Turnaround Artist?

Turnaround Artist? <@VM>Clearing house

BearingPoint Inc.

Headquarters: McLean, Va.

CEO: Harry You

2004 revenue: $3.5 billion (expected)

2004 net earnings: Company has not yet officially posted

Employees: 16,500

Washington Technology Top 100 rank: 33

Web site: www.bearingpoint.com

Harry You, CEO of BearingPoint Inc.

Rick Steele

Harry You intends to end BearingPoint Inc.'s bumpy ride.

Appointed chief executive last month amid accounting problems that prompted the sudden resignation of former CEO Randolph Blazer, You said he wants to get the company back on track with double-digit revenue growth of 13 percent or more during the next five years.

Any growth less than that "would be terribly disappointing, would be a failure," he told Washington Technology.

You was brought in from Oracle Corp., where he had been chief financial officer. He is expected to take over as BearingPoint chairman from Roderick McGeary, who was interim CEO.

In a wide-ranging interview, You outlined his plans for revitalizing the company, one of the top-ranked technology and consulting firms in the government market.

Most significantly, You denied reports that he had been brought in to get BearingPoint ready for sale, saying he would concentrate on improving and rewarding performance at the McLean, Va., company.

BearingPoint's government business likely will play a strong role in driving growth. The company's public sector business, including the federal government, state and local governments and health care, accounts for about 45 percent of BearingPoint's estimated $3.5 billion in annual revenue, and is approaching 50 percent, You said.

You also wants to increase the company's commercial sector business and bring it up to par with its public sector business, which has been growing at a 20 percent clip for the last few years.

"There's just lots of synergy relative to what we do for commercial clients and how it can apply to the public sector, and vice versa," he said.

 

PROBLEMS AND TURNOVER

Getting BearingPoint's financial house in order is a top priority for You. BearingPoint missed its March 16 deadline for filing its

10-K annual report with the Securities and Exchange Commission. The company also expects to miss its May 10 deadline for its 10-Q quarterly report with SEC.

The delays have been caused by glitches with a financial accounting system the company installed last year and a subsequent misclassification of a ledger item.

"We were in a bit too much of a rush and didn't fully stress-test things," You said.

The errors led to the departure in November of Blazer and other senior executives.

The problems with its financial systems are "an embarrassment," You said, because these are the same systems that BearingPoint advises its clients on.

"Fortunately, our clients have been very steadfast and loyal, and the financial reporting issues don't impinge on our delivering service to people," You said.

BearingPoint is retesting its accounting system and has eliminated almost all the glitches, You said. Meanwhile, the company is reviewing its year-end statement and intends to file its 10-K for 2004 with the restated quarterly figures as soon as it can get it accurately done, he said. Then it will work on filing its 10-Q for the first quarter of 2005.

BearingPoint, formerly KPMG Consulting Inc., expects gross revenue of nearly $3.5 billion for 2004 and may record a loss for the year. David Garrity, managing director and portfolio strategist at New York investment bank Caris & Co., said he expects BearingPoint to report a loss of $50 million to $100 million when the company issues its restated earnings for 2004.

Because the company transitioned from a June 30 fiscal closing to a calendar year closing for 2004, the most recent financial report is for the six months from July 1, 2003, to Dec. 31, 2003.

During that period, the company reported revenue of nearly $1.6 billion and a net loss of $165.8 million. This compares to more than $3.1 billion in reported revenue and $41.3 million in net income for fiscal 2003, which ended June 30, 2003.

The company's revenue has been growing by just over 9 percent annually, You said.

In the midst of the accounting and compliance woes, the company has also struggled with an employee turnover rate of 17.3 percent in 2003.

Since September 2004, the last quarter for which information is available, the company's voluntary turnover rate was 25 percent, said John Schneidawind, a company spokesman. The company has about 16,500 employees worldwide.

Concerned about keeping top managers, BearingPoint introduced new financial incentive to retain high performers, You said, but declined to provide specifics.

Garrity said the industry's turnover rate is closer to 10 percent, much lower than BearingPoint's.

"One could argue that it's difficult for clients to feel comfortable with BearingPoint as a vendor if the people dealing with them are constantly changing," Garrity said.

STRONG PRESENCE

Despite these problems, BearingPoint has maintained a strong government business. Its largest federal clients include the Health and Human Services and Interior departments, the U.S. military, the intelligence community, and the U.S. Agency for International Development. BearingPoint also has commercial sector clients. The company has offices in North America, Latin America, Europe and the Asia Pacific region.

BearingPoint plans to bid on some large upcoming federal contracts, including the General Services Administration's multibillion-dollar Alliant contract for IT services, said Robin Lineberger, executive vice president overseeing its federal service business.

The company also will bid on the upcoming Base Realignment and Closure program, for which the company believes GSA will need a large integrated service provider to help complete the plan, Lineberger said. The company intends to bid the Army's General Fund Enterprise Business Systems contract, the Air Force's Defense Enterprise Accounting and Management System contract and the Air Force's Expedition Combat Support Systems contract.

In the Homeland Security Department, BearingPoint will pursue the follow-on contract for full-scale deployment of the Transportation Worker Identification Credential, or TWIC, program, Lineberger said. TWIC incorporates biometric information on cards for transportation workers. BearingPoint holds the contract for the pilot project.

The company is chasing contracts for the Office of Management and Budget's retirement system and USAID's global AIDS medication delivery system, Lineberger said.

BearingPoint's strength lies in general management systems, back-office automation and customer delivery systems for the civilian agencies and back-office automation and logistic support systems for the Defense Department, he said.

Shaping up its financial and regulatory affairs will help BearingPoint reassure clients and investors, Garrity said.

Competitors such as Accenture Ltd., Computer Science Corp., CACI International Inc., Lockheed Martin Corp. and Northrop Grumman Corp. will outperform BearingPoint until it "demonstrates it's got things under control," he said. *

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.
When BearingPoint Inc. ran into trouble because of problems with its financial systems, Chief Executive Officer Randolph Blazer abruptly resigned last November.

His departure wasn't the last change at the top.

Chief Financial Officer Robert Falcone retired soon after Blazer left. Joseph Corbett, former executive vice president and CFO of Intelsat Ltd., replaced Falcone in February.

Ron Salluzzo, BearingPoint's executive vice president of the company's state and local government and education practice, was named to the newly created position of chief risk officer in February. In this position, he works closely with BearingPoint's finance and accounting teams and is leading completion of the company's internal audit efforts.

Salluzzo reports directly to the audit committee of BearingPoint's board of directors.

Also in February, Richard Roberts was named chief operating officer, responsible for company's business plan and its global operations. He previously led the company's public industry sector, serving federal, state and local government clients as well as higher education institutions and commercial health care.

Harry You was appointed CEO effective March 21, replacing interim CEO Roderick McGeary. You came to BearingPoint from Oracle Corp., where he was CFO. Before Oracle, he had been CFO of Accenture Ltd.

Before joining Accenture in 2001, You was managing director of the computer and business services group at Morgan Stanley, where he helped in the initial public offering of BearingPoint in 2001.

McGeary remains chairman, but You is expected to assume that position.

"Given the turmoil that's taken place within the company over the last six months, clients should be encouraged with someone of You's caliber coming on board, but the result is that the disruption is more a matter of ongoing instability within the organization," said David Garrity, managing director and portfolio strategist for IT services, defense technology and Internet services, at Caris & Co. Inc. in New York.

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