the years ended December 31, 2001 and 2000, amounted to
(euro)13,303 and (euro)10,304, respectively. Substantially all of operating
leases were entered into with DTG.
14. Commitments and Contingencies
The Company is involved in legal proceedings, claims and litigation arising in
the ordinary course of business. Management believes that the Company's
provision for estimated costs and losses that may ultimately be incurred with
regard to such matters, (euro)150 and (euro)139 as of December 31, 2001 and
2000, respectively, is adequate. However, such matters are subject to
uncertainties and, as a result, their ultimate outcome may differ from
management's current estimates. The Company's management
28
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
expects that the resolution of these contingencies will not have a material
impact on the financial position or results of operations of the Company.
15. Employee Pension Plans
The following information is a consolidated presentation of the Company's
employee pension plans. The Company does not maintain plan assets; therefore,
the net pension obligation is accrued in long term liabilities. The measurement
date for the Company's pension plans is December 31st.
Change in projected benefit obligation was as follows:
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Projected benefit obligation at January 1 23,232 18,824
Service costs 1,537 1,065
Interest costs 1,481 1,119
Increase in prior service costs 1,182 1,538
Actuarial losses 219 58
Acquisitions and transfers 139 1,073
Benefits paid (460) (445)
------ ------
Net increase 4,098 4,408
------ ------
Projected benefit obligation at end-of-period 27,330 23,232
====== ======
The transfer amounts represent changes in the obligation due to a transfer of
employees between the Company and DTG.
The following weighted average actuarial assumptions were used in the
calculation of the Company's projected benefit obligation. The rates used to
estimate the projected benefit obligation vary according to the economic
conditions of the country in which the plans are situated.
December 31
--------------------------
2001 2000
------ ------
Discount rate 6.00% 6.50%
Rate of inflation 1.50% 2.00%
Rate of compensation increase 3.00% 3.00%
29
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of (euro), except share and per share amounts)
December 31, 2001
A reconciliation of the unfunded status to the amounts recognized in the
consolidated balance sheets is as follows:
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Unfunded status 27,330 23,232
Unrecognized prior service costs (3,271) (2,235)
Unrecognized actuarial losses (464) (237)
Unrecognized transition adjustment (109) (164)
------ ------
Net amount recognized 23,486 20,596
====== ======
The components of net periodic pension costs were as follows:
Year ended
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Service costs 1,537 1,065
Interest costs 1,481 1,119
Unrecognized transition adjustment 55 55
Unrecognized prior service costs 146 78
----- -----
Net periodic pension costs 3,219 2,317
===== =====
The Company also maintains a deferred compensation benefit plan which allows
partners and managers to convert current salary and/or bonus payments into
future deferred compensation benefits. The obligation of (euro)2,556 and
(euro)1,837, recorded in the balance sheet at December 31, 2001 and 2000,
respectively, is at estimated fair value determined using discounted cash flows.
16. Change in Valuation and Qualifying Accounts
The following table reflects the development of the allowance for doubtful
accounts for the years ended as follows:
Year ended
December 31
--------------------------
2001 2000
------ ------
(euro) (euro)
Balance at January 1st 4,838 2,827
Additions charged to selling, general and administrative expense 2,257 2,686
Deductions for write-offs of accounts (2,850) (675)
------ -----
Balance at December 31st 4,245 4,838
====== =====
30
Item 7(a)(ii). Unaudited Financial Statements of the Business Acquired
KPMG CONSULTING AG AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
June 30,
2002 December 31,
(unaudited) 2001
----------- ------------
(euro) (euro)
Assets
Current assets:
Cash and cash equivalents 9,660 9,350
Accounts receivable, net of allowance for doubtful accounts of (euro)8,987 and
(euro) 4,245 as of June 30, 2002, and December 31, 2001 95,226 131,705
Unbilled revenue 20,468 15,757
Unbilled revenue from related parties 113 395
Receivable from related parties 332 1,213
Prepaid expenses and other current assets 5,020 4,433
Deferred income taxes 4,276 93
------- -------
Total current assets 135,095 162,946
Fixed assets, net 12,324 12,209
Other assets 7,695 7,174
Long-term investments 6,248 7,965
Deferred income taxes 1,404 607
Intangible assets, net 25,616 32,770
Goodwill 35,598 28,763
------- -------
Total assets 223,980 252,434
======= =======
Liabilities and Shareholders' Equity
Current liabilities:
Short term borrowings 6,331 8,278
Accounts payable 12,304 21,268
Accrued expenses and other current liabilities 54,746 45,171
Accrued personnel incentives 17,048 40,885
Deferred revenue 4,137 8,492
Payable to related parties 23,954 16,623
Income taxes payable 5,554 5,437
Deferred income taxes 78 390
------- -------
Total current liabilities 124,152 146,544
Other liabilities 32,782 33,896
Deferred income taxes 9,849 7,803
------- -------
Total liabilities 166,783 188,243
Minority interests 2,358 4,110
Shareholders' equity:
Share capital:
Class A, (euro)1.00 par value: authorized, issued and
outstanding 7,560,000 shares 7,560 7,560
Class B, (euro)1.00 par value: authorized, issued and
outstanding 840,000 shares 840 840
Additional paid-in capital 46,971 46,971
(Accumulated deficit) retained earnings (474) 4,566
Accumulated other comprehensive (loss) income (58) 144
------- -------
Total shareholders' equity 54,839 60,081
------- -------
Total liabilities and shareholders' equity 223,980 252,434
======= =======
See accompanying notes to unaudited consolidated financial statements.
31
KPMG CONSULTING AG AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(in thousands)
Six months ended June 30
--------------------------
2002 2001
-------- --------
(euro) (euro)
Revenues:
Third parties 253,730 264,935
Related parties 7,542 8,586
------- -------
Total revenues 261,272 273,521
Cost of revenues (excluding depreciation):
Professional compensation 128,952 117,548
Other direct contract expenses 54,682 47,721
Other direct contract expenses - related parties 11,435 4,146
Other costs of services 16,988 24,082
Other costs of services - related parties 6,856 5,128
------- -------
Total cost of revenues (excluding depreciation) 218,913 198,625
------- -------
Gross margin (excluding depreciation) 42,359 74,896
Selling, general and administrative expenses 34,525 33,786
Selling, general and administrative expenses - related parties 14,275 13,124
Depreciation and amortization 4,552 5,336
------- -------
Operating (loss) income (10,993) 22,650
Other income (expense):
Interest income 115 512
Interest expense (436) (253)
Net loss from equity method investee (1,716) (838)
Gain on settlement of vendor commitments - 1,278
Other income (expense), net 1,045 (41)
------- -------
(Loss) income before income tax expense and minority interests (11,985) 23,308
Income tax (benefit) expense (4,731) 8,346
------- -------
(Loss) income before minority interests (7,254) 14,962
Minority interests 42 2,339
------- -------
Net (loss) income (7,296) 12,623
======= =======
See accompanying notes to unaudited consolidated financial statements.
32
KPMG CONSULTING AG AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(in thousands)
Six Months Ended June 30
---------------------------
2002 2001
------- ------
(euro) (euro)
Cash flows from operating activities:
Net (loss) income (7,296) 12,623
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Income tax expense with related party, non-cash (73) (531)
Minority interests' share of net income 42 2,339
Depreciation and amortization of fixed assets 2,677 2,214
Amortization of intangible assets 1,875 3,122
Reduction in carrying value of investments - 440
Deferred income taxes (2,192) 10,029
Net loss from equity method investees 1,716 838
Bad debt expense 6,599 3,313
Changes in operating assets and liabilities:
Related parties 8,745 (12,070)
Accounts receivable 29,880 (117)
Unbilled revenue (4,429) (19,395)
Prepaid expenses and other current assets (587) (4,693)
Other assets (543) (238)
Accounts payable (8,964) (2,468)
Income taxes payable 117 (327)
Accrued expenses and other current liabilities 9,575 17,565
Accrued personnel incentives (23,837) (8,628)
Other liabilities (5,534) 4,484
------- ------
Net cash provided by operating activities 7,771 8,500
------- ------
Cash flows used in investing activities:
Purchases of fixed assets (2,727) (4,694)
Purchases of other assets and investments - (1,770)
Capitalized software development costs (2,589) (3,328)
------- ------
Net cash used in investing activities (5,316) (9,792)
------- ------
Cash flows used in financing activities:
Repayments credit, net (1,947) (4,762)
------- ------
Net cash used in financing activities (1,947) (4,762)
Effect of exchange rates on cash and cash equivalents (198) 89
------- ------
Net increase (decrease) in cash and cash equivalents 310 (5,965)
Cash and cash equivalents, beginning of the period 9,350 18,165
------- ------
Cash and cash equivalents, end of the period 9,660 12,200
======= ======
Supplemental cash flow information:
Cash paid during the period for:
Interest 493 196
Income taxes 959 800
See accompanying notes to unaudited consolidated financial statements.
33
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
1. Description of Business
KPMG Consulting AG (together with its subsidiaries, the "Company") is engaged in
the business of management consulting and technology consulting, both within
Germany and abroad. The Company is a subsidiary of KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprufungsgesellschaft
("DTG"). The Company was formed as a limited liability company (Gesellschaft mit
beschrankter Haftung or GmbH) under German Law on February 19, 1969. Effective
October 25, 2000, the Company converted from a limited liability company to a
joint stock corporation (Aktiengesellschaft or AG).
2. Basis of Presentation
(a) Interim Financial Statements
The unaudited consolidated financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The Company maintains its financial
records in accordance with German law, which requires the application of
accounting principles generally accepted in Germany ("German GAAP"). German GAAP
varies in certain significant respects from US GAAP. Accordingly, the Company
made certain adjustments to prepare these unaudited consolidated financial
statements in accordance with US GAAP.
In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments (consisting of those of a normal recurring nature),
considered necessary to present fairly the financial position and results of
operations and cash flows for the periods presented in conformity with
accounting principles generally accepted in the United States applicable for
interim periods. The financial statements should be read in conjunction with the
audited consolidated financial statements as of December 31, 2001. The results
for the six-month period ended June 30, 2002, are not necessarily indicative of
the results for the year ending December 31, 2002.
All subsidiaries are consolidated for the periods ended June 30, 2002 and 2001,
and at December 31, 2001, with the exception of the accounts of
Informationstechnologie und Systementwicklung Gesellschaft m.b.H., Graz, Austria
("Infonova"), which are included in the Company's results of operations for the
six months ended June 30, 2001, for the period from its fiscal year beginning of
November 1, 2000, until June 30, 2001. The operations for the two month period
ended December 31, 2000, consisted of (euro)5,660 and (euro)619 in revenues and
net income, after minority interest, respectively.
(b) Use of Estimates
In the normal course of preparing financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates affecting the financial
statements include recoverability of investments, accounts receivable
collectibility (see Note 5), accruals and costs on unfinished consulting
projects. Actual results could differ from those estimates.
34
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
(c) Revenue Recognition
Revenues from software and hardware sales are recognized after installation is
completed and the customer has accepted the software or hardware. Such software
and hardware sales amounted to (euro)13,172 and (euro)12,714 for the six months
ended June 30, 2002, and 2001, respectively. Maintenance contract revenues are
recognized ratably over the term of the underlying agreement. When consulting
engagements have multiple elements, each element is separately evaluated and
allocated among each deliverable based on the relative fair value of each of the
deliverables, which reflects the prices at which those elements are sold
separately to third parties.
(d) New accounting standards
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long Lived Assets," which addresses financial
accounting and reporting for the impairment and disposal of long-lived assets,
and SFAS No. 142, "Goodwill and other Intangible Assets", with respect to
impairment of goodwill. The adoption of these standards did not have a material
impact on the Company's consolidated financial position or results of
operations.
On January 1, 2002, the Company adopted SFAS No. 142, which prohibits the
amortization of goodwill and indefinite life intangible assets. Instead,
goodwill and indefinite life intangible assets will be tested for impairment at
least annually and on an interim basis when an event occurs or circumstances
change between annual tests that would more-likely-than-not result in
impairment. Under SFAS No. 142, goodwill is assessed for impairment by using the
fair value based method. The Company determines fair value by utilizing
discounted cash flows. The fair value test required by SFAS No. 142 for goodwill
and indefinite lived intangible assets includes a two-step approach. Under the
first step, companies must compare the fair value of a "reporting unit" to its
carrying value. A reporting unit is the level at which goodwill impairment is
measured and it is defined as an operating segment or one level below it if
certain conditions are met. If the fair value of the reporting unit is less than
its carrying value, goodwill is impaired and companies must proceed with step
two. Under step two, the amount of goodwill impairment is measured by the amount
that the reporting unit's goodwill carrying value exceeds the "implied" fair
value of goodwill. The implied fair value of goodwill can only be determined by
deducting the fair value of all tangible and intangible net assets (including
unrecognized intangible assets) of the reporting unit from the fair value of the
reporting unit (as determined in Step one). In this step, companies must
allocate the fair value of the reporting unit to all of the reporting unit's
assets and liabilities (a hypothetical purchase price allocation).
SFAS No. 142 requires companies to perform the impairment test at least annually
and also upon adoption. Any impairment loss resulting from the adoption of SFAS
No. 142 is treated as a change in accounting principle.
Calendar year companies such as ourselves adopted SFAS No. 142 as of January 1,
2002, for goodwill and intangible assets arising from business combinations
completed prior to July 1, 2001, and we have applied SFAS No. 142 for goodwill
and indefinite-lived intangible assets arising from business combinations
completed after June 30, 2001. Prior to January 1, 2002, the Company amortized
goodwill and had recorded intangible assets that included the portion of the
cost of acquired companies assigned to assembled workforce. Upon adoption of
SFAS No. 142, for U.S. GAAP purposes, we stopped amortizing goodwill and
subsumed into goodwill the carrying value of assembled workforce previously
accounted for as an intangible asset. The net book value of this
35
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
reclassification as of January 1, 2002, was(euro)7,889. The Company did not have
any impairment loss as a result of adopting SFAS No. 142 and performing the
required impairment test.
In accordance with SFAS No. 142, the Company is disclosing the following
reconciliation of reported net income to adjusted net income assuming SFAS No.
142 was adopted as of the beginning of the periods presented. As SFAS No. 142
was adopted by the Company on January 1, 2002, there are no reconciling
differences for the six months ended June 30, 2002.
Six months ended
June 30, 2001
----------------
(euro)
Reported net income 12,623
Add back amortization of goodwill 1,198
Add back amortization of assembled workforce
subsumed into goodwill 821
------
Adjusted net income 14,642
======
(e) Reclassifications
Certain reclassifications have been made to the prior year's financial
statements to conform to the 2002 presentation.
3. Income Taxes
In 2000, the German government enacted new tax legislation, effective beginning
in 2001, which reduced the Company's statutory corporate tax rate from 40% on
retained earnings and 30% on distributed earnings to a uniform 25%. Including
the impact of the solidarity surcharge of 5.5% on certain earnings, the
effective statutory corporate tax rate became 26.375%. The effects of the
legislation on the Company's deferred tax assets and liabilities were recognized
in 2000, the year of enactment. Corporations in Germany are also subject to a
trade tax, which is deductible for federal corporate tax purposes.
The provision for income taxes in these financial statements is based on the
amount of tax the Company would have incurred if calculated on a separate return
basis. In determining the income tax benefit for the credit for the lower tax
rate on distributed earnings the Company has assumed it would have paid the
maximum distribution allowable under German law. The Company does not have any
income tax-related balances due to or from DTG as of any of the balance sheet
dates presented.
36
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
4. Related Party Balances and Transactions
Related party receivables
Receivables from related parties were composed of the following:
June 30,
2002 December 31,
(unaudited) 2001
----------- ------------
(euro) (euro)
DTG, short term operating account 332 303
Other - 910
----- -----
Receivables from related parties 332 1,213
===== =====
Related party payables
Payables to related parties were composed of the following:
June 30,
2002 December 31,
(unaudited) 2001
---------- ------------
(euro) (euro)
DTG, short term operating account 15,113 9,330
KPMG Alpen Treuhandgesellschaft 14 14
KPMG Prufungs- und Beratungsgesellschaft fur den Offentlichen
Sektor AG, short term operating account 1,079 1,079
Bayerische Treuhandgesellschaft AG, short term operating account 630 655
Payable to minority interest holders 3,137 2,031
KPMG Fides Peat 758 850
KPMG Treuhand and Goerdeler GmbH 2,662 2,060
Other 561 604
------- ------
Payables to related parties 23,954 16,623
======= ======
The Company's short term loan with DTG was paid in full on April 1, 2001, and
bore interest of EURIBOR + 0.5%, which resulted in an interest rate at April 1,
2001, of approximately 5.1%. The related interest expense was (euro)196 for the
six months ending June 30, 2001. As the Company does not have a general cash
bank account for operations, the short term operating account is used between
the Company and DTG. Interest is calculated quarterly based on the average
balance, and interest is recorded as income or expense, depending on whether the
balance is a receivable or payable, respectively. The interest rate, determined
quarterly and based the EONIA rate, for the six months ended June 30, 2002,
ranged from 3.3110 % to 3.3703 %, and resulted in interest expense (euro)510.
Prior to June 30, 2001, no interest was applied to the short term operating
account.
Transfer of Guarantees
From time to time, DTG issues guarantees on behalf of the Company. On June 7,
2002, DTG transferred these guarantees totaling (euro) 7,752 to an unrelated
financial institution. No fees were incurred on behalf of the Company for this
transfer.
37
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
Shared Service Expenses
Historically, certain services relating to DTG's assurance, financial advisory
services, tax and consulting businesses have been provided by DTG on a
centralized basis. These services include the following functions: Tax advice,
IT services (including equipment lease), Knowledge Management, Accounting,
Marketing and Communication, Human Resources and Other Consulting Services
(e.g., issuance and management of the Company shares, car leasing, etc.).
The shared service agreement was executed as of January 1, 2001, for the period
through June 30, 2004. Subsequently, the contract is automatically extended by
one year, if it is not terminated with at least nine months advance notice. If
the Company terminates any services under the shared service agreement, the
Company is obligated to reimburse resulting additional costs incurred by DTG on
related long term contracts with third parties. The unaudited consolidated
financial statements include allocations of these centralized costs, based on
the actual cost of such services, as represented by DTG, on substantially the
same basis as provided for in the shared service agreement, as discussed below.
Costs are allocated among DTG and the Company based on the actual costs incurred
by DTG, as represented by DTG. The allocation methods defined in the agreement
are based on headcount, revenues, and billable hours, and reflect the actual
overhead costs attributable to the Company, as represented by DTG. Management
believes that the basis used for allocation of the costs of shared services, as
represented by, DTG is reasonable and reflects the portion of such costs
attributable to the Company.
Occupancy Expenses
The Company is allocated most of its office space from DTG. Occupancy costs are
allocated based upon actual square footage used by the Company at estimated
market rates. In addition to rental expense, allocated occupancy costs also
include all facility-related charges.
Professional Services
The Company has periodically provided consulting services directly to DTG and
other affiliates. Additionally, DTG's assurance and tax businesses periodically
utilize the Company's consultants in servicing their assurance and tax
engagements. Correspondingly, the Company sometimes utilizes DTG assurance and
tax professionals in servicing their consulting engagements. Management believes
that the revenues earned and fees paid between DTG's assurance and tax
businesses and other affiliates, and the Company were determined on a basis
substantially equivalent to what would have been earned and paid in similar
transactions with unrelated parties.
38
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
Revenue and Expenses
Total revenue and expenses allocated to the Company with regard to shared
services, occupancy, interest, and professional services is as follows:
Six Months ended
June 30
-------------------
2002 2001
-------------------
(euro) (euro)
Shared services expenses 14,201 12,096
Occupancy expenses 6,930 6,156
Interest income/expense 277 (196)
Professional services
Revenue 7,542 8,586
Other direct contract expenses 11,435 4,146
Shared services expenses are included in selling, general and administrative
expenses - related party. Occupancy expenses are allocated to other cost of
services and selling, general and administrative expenses - related party based
on headcount.
5. Commitments and Contingencies
The Company is involved in legal proceedings, claims and litigation arising in
the ordinary course of business. Management believes that the Company's
provision for estimated costs and losses that may ultimately be incurred with
regard to such matters of (euro) 73 is adequate. However, such matters are
subject to uncertainties and, as a result, their ultimate outcome may differ
from management's current estimates. The Company's management expects that the
resolution of these contingencies will not have a material impact on the
financial position or results of operations of the Company.
In 2002, the Company had open contracts with affiliates of KirchMedia Group
("Kirch"). On April 8, 2002, several affiliates of Kirch filed for bankruptcy
protection under the laws of Germany and since that date, other affiliates of
Kirch have also filed, and continue to file for bankruptcy protection. Based on
management's review of the Company's business with Kirch and consultation with
legal counsel regarding the financial solvency and bankruptcy proceeding of
Kirch, management has provided for a full allowance for all amounts due from
Kirch and its affiliates as well as future losses on these contracts. While
management is confident a portion of the amounts due will ultimately be
collected, we are currently uncertain as to the amount that will be collected at
this time. Accordingly, a 100% provision for bad debts of (euro)4,535 has been
established at June 30, 2002, for the Kirch receivables.
39
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:
June 30,
2002 December 31,
(unaudited) 2001
----------- ------------
(euro) (euro)
Accrued overtime and vacation 19,947 18,834
Accrued benefits and payroll related expenses 12,562 12,324
Accrued losses on uncompleted contracts 1,273 1,642
Pension liability, current portion 735 500
Value-added tax 9,067 3,007
Accrued travel expenses 1,301 2,409
Customer bonus 50 -
Other 9,811 6,455
------ ------
Accrued expenses and other current liabilities 54,746 45,171
====== ======
7. Other Liabilities
Other non-current liabilities consisted of the following:
June 30,
2002 December 31,
(unaudited) 2001
----------- ------------
(euro) (euro)
Long term employee benefits including pensions 27,277 25,542
Early option to retire 1,682 1,867
Anniversary payments 2,288 2,098
Employee related taxes and social security - 3,272
Other non-current liabilities 1,535 1,117
------ ------
Other liabilities 32,782 33,896
====== ======
40
KPMG CONSULTING AG AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
(in thousands of(euro), except share and per share amounts)
June 30, 2002
8. Change in Valuation and Qualifying Accounts
The following table reflects the development of the allowance for doubtful
accounts for the six months ending June 30, 2002:
(euro)
Balance at January 1, 2001 4,245
Additions charged to selling, general and administrative expense 6,599
Deductions for write-offs of accounts (1,857)
------
Balance at June 30, 2002 8,987
======
9. Subsequent Events
On June 8, 2002, KPMG Consulting Inc. ("KCIN") signed a binding Share Purchase
Agreement ("Agreement") with the shareholders of the Company that, subject to
regulatory approvals, provided for the transfer of 100% of the outstanding
shares of the Company to KCIN for an aggregate purchase price of US$685.0
million plus a purchase price adjustment for working capital and net debt, as
defined. On August 22, 2002, KCIN and the Company's shareholders closed the
Agreement resulting in the transfer of control of the Company and its wholly
owned subsidiaries to KCIN. Contemporaneously with the closing, the Company
acquired the remaining 49% of outstanding shares in Infonova and the remaining
39% of outstanding shares in MBGmbH for a purchase price of US$20.8 million and
US$3.7 million, respectively.
Subsequent to the sale of the Company, on August 23, 2002, the Company agreed to
relinquish its investment in KPMG Consulting France B.V. for essentially no
proceeds. At June 30, 2002, the Company had a book value in this investment of
approximately (euro)4.8 million.
41
Item 7(b). Pro Forma Financial Information and Other Data
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On August 22, 2002, pursuant to a share purchase agreement dated as of
June 8, 2002, by and among BearingPoint, Inc. (formerly KPMG Consulting, Inc.)
(the "Company"), KPMG DTG, the majority shareholder of KPMG Consulting AG
("KCA"), and minority shareholders of KCA as set forth in the share purchase
agreement, the Company acquired all of the outstanding shares of KCA for $652.0
million (including acquisition costs of $14.0 million). KCA's operations
consist primarily of consulting practices in Germany, Switzerland and Austria.
The Company is providing a pro forma consolidated condensed statement of
operations for the year ended June 30, 2002 and a pro forma consolidated
condensed balance sheet as of June 30, 2002. The pro forma financial information
of the Company includes adjustments to the Company's consolidated balance sheet
as of June 30, 2002, and to the Company's consolidated statements of operations
for the year ended June 30, 2002, as if the acquisition had occurred on June 30,
2002 for purposes of the pro forma consolidated condensed balance sheet, and on
July 1, 2001 for purposes of the pro forma consolidated condensed statement of
operations.
The following pro forma financial information should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on September 30, 2002, as well as the KCA
consolidated financial statements and the notes thereto contained elsewhere in
this Form 8-K/A. The pro forma financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's future results of operations or financial position or what the
Company's results of operations or financial position would have been had the
Company completed the acquisition of KCA at an earlier date. The pro forma
adjustments are based on available information and upon assumptions that the
Company believes are reasonable.
42
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
For the year ended June 30, 2002
(Unaudited)
BearingPoint KCA Pro forma Pro forma
Historical Historical Adjustments BearingPoint
---------- ---------- ----------- ------------
(in thousands, except share and per share amounts)
Revenues $ 2,367,627 $ 507,951 $ - $ 2,875,578
Costs of service:
Professional compensation 940,829 229,685 - 1,170,514
Other direct contract expenses 592,634 122,055 - 714,689
Impairment charge 23,914 - - 23,914
Other costs of service 209,398 47,823 4,974 (a) 261,800
(395)(b)
---------------- ----------------- ----------------- ----------------
Total 1,766,775 399,563 4,579 2,170,917
---------------- ----------------- ----------------- ----------------
Gross margin 600,852 108,388 (4,579) 704,661
Amortization of goodwill and purchased intangibles 3,013 3,808 (3,808)(c) 24,799
21,786 (d)
Selling, general and administrative expenses 464,149 86,678 (4,974)(a) 545,853
---------------- ----------------- ----------------- ----------------
Operating income 133,690 17,902 (17,583) 134,009
Interest expense (2,248) (1,608) (7,658)(e) (11,514)
Interest income 3,144 207 - 3,351
Other income - (291) - (291)
Gain on sale of assets - - - -
Loss on equity investment - (2,884) 2,884 (f) -
---------------- ----------------- ----------------- ----------------
Income before taxes and minority interest 134,586 13,326 (22,357) 125,555
Income tax expense 81,524 6,034 (11,218)(g) 76,340
Minority interest / (income) - 3,750 (3,750)(h) -
---------------- ----------------- ----------------- ----------------
Income from continuing operations 53,062 3,542 (7,389) 49,215
================ ================= ================= ================
Earnings (loss) per share:
Income (loss) before cumulative effect of change
in accounting principle applicable to common
stockholders-- basic and diluted 0.34 0.26
================ ================
Weighted average shares:
Basic 157,559,989 30,471,309 (i) 188,031,298
================ ================= ================
Diluted 159,583,786 30,471,309 190,055,095
================ ================= ================
43
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 2002
(Unaudited)
BearingPoint KCA
Historical Historical
---------- ----------
ASSETS (in thousands)
Current Assets:
Cash and cash equivalents $ 203,597 $ 9,584
Accounts receivable, net 246,792 94,474
Unbilled revenues 128,883 20,418
Other current assets 67,941 9,552
-------------------------------
Total 647,213 134,028
Property and equipment, net 60,487 12,227
Goodwill, net 87,663 35,317
Other intangible assets, net 75,652 25,414
Other assets 24,116 15,226
-------------------------------
Total assets $ 895,131 $ 222,212
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 1,846 $ 6,281
Accounts payable 62,810 35,972
Accrued payroll and related liabilities 130,554 71,227
Other current liabilities 88,085 9,692
-------------------------------
Total current liabilities 283,295 123,172
Other liabilities 9,966 44,634
-------------------------------
Total liabilities 293,261 167,806
Stockholders' Equity:
Preferred stock - -
Common stock 1,605 8,334
Additional paid-in capital 689,210 46,600
Accumulated deficit (41,421) (470)
Notes receivable from stockholders (10,151) -
Accumulated other comprehensive loss (1,646) (58)
Common stock held in treasury, at cost (35,727) -
-------------------------------
Total stockholders' equity 601,870 54,406
-------------------------------
Total liabilities and stockholders' equity $ 895,131 $ 222,212
===============================
44
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET-(Continued)
June 30, 2002
(Unaudited)
Pro Forma Adjustments
-----------------------------------------
Debt Purchase
Financing Accounting BearingPoint
Adjustments(j) Adjustments(k) Pro Forma
----------- ----------- ---------
(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents $ 273,583 $ (287,583) $ 199,181
Accounts receivable, net - - 341,266
Unbilled revenues - - 149,301
Other current assets - 7,367 84,860
---------------- --------------- ---------------
Total 273,583 (280,216) 774,608
Property and equipment, net - - 72,714
Goodwill, net - (35,317) 740,199
652,536
Other intangible assets, net - (17,295) 106,259
22,488
Other assets - (6,199) 31,327
(1,816)
---------------- --------------- ---------------
Total assets $ 273,583 $ 334,181 $ 1,725,107
================ =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 53,583 $ - $ 61,710
Accounts payable - - 98,782
Accrued payroll and related liabilities - - 201,781
Other current liabilities - 16,370 114,147
---------------- --------------- ---------------
Total current liabilities 53,583 16,370 476,420
Other liabilities 220,000 (2,340) 282,380
10,120
---------------- --------------- ---------------
Total liabilities 273,583 24,150 758,800
Stockholders' Equity:
Preferred stock - - -
Common stock - (8,334) 1,910
305
Additional paid-in capital - (46,600) 1,053,342
364,132
Accumulated deficit - 470 (41,421)
Notes receivable from stockholders - - (10,151)
Accumulated other comprehensive loss - 58 (1,646)
Common stock held in treasury, at cost - - (35,727)
---------------- --------------- ---------------
Total stockholders' equity - 310,031 966,307
---------------- --------------- ---------------
Total liabilities and stockholders' equity $ 273,583 $ 334,181 $ 1,725,107
================ =============== ===============
45
BEARINGPOINT, INC.
(formerly KPMG Consulting, Inc.)
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
(US dollars in thousands, except share and per share amounts)
Overview: On August 22, 2002, pursuant to a share purchase agreement dated
as of June 8, 2002, by and among the Company, KPMG DTG, the majority shareholder
of KCA, and minority shareholders of KCA as set forth in the share purchase
agreement, the Company acquired all of the outstanding shares of KCA for
$652,020 (including $14,000 of acquisition costs), of which $287,583 was paid in
cash and $364,437 was paid through the issuance of 30.5 million shares of
common stock.
Basis of Presentation: For purposes of preparing pro forma financial
information, we have used information derived from the Company's and KCA's
consolidated financial statements. The Company's consolidated financial
statements and the notes thereto as of and for the year ended June 30, 2002 can
be found in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on September 30, 2002. KCA's audited
consolidated financial statements and notes thereto as of and for the years
ended December 31, 2001 and 2000, and KCA's unaudited consolidated financial
statements as of June 30, 2002 and for the six months ended June 30, 2002 and
2001 and notes thereto, are presented in Euros and contained elsewhere in this
Form 8-K/A. KCA's assets and liabilities were translated into United States
dollars using current exchange rates; revenues and expenses were translated at
the average exchange rate during the periods presented. In addition, using KCA's
unaudited interim financial statements for the periods ended June 30, 2002 and
2001, KCA's calendar year-end consolidated statements of operations were
adjusted to conform with the Company's June 30 fiscal year end presentation.
The pro forma financial information reflect the following adjustments to
the historical consolidated financial statements:
(a) Adjustment to reclassify KCA's bad debt expense of $4,974, from
selling, general and administrative expenses to other costs of
service, to conform with the Company's presentation.
(b) Adjustment to eliminate KCA's impairment loss of $395 related to an
investment, which was disposed of in connection with the Company's
acquisition of KCA.
(c) Adjustment to eliminate KCA's historical goodwill amortization of
$1,076 and historical purchased intangible amortization of $2,732, in
accordance with Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," which the Company
adopted as of July 1, 2001.
(d) Adjustment to reflect the incremental amortization of purchased
intangible assets consisting of backlog and tradename in the amount
of $21,786 based on the Company's pro forma allocation of the KCA
purchase price, including valuation of the identified intangible
assets, determined in accordance with SFAS No. 141, "Business
Combinations" (see note (k) below).
(e) Adjustment to reflect the incremental interest expense associated with
the debt financing of the Company's acquisition of KCA. The purchase
price of $652,020 (including $14,000 of acquisition costs) was funded
as follows: $220,000 from a new short-term revolving credit facility
which
46
expires on December 15, 2002, $53,583 from the Company's existing
receivables purchase facility, $14,000 from cash on hand and $364,437
from issuance of 30.5 million shares of common stock. Prior to
December 15, 2002, the Company intends to replace the $220,000
short-term revolving credit facility with approximately $175,000 of
new long-term financing and $45,000 under the Company's existing
$250,000 long-term revolving credit facility. For purposes of this pro
forma financial information, we have used an assumed annual interest
rate of 2.9% which is the current rate on the Company's existing
$250,000 long-term revolving credit facility. The Company expects that
the annual interest rate on $175,000 of new long-term financing will
be approximately 6.0%, which would reduce income from continuing
operations by $3,167 (net of tax). The receivables purchase facility
carries a variable interest rate with an assumed annual interest rate
of 2.2%. A change in the variable interest rate of 1/8% would effect
annual net income from continuing operations by $40 (net of tax).
(f) Adjustment to eliminate KCA's loss on equity investment of $2,884 as
a result of the Company assigning no value to this equity investment
as part of our allocation of KCA's purchase price in accordance with
SFAS No. 141, "Business Combinations". The Company is not obligated to
make and has no intention of making any capital contributions in
connection with this investment and, therefore, will not incur any
losses on such investment.
(g) Adjustment to reflect incremental income tax benefits assumed to have
been available to the Company associated with deductions for
amortization of purchased intangibles and debt financing costs at
marginal tax rates ranging from 40.9% to 45.0%.
(h) Adjustment to reflect the assumed buy-out of the 49% minority interest
in a subsidiary of KCA (Infonova Group), which occurred in connection
with the Company's acquisition of KCA.
(i) Adjustment to reflect the increase in the number of weighted average
common shares outstanding of 30.5 million shares, based on
$364,437 of common stock issued as consideration for the equity
portion of the purchase price.
(j) Adjustment to reflect the debt financing of the Company's acquisition
of KCA. It is assumed the Company will put long-term financing in
place to replace the short-term revolving credit facility prior to
December 15, 2002 and therefore has included this debt as noncurrent.
(k) Adjustment to reflect acquisition of KCA for $652,020 ($287,583 cash
and $364,437 in common stock), including preliminary allocation of
purchase price to identifiable assets and goodwill (and applicable
useful life), and assumed liabilities representing the preliminary
estimate of restructuring costs as of the acquisition date, as
follows:
Tangible net assets acquired $ (3,881)
Backlog 21,084 (1 year)
Current deferred tax asset 7,367
Trade name 1,404 (2 years)
Goodwill 652,536
Noncurrent deferred tax liability (10,120)
Accrued restructuring costs (16,370)
The Company is in the process of finalizing a plan of restructuring to
balance resources with market demand for services, including
specifically identifying excess resources, and finalizing the cost of
the action with appropriate regulatory bodies. The plan is expected to
be finalized and implemented in the quarter ending December 31, 2002.
47
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, hereunto duly authorized.
BEARINGPOINT, INC.
Dated: October 17, 2002
By: /s/ Robert C. Lamb, Jr.
--------------------------------
Robert C. Lamb, Jr.
Executive Vice President and
Chief Financial Officer
INDEX OF EXHIBITS
2.1 Share Purchase Agreement, dated June 8, 2002, among KPMG Consulting,
Inc., KPMG DTG and the minority shareholders, which is incorporated by
reference to Exhibit 2.1 from the Company's Form 8-K filed on
September 6, 2002.
23.1* Consent of Ernst & Young.
* Filed herewith