1113247--11/22/2006--BEARINGPOINT

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{cost, contract, operation}

{capital, credit, financial}

{cost, operation, labor}

{product, market, service}

{property, intellectual, protect}

{financial, litigation, operation}

{provision, law, control}

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{control, financial, internal}

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In fiscal 2004, we identified material weaknesses in our internal control over financial reporting, which could materially and adversely affect our business and financial condition, and as of December 31, 2005, these material weaknesses remain. We face risks related to securities litigation and regulatory actions that could adversely affect our financial condition and business. Risks that Relate to Our Business Our business may be adversely impacted as a result of changes in demand, both globally and in individual market segments, for consulting and systems integration services. Our operating results will suffer if we are not able to maintain our billing and utilization rates or control our costs. The systems integration consulting markets are highly competitive, and we may not be able to compete effectively if we are not able to maintain our billing rates or control our costs. We have incurred significant operating losses under our contract with Hawaiian Telcom Communications, Inc. and could incur significant additional losses and cash outflows in fiscal 2006. Contracting with the Federal government is inherently risky and exposes us to risks that may materially and adversely affect our business. Our ability to attract, retain and motivate our managing directors and other key employees is critical to the success of our business. We continue to experience sustained, higher-than-industry average levels of voluntary turnover among our workforce, which has impacted our ability to grow our business. Our contracts can be terminated by our clients with short notice, or our clients may cancel or delay projects. If we are not able to keep up with rapid changes in technology or maintain strong relationships with software providers, our business could suffer. Loss of our joint marketing relationships could reduce our revenue and growth prospects. We are not likely to be able to significantly grow our business through mergers and acquisitions in the near term. There will not be a consistent pattern in our financial results from quarter to quarter, which may result in increased volatility of our stock price. Our profitability may decline due to financial, regulatory and operational risks inherent in worldwide operations. We may bear the risk of cost overruns relating to our services, thereby adversely affecting our profitability. We may face legal liabilities and damage to our professional reputation from claims made against our work. Our services may infringe upon the intellectual property rights of others. We have only a limited ability to protect our intellectual property rights, which are important to our success. Risks that Relate to Our Liquidity Our current cash resources might not be sufficient to meet our expected near-term cash needs, especially to fund intra-quarter operating cash requirements and non-recurring cash requirements (e.g., to settle lawsuits). We have been unable to issue shares of our common stock under our ESPP since February 1, 2005. The longer we are unable to issue shares of our common stock, the more likely our ESPP participants may elect to withdraw their accumulated cash contributions from the ESPP at rates higher than those we have historically experienced. We have limited availability under our 2005 Credit Facility to borrow additional amounts or issue additional letters of credit, and we may not be able to refinance our debt or to do so on favorable terms. Our 2005 Credit Facility imposes a number of restrictions on the way in which we operate our business and may negatively affect our ability to finance future needs, or do so on favorable terms. If we violate these restrictions, we will be in default under the 2005 Credit Facility, which may cross-default to our other indebtedness. If our operating performance is materially and adversely affected, we may not be able to service our indebtedness. We may be required to post collateral to support our obligations under our surety bonds, and we may be unable to obtain new surety bonds, letters of credit or bank guarantees in support of client engagements on acceptable terms. Downgrades of our credit ratings may increase our borrowing costs and materially and adversely affect our financial condition. Our leverage may adversely affect our business and financial performance and may restrict our operating flexibility. The holders of our debentures have the right, at their option, to require us to purchase some or all of their debentures upon certain dates or upon the occurrence of certain designated events, which could have a material adverse effect on our liquidity. Risks that Relate to Our Common Stock The price of our common stock may decline due to the number of shares that may be available for sale in the future.

Full 10-K form ▸

1113247--11/22/2006--BEARINGPOINT_INC