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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE YEAR ENDED DECEMBER 31, 2000.
COMMISSION FILE NUMBER 0-23488
CIBER, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 38-2046833
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
5251 DTC PARKWAY, SUITE 1400, GREENWOOD VILLAGE, COLORADO 80111
(Address of principal executive offices) (Zip Code)
(303) 220-0100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on which registered
-------------- ------------------------------------
COMMON STOCK, $0.01 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. __
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant as of February 28, 2001 was $320,213,530
based upon the closing price of $6.59 per share as reported on the New York
Stock Exchange on that date.
As of February 28, 2001, there were 57,237,339 shares of the registrant's
Common Stock outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Registrant's 2001 Annual Meeting of
Shareholders to be held on May 10, 2001 are incorporated by reference in Part
III of this Report.
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CIBER, INC.
FORM 10-K
TABLE OF CONTENTS
PART I PAGE
----
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 20
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 46
PART III
Item 10. Directors and Executive Officers 46
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and Management 46
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 46
Signatures 48
2
PART I
ITEM 1. BUSINESS
GENERAL
CIBER, Inc. and its subsidiaries provide information technology ("IT") system
integration consulting and other services and to a lesser extent, resell certain
hardware and software products. Our clients consist primarily of Fortune 2000
and middle market companies across most major industries and governmental
agencies. We operate from branch offices across the United States, plus offices
in Canada and the Netherlands. At December 31, 2000, we had approximately 5,000
employees.
We began operations in 1974 to assist companies in need of computer
programming support. In the mid-1980s, we initiated a growth strategy that
included expanding our range of computer-related services, developing a
professional sales force and selectively acquiring established complementary
companies. We continue to expand and modify our service offerings to address
changes in customer demands and rapidly changing technology. In addition, we
look to form strategic alliances with select package software and hardware
vendors to stay at the leading edge of technology advances, to develop new
business and to generate additional revenue.
We operate our business as follows: CIBER Operations, DigiTerra, Inc., Solution
Partners B.V., Waterstone, Inc. and Enspherics, Inc. CIBER Operations provides a
wide range of IT services and products including project execution, supplemental
IT staffing and consulting in leading-edge practice areas such as IT
architecture and strategy, business intelligence/customer loyalty, Internet
solutions, network infrastructure and security, wireless integration and IT
outsourcing. DigiTerra provides packaged software implementation services
ranging from enterprise resource planning (ERP) to supply chain optimization,
customer relationship management and e-business components. DigiTerra also
provides related hardware sizing and procurement services as an authorized
remarketer of certain computer hardware. Solution Partners, located in the
Netherlands, provides SAP software implementation consulting and e-business
solutions in custom environments. Waterstone (formerly known as Neovation, Inc.)
provides strategic, technical and creative services including e-business
planning, assessments and solutions, customer relationship management, supply
chain management, web content development and design and custom integration
services. Enspherics, in which we acquired a 51% interest in November 2000,
provides custom designed IT security solutions to clients who operate in
high-risk environments. In 2000, approximately 74% of our revenues was from
CIBER Operations, 23% from DigiTerra and 3% from our other operations.
SERVICES AND OPERATIONS
CIBER OPERATIONS
The term CIBER Operations refers to the branch offices doing business under the
CIBER name (herein referred to as "CIBER" for purposes of this section). CIBER
has approximately 4,000 employees operating from over 35 branch offices across
the country. CIBER's branch office network is integral to its business strategy.
Through its branch office network, CIBER can (1) offer a broad range of
consulting services on a local basis, (2) respond to changing market demands for
IT services through a variety of contacts in many industries and geographic
areas and (3) maintain a quality professional staff because of its nationwide
reputation and its training programs. CIBER's strategy is to expand its business
by building long-term relationships with large-sized clients by providing high
quality IT services tailored to meet client needs, with an emphasis on services
involving newer technologies. Although the majority of CIBER's work involves
custom solutions, newer technologies often involve package software and hardware
products. As a result, strategic alliances with software and hardware vendors
are becoming increasingly important to CIBER's service offerings. Some of
CIBER's current alliance partners include: Cisco Systems; Microsoft; Sun
Microsystems; CITRIX; Oracle; IBM; and Palm, among others.
3
CIBER offers expertise in the following main areas:
o IT Architecture & Strategy
o Business strategy and strategy alignment with IT
o IT strategy, architecture and planning
o Application integration and architecture
o Business process analysis/modeling
o Business Intelligence/Customer Loyalty
o Strategic requirements, scoping and planning
o Knowledge discovery/data mining/data warehousing
o Online analytical processing (OLAP) reporting and services
o Knowledge management/enterprise business intelligence portals
o Middleware technology integration
o Customer relationship management integration
o Internet Solutions/ "e-business"
o Commerce and content management
o Call center integration
o Internet integration, site design development and enablement
o Network Infrastructure, Storage and Security
o Network design/assessment, product evaluation/procurement and
implementation
o Security audits and security policies, hacking prevention, virtual
private networks and firewalls
o Data storage and management
o Wireless Integration
o Assessment of readiness
o Design, development and application integration
o IT Outsourcing
o Application maintenance
o Help desk/client call center
o Production application hosting and support
CIBER has historically provided most of its services at client locations. In
order to address the changing needs of our clients, CIBER currently operates
development centers in Denver, Rochester (NY), Atlanta, Kansas City and
Harrisburg. These centers deliver web development, web enablement and
application development efforts, crossing a variety of platforms and
technologies. CIBER's services are provided under both staff supplementation and
project engagements. Projects are distinguishable from professional services
staff supplementation consulting by the level of responsibility we assume. In a
typical project, we assume major responsibilities for the management of the
project and/or the design and implementation of specific deliverables based upon
client-defined requirements. With professional services staff supplementation
engagements, the client generally maintains responsibility for the overall task.
CIBER seeks to be a leader in providing quality services and processes to its
clients. Most CIBER branch operations have received ISO 9001 certification. ISO
9001 certification has enhanced CIBER's ability to achieve preferred supplier
status from certain larger companies, to satisfy current and prospective clients
who insist on a documented quality assurance system and to improve our internal
operations by facilitating cost controls and other efficiencies. In addition,
branch office support is provided by CIBER's Center for Project Performance,
which helps to bid projects, train project managers, implement our proprietary
E.ACCELERATION methodology and audit ongoing projects.
4
DIGITERRA
DigiTerra, Inc. was established as a separate wholly owned subsidiary on April
3, 2000. DigiTerra brought together five acquisitions made by CIBER from 1995 to
1999. These acquired companies had business models that were "package software
centric." DigiTerra's services typically involve implementation of package
software and integration services. Integration with other IT systems is an
important portion of each project that allows the client to obtain an optimized
return on the software investment. DigiTerra's customers are typically middle
market companies, large divisions of Fortune 2000 companies, governments and
higher education institutions. At December 31, 2000, DigiTerra had approximately
750 employees based from 13 offices in the United States and two in Canada.
DigiTerra operates the following service delivery groups:
o Enterprise Solutions
o Net Solutions
o Emerging Solutions
o Technology Solutions
Enterprise Solutions implements and integrates traditional enterprise system or
"ERP" software packages. Enterprise Solutions continues to represent DigiTerra's
core business and is organized on a national basis by practice. Each practice is
associated with a specific software package. DigiTerra has formal business
alliances with the following "enterprise software" vendors:
o PeopleSoft
o J.D. Edwards
o Oracle
o SAP
o Lawson
Enterprise Solutions places significant emphasis on e-business opportunities
that "extend the enterprise" to both customers and suppliers. These customer
relationship management and supply chain systems allow organizations to use the
Internet and create true collaborative commerce. PeopleSoft, Oracle and SAP have
web enabled their product offerings to take advantage of these concepts.
Net Solutions represents a new and emerging business area for DigiTerra. This
group uses state of the art package software to link customers, suppliers and
other external groups to the client's enterprise system. The Net Solutions group
also develops strategies for clients that use package software to conduct large
volumes of transactions over the Internet with seamless connectivity to their
enterprise system. DigiTerra has formal business alliances with the following
"e-business package" vendors:
o Siebel
o Commerce One
o RightWorks
o ArsDigita
o WebSphere
o Ariba
o Frontstep
o Provia
o Adexa
o Onyx
Emerging Solutions is a new group formed in late 2000 to focus on e-Strategy
consulting services and the development of services involving new technologies
such as broadband and wireless. DigiTerra intends to use this group to evaluate
technology advances, develop incubator service groups and ultimately establish
new service offerings.
5
The Technology Solutions group primarily helps to provide mid-range servers and
systems hardware. This group complements DigiTerra's consulting services by
offering our clients a single source for hardware and services. DigiTerra
provides hardware sizing and configurations under formal remarketing agreements
with the following equipment manufacturers:
o IBM
o Hewlett-Packard
o Sun Microsystems
SOLUTION PARTNERS
Solution Partners B.V., based in Eindhoven, the Netherlands, provides SAP
software implementation consulting and other e-business solutions. Solution
Partners is also a reseller of SAP. Solution Partners provides custom-based
solutions on various software platforms. With approximately 75 employees,
Solution Partners delivers its services in a number of European countries.
WATERSTONE
Waterstone, Inc. (formerly known as Neovation, Inc.) was formed in 2000 by
combining CIBER's Interactive Papyrus, Inc. subsidiary with the business
operations acquired from Waterstone Consulting, Inc. Waterstone has
approximately 150 employees and divides its business into three distinct
practices: Digital Media, eBusiness and Technology.
o Digital Media - The Digital Media practice offers clients services for
establishing and/or enhancing their Internet presence. Waterstone's wide
range of creative services includes Internet marketing and branding,
digital strategy assessment, full-service web site design, and usability
testing.
o eBusiness - The eBusiness practice puts technology to work for clients in
need of leading-edge business process solutions. Working jointly with the
Digital Media and Technology practices, the eBusiness practice provides
Internet-centric strategic design and implementation services relating to
business-to-consumer, business-to-business, supply chain management,
customer relationship management and other applications.
o Technology - the Technology practice provides application development,
software engineering, process engineering, application architecture,
package implementation and systems integration services.
ENSPHERICS
Enspherics, Inc. provides IT security consulting and managed security services.
Enspherics has approximately 30 employees. CIBER, Inc. acquired 51% of
Enspherics in November 2000. Enspherics deploys a complete security life cycle
that includes initial security risk assessment, policy and requirements
development, architecture design, system installation and configuration, proof
testing (security test and evaluation), security system monitoring and
administration, security risk management and subsequent systems modification
analysis.
BUSINESS COMBINATIONS
We have expanded our geographic breadth, increased our client base and added to
our technical expertise and service offerings through business combinations.
Given the highly fragmented nature of the IT services industry, we intend to
pursue business combinations as part of our growth and operation strategy,
including possible international opportunities. The success of this strategy
depends not only upon our ability to identify and acquire businesses on a
cost-effective basis, but also upon our ability to integrate acquired operations
into our organization effectively, to retain and motivate personnel and to
retain clients of acquired or merged companies. In reviewing potential business
combinations, we consider the target company's capabilities in specific
technical services, client base, geographic area, expected financial
performance, cost, and the abilities of management, sales and recruiting
personnel, among other factors. From July 1, 1997 to December 31, 2000, we have
completed the following business combinations:
6
APPROXIMATE
CONSIDERATION,
DATE NAME MAIN OFFICE IN MILLIONS (1)
- ------------------- --------------------------------------- ------------------------------ ----------------
November 2000 Enspherics, Inc. (2) Greenwood Village, Colorado $2.5
December 1999 Solution Partners B.V. Eindhoven, the Netherlands $16.0
December 1999 Interactive Papyrus, Inc. (3) Colorado Springs, Colorado $6.2
November 1999 Software Design Concepts, Inc. Philadelphia, Pennsylvania $12.0
October 1999 Waterstone Consulting, Inc. Chicago, Illinois $30.7
October 1999 The Isadore Group, Inc. Phoenix, Arizona $18.3
April 1999 Digital Software Corporation Aurora, Colorado $6.9
March 1999 Compaid Consulting Services, Inc. Atlanta, Georgia $10.3
February 1999 Business Impact Systems, Inc. Herndon, Virginia $62.2
February 1999 Paradyme HR Technologies Corporation Columbia, South Carolina $8.0
February 1999 Integration Software Consultants, Inc. Philadelphia, Pennsylvania $34.0
January 1999 York & Associates, Inc. St. Paul, Minnesota $14.5
January 1999 Paragon Solutions, Inc. Pittsburgh, Pennsylvania $6.9
November 1998 The Doradus Corporation Minneapolis, Minnesota $4.1
August 1998 The Cushing Group, Inc. Nashua, New Hampshire $24.1
August 1998 EJR Computer Associates, Inc. Hoboken, New Jersey $36.0
May 1998 The Summit Group, Inc. Mishawaka, Indiana $133.7
April 1998 Step Consulting, Inc. Greensboro, North Carolina $4.3
March 1998 Computer Resource Associates, Inc. Harrisburg, Pennsylvania $17.6
March 1998 Advanced Systems Engineering, Inc. Aurora, Colorado $12.7
November 1997 Techware Consulting, Inc. Irving, Texas $16.4
November 1997 Financial Dynamics, Inc. McLean, Virginia $25.0
October 1997 The Constell Group, Inc. Elmwood Park, New Jersey $11.4
October 1997 Bailey & Quinn, Inc. Norcross, Georgia $3.4
August 1997 SoftwarExpress, Inc. - d/b/a Reliant Menlo Park, California $23.7
Integration Services, Inc.
July 1997 KCM Computer Consulting, Inc. Calverton, Maryland $15.3
----------------
$556.2
================
(1) Approximate consideration includes the value of CIBER common stock
issued, the value of certain options for CIBER common stock issued and
cash paid or payable (including any recorded additional consideration).
(2) CIBER acquired 51% of Enspherics, Inc.
(3) CIBER acquired 78% of Interactive Papyrus, Inc. (now named Waterstone,
Inc. and 99% owned by CIBER at February 28, 2001).
7
CLIENTS
Our clients consist primarily of Fortune 2000 and middle market companies across
most major industries and governmental agencies. These organizations typically
have significant IT budgets and/or depend on outside consultants to help achieve
their business and IT objectives.
In 2000, our approximate percentage of revenue by client industry was:
Manufacturing 20%
Finance, banking & insurance 18%
Information technology 16%
Government 16%
Telecommunications 13%
Healthcare 6%
Other 11%
Certain customers account for a significant portion of our revenues. Our five
largest clients represented approximately 14% of our total revenues in 2000 with
our largest client accounting for approximately 6% of our revenues. Some of our
significant clients include: American Express; City & County of San Francisco;
Commonwealth of Pennsylvania; Fidelity Investments; Ford Motor Company; Federal
Deposit Insurance Corporation; IBM; Xerox; MCI WorldCom and the U.S. Federal
Government. If any significant client terminates its relationship with us or
substantially decreases its use of our services, it could have a material
adverse effect on our business, financial condition and results of operations.
We seek to develop long-term relationships with our clients. Although a typical
individual client assignment ranges from three months to 12 months in duration,
some of our client relationships have continued for more than 10 years.
SALES FORCE
We maintain a direct sales force of approximately 225 employees at December 31,
2000 who market our services to senior business executives, chief information
officers, information systems managers and others who purchase IT services. New
client contacts are generated through a variety of methods, including client
referrals, trade shows, personal sales calls and direct mailings to targeted
clients.
CONSULTANTS
Our future success depends in part on our ability to hire and retain adequately
trained personnel who can address the changing and increasingly sophisticated
technology needs of our clients. Our ongoing personnel needs arise from
turnover, which is generally high in the industry, and client needs for
consultants trained in the newest software and hardware technologies. Few of our
employees are bound by non-compete agreements. Competition for personnel in the
information technology services industry is significant. We have had, and expect
to continue to have, difficulty in attracting and retaining an optimal level of
qualified consultants. There can be no assurance that we will be successful in
attracting and retaining the personnel we require to conduct and expand our
operations successfully. Because of this, the recruitment of skilled consultants
is a critical element to our success. We devote significant resources to meeting
our personnel requirements. At January 31, 2001, we had approximately 110
full-time recruiters.
8
COMPETITION
The IT services industry is extremely competitive and characterized by
continuous changes in customer requirements and improvements in technologies.
Our competition varies significantly from city to city as well as by the type of
service provided.
Our principal competitors include: Cambridge Technology Partners; Computer
Horizons; Computer Task Group; Keane; marchFIRST; Renaissance Worldwide;
Sapient and Technology Solutions. Many large accounting and consulting firms
(such as Deloitte & Touche, KPMG Consulting, EDS, IBM Global Services) also
offer services that overlap with some of our services. Many of our
competitors are larger than we are and have greater financial, technical,
sales and marketing resources than we do. In addition, we must frequently
compete with a client's own internal information technology staff. We also
compete with Internet professional services firms as well as the service
divisions of various software developers. There can be no assurance that we
will be able to continue to compete successfully with existing or future
competitors or that competition will not have a material adverse effect on
our results of operations and financial condition.
EMPLOYEES
As of December 31, 2000, we had approximately 5,000 employees, including
approximately 4,000 billable consultants and approximately 1,000 personnel in
administrative positions. Administrative personnel include management, sales
representatives, recruiters and other office personnel. None of our employees
are subject to a collective bargaining arrangement. We have employment
agreements with our executive officers. We believe our relations with our
employees are good.
ITEM 2. PROPERTIES
Our corporate office is located at 5251 DTC Parkway, Suite 1400, Greenwood
Village, Colorado 80111, where we have a lease for approximately 38,500 square
feet that expires in December 2003. We lease office space at approximately 60
other locations. We believe our facilities are adequate for our current level of
operations and that suitable additional or alternative space will be available
as needed.
ITEM 3. LEGAL PROCEEDINGS
We are from time to time the subject of lawsuits and other claims and regulatory
proceedings arising in the ordinary course of our business. We do not expect any
of these matters, individually or in the aggregate, will have a material impact
on our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our shareholders during the fourth
quarter of 2000.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Our common stock is listed on the New York Stock Exchange under the symbol
"CBR." The table below sets forth, for the periods indicated, the high and low
sales price per share of our common stock.
Low High
--- ----
Year Ended June 30, 1999
First Quarter 18.25 40.88
Second Quarter 13.31 27.94
Third Quarter 17.88 29.50
Fourth Quarter 16.19 23.38
Transition Period Ended December 31, 1999
First Quarter 14.94 20.13
Second Quarter 13.75 29.81
Year Ended December 31, 2000
First Quarter 17.13 27.50
Second Quarter 12.50 21.31
Third Quarter 7.88 13.63
Fourth Quarter 3.88 8.63
The closing price of our common stock on March 16, 2001 was $5.76. As of
December 31, 2000, there were approximately 28,000 beneficial owners of our
common stock.
Our policy is to retain our earnings to support the growth of our business.
Accordingly, we have never paid cash dividends on our common stock and have no
present plans to do so in the foreseeable future.
10
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data has been derived from our
consolidated financial statements. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our Consolidated Financial Statements and Notes
thereto, which are included herein.
Six
Months
Ended Years Ended
Years Ended June 30, Dec. 31, December 31,
IN THOUSANDS, EXCEPT PER SHARE DATA 1996 1997 1998 1999 1999 1999 2000
- ---------------------------------------- ------------ --------- ----------- --------- ---------- ---------- -----------
OPERATING DATA:
Revenues $ 295,965 413,380 576,488 719,661 362,000 741,947 621,534
Amortization of intangible assets $ 1,795 3,087 3,936 7,520 6,754 12,123 14,032
Goodwill impairment and other charges $ 901 1,218 4,538 1,535 - - 83,768
Operating income (loss) $ 19,944 33,368 57,868 89,340 29,225 76,657 (56,897)
Net income (loss) $ 14,781 21,226 36,477 54,495 17,643 46,701 (66,775)
Pro forma net income $ 12,469 20,423 34,270 n/a n/a n/a n/a
Earnings (loss) per share - basic $ .28 .43 .67 .98 .31 .81 (1.15)
Earnings (loss) per share - diluted $ .26 .40 .64 .95 .30 .80 (1.15)
Cash dividends $ - - - - - - -
- ---------------------------------------- -- --------- --------- ----------- --------- ---------- ---------- -----------
Weighted average shares - basic 44,240 47,894 51,355 55,362 57,345 57,377 57,900
Weighted average shares - diluted 47,711 50,613 53,843 57,141 58,496 58,727 57,900
- ---------------------------------------- -- --------- --------- ----------- --------- ---------- ---------- -----------
BALANCE SHEET DATA:
Working Capital $ 52,958 70,369 110,703 149,948 77,983 77,983 102,918
Total assets $ 111,486 165,354 221,785 408,632 422,568 422,568 326,347
Total long-term liabilities $ 460 1,075 - - 5,355 5,355 -
Total shareholders' equity $ 73,720 117,614 165,844 337,136 342,256 342,256 270,242
Shares outstanding at end of period 46,707 49,547 52,248 58,433 57,697 57,697 56,775
Notes:
o Effective December 31, 1999, we changed our year end from June 30 to December
31.
o All fiscal 1996 to 1998 amounts have been restated to reflect pooling of
interests business combinations.
o Goodwill impairment and other charges for the years ended June 30, 1996 to
June 30, 1999 consist of merger costs related to pooling of interests
business combinations. During the year ended December 31, 2000, we recorded
a goodwill impairment charge of $80,773,000 as well as certain other
one-time charges (see Note 2 to Consolidated Financial Statements).
o Pro forma net income is after a pro forma adjustment to income tax expense
resulting from pooling of interests business combinations.
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES THERETO. WITH THE EXCEPTION OF HISTORICAL MATTERS AND STATEMENTS OF
CURRENT STATUS, CERTAIN MATTERS DISCUSSED BELOW ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM TARGETS OR PROJECTED RESULTS. WITHOUT LIMITING THE
FOREGOING, THE WORDS "BELIEVES," "ANTICIPATES," "PLANS," "EXPECTS" AND SIMILAR
EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE DISCUSSED HEREIN UNDER THE
CAPTION "FACTORS THAT MAY AFFECT FUTURE RESULTS." MANY OF THESE FACTORS ARE
BEYOND OUR ABILITY TO PREDICT OR CONTROL. WE DISCLAIM ANY INTENT OR OBLIGATION
TO UPDATE PUBLICLY SUCH FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE. IN ADDITION, AS A RESULT OF THESE AND
OTHER FACTORS, OUR PAST FINANCIAL PERFORMANCE SHOULD NOT BE RELIED ON AS AN
INDICATION OF FUTURE PERFORMANCE.
OVERVIEW
CIBER, Inc. and its subsidiaries DigiTerra, Inc., Solution Partners B.V.,
Waterstone, Inc. and Enspherics, Inc. provide information technology ("IT")
system integration consulting and other services and to a lesser extent, resell
certain hardware and software products. Our clients consist primarily of Fortune
2000 and middle market companies across most major industries and governmental
agencies. We operate from branch offices across the United States, plus offices
in Canada and the Netherlands. At December 31, 2000, we had approximately 5,000
employees. We operate our business as follows: CIBER Operations, DigiTerra,
Solution Partners, Waterstone and Enspherics. CIBER Operations refers to the
branch offices doing business under the CIBER name. CIBER Operations provides a
wide range of IT services and products including project execution, supplemental
IT staffing and consulting in leading-edge practice areas such as IT
architecture and strategy, business intelligence/customer loyalty, Internet
solutions, network infrastructure and security, wireless integration and IT
outsourcing. DigiTerra provides package software implementation services ranging
from enterprise resource planning (ERP) to supply chain optimization, customer
relationship management and e-business components. DigiTerra works with software
from PeopleSoft, J.D. Edwards, Oracle, SAP, Lawson, Siebel, Ariba, Rightworks
and Commerce One, among others. DigiTerra also provides related hardware sizing
and procurement services as an authorized remarketer of certain computer
hardware. Solution Partners, located in the Netherlands, provides SAP software
implementation consulting and e-business solutions in custom environments.
Waterstone provides strategic, technical and creative services including
e-business planning, assessments and solutions, customer relationship
management, supply chain management, web content development and design and
custom integration services. Enspherics provides custom designed IT security
solutions to clients who operate in high-risk environments.
We have grown through mergers and acquisitions, as well as through internal
growth. For purposes of this Report, the term "acquisition" refers to business
combinations accounted for as a purchase and the term "merger" refers to
business combinations accounted for as a pooling of interests. Acquisitions
result in the recording of goodwill, which we amortize over periods of up to 20
years. Our consolidated financial statements include the results of operations
of an acquired business since the date of acquisition. Mergers result in a
one-time charge for costs associated with completing the business combination.
Unless the effects are immaterial, our consolidated financial statements are
restated for all periods prior to a merger to include the results of operations,
financial position and cash flows of the merged company. CIBER completed one
business combination during the year ended December 31, 2000, five business
combinations during the six months ended December 31, 1999 and ten business
combinations in each of the fiscal years ended June 30, 1999 and 1998. As a
result of a sale of stock to new investors by our former subsidiary, Agilera,
Inc., effective January 1, 2000, we no longer consolidate the accounts of
Agilera. (See Note 5 to Consolidated Financial Statements.)
Other revenues include sales of computer hardware products, commissions on
computer hardware and software product sales and software license and
maintenance fees. We sold our software business in September 1999.
12
Effective December 31, 1999, we changed our year end from June 30 to December
31. As used herein, the term fiscal year refers to our fiscal year ended June
30.
The following table sets forth certain items from our consolidated statements of
operations, expressed as a percentage of revenues:
Six Months
Years Ended Ended Years Ended
June 30, December 31, December 31,
1998 1999 1999 1999 2000
----------- ------------ -------------- ----------- -------------
Revenues 100.0% 100.0% 100.0% 100.0% 100.0%
----------- ------------ -------------- ----------- -------------
Gross margin 34.9% 35.6% 33.1% 34.6% 32.1%
Selling, general and administrative expenses 23.4 21.9 23.2 22.6 25.5
----------- ------------ -------------- ----------- -------------
Operating income before amortization
and goodwill impairment and other
charges 11.5 13.7 9.9 12.0 6.6
Amortization of intangible assets .7 1.1 1.8 1.7 2.3
Goodwill impairment and other charges .8 .2 - - 13.5
----------- ------------ -------------- ----------- -------------
Operating income (loss) 10.0 12.4 8.1 10.3 (9.2)
Interest and other income, net .3 .4 .4 .4 .2
----------- ------------ -------------- ----------- -------------
Income (loss) before income taxes 10.3 12.8 8.5 10.7 (9.0)
Income tax expense 4.0 5.2 3.6 4.4 1.7
----------- ------------ -------------- ----------- -------------
Net income (loss) 6.3% 7.6% 4.9% 6.3% (10.7)%
=========== ============ ============== =========== =============
Pro forma net income (1) 5.9%
===========
(1) Includes the effects of pro forma adjustments to income tax expense as a
result of merged companies.
YEAR ENDED DECEMBER 31, 2000 AS COMPARED TO YEAR ENDED DECEMBER 31, 1999
Total revenues decreased 16% to $621.5 million for the year ended December 31,
2000 from $741.9 million for the year ended December 31, 1999. This represents a
16% decrease in consulting services revenues and a decrease in other revenues.
Other revenues decreased to $35.1 million for the year ended December 31, 2000
from $43.6 million for the year ended December 31, 1999 due to decreased
hardware sales and reduced software revenues. CIBER Operations revenues
decreased 16% while DigiTerra revenues decreased 23%, when compared to last
year. CIBER Operations accounted for approximately 74% of revenues in 2000 and
1999. DigiTerra revenues decreased to approximately 23% of revenues for the year
ended December 31, 2000 from 26% in 1999. Our other businesses accounted for
approximately 3% of revenues for the year ended December 31, 2000 compared to
less than 1% in 1999. The majority of revenues from our other businesses in 2000
came from Waterstone and Solution Partners, which we acquired late in 1999, and
therefore 1999 included revenue for fewer than 12 months.
During 2000, there continued to be an industry-wide shift in IT spending,
principally resulting from the resolution of the Y2K issue and ERP curtailments.
Many companies reduced IT expenditures beginning mid-1999 due to completion of
Y2K and ERP specific projects and a general tendency to minimize new IT
initiatives during the end of 1999. This adversely impacted us, particularly in
our mainframe staffing and ERP related service offerings. There was a
significant industry trend towards new IT services driven by the Internet and
increased bandwidth availability. These new services include web-designed,
e-business technologies, customer relationship management ("CRM") and supply
chain software, wireless integration, among others. We have focused more of our
efforts to deliver these newer IT services. These efforts include new alliances
with independent software vendors, such as Commerce One and Siebel, and the
realignment of our professional and sales personnel towards a greater focus on
new technology services. In addition, commencing in the Spring of 2000, the IT
services industry was negatively impacted by the shift in investor sentiment
away from development and early stage dot.com businesses. As a result, industry
13
demand for IT services by dot.com companies decreased significantly. This has
lead to greater competition within the IT services industry.
Gross margin percentage decreased to 32.1% of revenues for the year ended
December 31, 2000 from 34.6% of revenues for the year ended December 31, 1999.
This decrease is due to declining gross margins on consulting services offset
partially by improved gross margins on other revenues. Consulting services gross
margins declined primarily due to a decrease in the utilization levels of
professional staff. CIBER Operations gross margin on consulting services
declined to 29.8% for the year ended December 31, 2000 from 30.9% in 1999, while
DigiTerra consulting gross margin declined to 34.7% in 2000 from 44.1% in 1999.
Gross margin percentage on other revenues increased due to decreased sales of
lower margin computer hardware products.
Selling, general and administrative expenses ("SG&A") decreased to $158.6
million for the year ended December 31, 2000 from $167.6 million in 1999, while
as a percentage of sales, SG&A increased to 25.5% for the year ended December
31, 2000 from 22.6% in 1999. This reflects the semi-fixed nature of SG&A. We
also incurred additional SG&A in 2000 related to new marketing and branding
initiatives as well as costs to prepare DigiTerra to be a stand-alone entity. As
our focus continues to shift to more solutions-oriented and project work, SG&A
is expected to increase as a percentage of sales and partially offset the
expected higher gross margins on such work.
Amortization of intangible assets increased to $14.0 million for the year ended
December 31, 2000 from $12.1 million for the year ended December 31, 1999. This
increase was due to the additional intangible assets resulting from acquisitions
during the past year, partially offset by the effects of the goodwill write-down
in the September 2000 quarter.
Goodwill impairment and other charges of $83.8 million were incurred during the
year ended December 31, 2000. We recorded a goodwill impairment charge of $80.8
million during the quarter ended September 30, 2000 to write-down the goodwill
associated with certain acquisitions. This charge represents the amount required
to write-down the goodwill to our best estimate of the future discounted cash
flows of these operations. The other charges are comprised of $1.3 million of
severance costs resulting from involuntary terminations related to personnel
realignment, $975,000 for an asset write-down, and $720,000 of professional fees
resulting from our planned spinoff of DigiTerra. Subject to Board approval and a
favorable tax ruling from the IRS, as well as favorable market conditions, we
expect to complete the spinoff of DigiTerra to our shareholders in 2001. We also
expect to incur additional costs in 2001 in connection with our plan to spinoff
DigiTerra.
Net other income, including interest income and interest expense, decreased to
$1.0 million for the year ended December 31, 2000 from $2.8 million for the year
ended December 31, 1999. Other income in 2000 includes gains of $504,000 from
sales of investments and other income in 1999 includes a gain of $827,000 on the
sale of our LogisticsPRO software business. The fluctuations in interest income
and expense are the result of changes in our average cash balance invested or
amounts borrowed under our line of credit.
Tax expense of $10.9 million was recorded during the year ended December 31,
2000 even though a pre-tax loss was reported. Tax expense was recorded for the
year ended December 31, 2000 because most of the goodwill impairment charge was
not deductible for income tax purposes since the majority of the impaired
goodwill related to non-taxable acquisitions. Excluding the effects of the
goodwill impairment charge, our effective tax rate would have been approximately
50.8% in 2000 as compared to 41.2% for the year ended December 31, 1999. Tax
expense for 2000 also reflects the effects of increased non-deductible goodwill
amortization, increased other non-deductible expenses and increased state income
taxes.
SIX MONTHS ENDED DECEMBER 31, 1999 AS COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
Our total revenues increased 7% to $362.0 million for the six months ended
December 31, 1999 from $339.7 million for the six months ended December 31,
1998. This represents a 13% increase in consulting services revenues offset by a
decrease in other revenues, primarily sales of computer hardware products. Other
revenues decreased to $20.9 million for the six months ended December 31, 1999
from $36.6 million
14
for the same period of 1998. Of the 13% increase in consulting services
revenues, approximately 12% was due to revenues from acquired businesses and
approximately 1% was due to organic growth of existing operations. CIBER
operations consulting revenues increased 4.6%, while DigiTerra consulting
revenues increased 34.0%. DigiTerra consulting revenues increased to
approximately 26% of total consulting revenues for the six months ended
December 31, 1999 from 22% in the same period of 1998.
Gross margin percentage decreased to 33.1% of revenues for the six months ended
December 31, 1999 from 35.3% of revenues for the same period of 1998. This
decrease was due to declining gross margins on consulting services offset by
improved gross margins on other revenues. Consulting services gross margins
declined primarily due to a decrease in the utilization levels of professional
staff. CIBER Operations gross margin on consulting services declined to 29.5%
for the six months ending December 31, 1999 from 33.0% for the same period of
1998, while DigiTerra consulting gross margin declined to 41.5% from 46.1% for
the same period of 1998. Gross margin on other revenues increased due to
decreased sales of lower margin computer hardware products.
Selling, general and administrative expenses were 23.2% of revenues for the six
months ended December 31, 1999 compared to 21.9% of revenues for the same period
of 1998. This increase was due primarily to additional costs incurred for new
programs implemented to position us for future growth, including the addition of
senior and executive management team members, branding and marketing
initiatives, and internal systems development.
Amortization of intangible assets increased to $6.8 million for the six
months ended December 31, 1999 from $2.2 million for the same period of 1998.
This increase was due to the additional intangible assets resulting from
acquisitions.
No other charges were incurred during the six months ended December 31, 1999,
while merger costs of $1.5 million, primarily transaction related broker and
professional costs related to pooling of interests business combinations, were
incurred during the six months ended December 31, 1998.
Interest income decreased to $920,000 for the six months ended December 31,
1999 from $1.3 million for the same period of 1998 due to decreased average
cash balances available for investment. Interest expense was $190,000 for the
six months ended December 31, 1999, while no interest expense was incurred
during the same period of 1998. This increase was due to borrowings under our
line of credit during the six months ended December 31, 1999. Included in
other income for the six months ended December 31, 1999 is an $827,000 gain
on the sale of our LogisticsPRO software business.
Our effective tax rate for the six months ended December 31, 1999 was 42.6%
compared to 41.2% for the same period of 1998. Our effective tax rate for the
six months ended December 31, 1999 increased due to increased nondeductible
amortization resulting from certain acquisitions.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Total revenues increased 24.8% to $719.7 million in fiscal 1999 from $576.5
million in fiscal 1998. This represents a 27.8% increase in consulting revenues
offset by a decrease in other revenues, primarily sales of computer hardware
products. Other revenues decreased to $59.3 million in fiscal 1999 from $59.8
million in fiscal 1998. The increase in consulting revenues was derived
primarily from an increase in hours billed and, to a lesser extent, an increase
in average billing rates.
Of the 27.8% increase in consulting revenues for fiscal 1999 in comparison to
fiscal 1998, approximately 9% was due to revenues from acquired businesses or
immaterial poolings of interests and approximately 19% was due to organic
growth of existing operations. Organic growth for fiscal 1999 was driven by a
strong demand for ERP implementation services and was lessened, to some
extent, due to declining direct Year 2000 service revenues. CIBER Operations
consulting revenues increased 20.9%, while DigiTerra consulting revenues
increased 59.0%. DigiTerra consulting revenues increased to approximately 24%
of total consulting revenues in fiscal 1999 from 19% in 1998.
15
Gross margin percentage improved to 35.6% of revenues in fiscal 1999 from 34.9%
in fiscal 1998. This improvement was due to improved gross margins on both
consulting services and other revenues. Gross margins on consulting services
increased as a larger percentage of our revenues were derived from higher margin
solutions-oriented and project work. DigiTerra consulting margins improved to
46.4% in fiscal 1999 from 44.9% in 1998, which was offset somewhat by a decline
in CIBER Operations consulting margin to 32.6% in 1999 from 33.4% in 1998.
Selling, general and administrative expenses were 21.9% of revenues for fiscal
1999 compared to 23.4% of revenues for fiscal 1998. The decrease as a percentage
of revenues is primarily due to greater economies of scale, including reduced
administrative costs of certain merged companies.
Amortization of intangible assets increased to $7.5 million in fiscal 1999 from
$3.9 million in fiscal 1998. This increase was due to the additional
amortization of intangible assets resulting from mergers and acquisitions.
Other charges of $1.5 million in fiscal 1999 and $4.5 million in fiscal 1998
represent merger costs, which are primarily transaction-related broker and
professional costs resulting from pooling of interests business combinations.
Interest income, net of interest expense, increased to $2.6 million in fiscal
1999 from $1.5 million in fiscal 1998 due to increased average cash balances
available for investment and the elimination of borrowings of certain merged
companies.
Including the effects of pro forma adjustments to income tax expense, if any,
our effective tax rates for fiscal 1999 and 1998 were 40.8% and 42.3%,
respectively. The effective tax rate for fiscal 1999 decreased due to reduced
nondeductible merger costs in fiscal 1999 compared to fiscal 1998, which was
partially offset by increased nondeductible amortization resulting from fiscal
1999 acquisitions. The pro forma adjustment to income tax expense in fiscal 1998
reflects the exclusion of the one-time income tax effects related to changes in
the tax status of certain merged companies and imputes income tax expense for S
corporation operations that were not subject to income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had $102.9 million of working capital and a current
ratio of 2.9:1. We believe that our cash and cash equivalents, our operating
cash flow and our available line of credit will be sufficient to finance our
working capital needs through at least the next year.
In June 1999, our Board of Directors authorized the repurchase of up to
5,888,000 shares (10%) of our common stock. As of December 31, 2000, we have
purchased 4,680,000 shares for $59,560,000 under this program. We may use
significant amounts of cash for the repurchase of our stock or to acquire other
businesses. As a result, we may borrow to finance such activities. Future
borrowings may include bank, private or public debt.
Net cash provided by operating activities was $26.2 million and $63.4 million in
fiscal 1998 and 1999, respectively, $28.7 million for the six months ended
December 31, 1999, and $62.9 million and $36.5 million for the years ended
December 31, 1999 and 2000, respectively. The decrease in 2000 primarily
reflects reduced income, excluding the non-cash goodwill impairment charge.
Accounts receivable totaled $127.2 million at December 31, 2000 compared to
$139.4 million at December 31, 1999. Accounts receivable days sales outstanding
("DSO") was 80 days at December 31, 2000.
Net cash used in investing activities was $11.2 million and $40.5 million in
fiscal 1998 and 1999, respectively, $67.3 million for the six months ended
December 31, 1999, and $99.3 million and $11.2 million during the years ended
December 31, 1999 and 2000, respectively. We used cash for acquisitions of
$351,000 and $26.5 million during fiscal 1998 and 1999, respectively, $60.1
million during the six months ended December 31, 1999, and $82.5 million and
$16.2 million during the years ended December 31, 1999 and 2000, respectively.
In 2000, we received $9.9 million from Agilera as repayment of advances. We
16
purchased property and equipment of $11.7 million and $14.0 million during
fiscal 1998 and 1999, respectively, $7.2 million during the six months ended
December 31, 1999, and $16.8 million and $8.5 million during the years ended
December 31, 1999 and 2000, respectively. Purchases of property and equipment
have decreased in 2000 because we made a number of significant purchases in 1999
related to back office systems, technology infrastructure and facility
expansion.
Net cash provided by (used in) financing activities was ($4.9 million) and $1.8
million in fiscal 1998 and 1999, respectively, ($20.5 million) in the six months
ended December 31, 1999, and ($22.9 million) and $8.9 million during the years
ended December 31, 1999 and 2000, respectively. We obtained net cash proceeds
from employee stock purchases and options exercised of $5.8 million and $14.8
million in fiscal 1998 and 1999, respectively, $10.9 million in the six months
ended December 31, 1999, and $19.7 million and $10.9 million during the years
ended December 31, 1999 and 2000, respectively. We purchased 706,000 shares of
treasury stock for $13.0 million during fiscal 1999, 2,255,000 shares for $36.7
million during the six months ended December 31, 1999, 2,860,000 shares for
$47.9 million and 1,925,000 shares for $14.1 million during the years ended
December 31, 1999 and 2000, respectively. We have reissued some of the treasury
shares under our stock plans and in connection with acquisitions.
We have a $35 million unsecured revolving line of credit with a bank. There were
no outstanding borrowings under this bank line of credit at December 31, 2000
and June 30, 1999. At December 31, 1999, there was $5,355,000 outstanding under
this line of credit. Outstanding borrowings bear interest at the three month
London Interbank Offered Rate ("LIBOR") plus 2%. The credit agreement requires a
commitment fee of 0.225% per annum on any unused portion of the line of credit
up to $20 million. The credit agreement expires on July 1, 2001. We expect,
although there can be no assurance, to be able to renew this line of credit on
similar terms.
SEASONALITY
We experience a moderate amount of seasonality. Typically, operating income as a
percentage of revenues is lowest in the fourth quarter of each calendar year
because more holidays and vacations are taken at that time of year resulting in
fewer hours billed in that period.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Included in this Report and elsewhere from time to time in other written reports
and oral statements, including but not limited to, the Annual Report to
Shareholders, quarterly shareholder letters, news releases and investor
presentations, are forward-looking statements about our business strategies,
market potential, future financial performance and other matters which reflect
our current expectations. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects" and similar expressions are intended to
identify forward-looking statements. We disclaim any intent or obligation to
update publicly such forward-looking statements. Actual results may differ
materially from those projected in any such forward-looking statements due to a
number of factors, including, without limitation, those set forth below.
We operate in a dynamic and rapidly changing environment that involves numerous
risks and uncertainties. The following section lists some, but not all, of the
risks and uncertainties that may have a material adverse effect on our business,
financial condition, results of operations and the market price of our common
stock.
GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION - As an integral
part of our business strategy, we intend to continue to expand by acquiring
information technology businesses. We regularly evaluate potential business
combinations and aggressively pursue attractive transactions. From July 1, 1997
through December 31, 2000, we completed 26 business combinations. The success of
this strategy depends not only upon our ability to identify and acquire
businesses on a cost-effective basis, but also upon our ability to successfully
integrate the acquired business with our organization and culture. Business
combinations involve numerous risks, including: the ability to manage
geographically remote operations; the diversion of management's attention from
other business concerns; risks of losing clients and employees of the acquired
business and the risks of entering markets in which we have limited or no direct
experience. There can be no assurance we will be able to acquire additional
business, or that any business
17
combination will result in benefits to us. In addition, we may open new
offices in attractive markets with our own personnel. Many of our branch
offices were originally start-up operations. Not all branch offices, whether
start-up or acquired, have been successful. There can be no assurances that
we will be able to successfully start up, identify, acquire, or integrate
future successful branch office operations.
ABILITY TO ATTRACT AND RETAIN QUALIFIED CONSULTANTS - Our future success depends
in part on our ability to attract and retain adequately trained personnel who
can address the changing and increasingly sophisticated technology needs of our
clients. Our ongoing personnel needs arise from turnover, which is generally
high in the industry, and client needs for consultants trained in the newest
software and hardware technologies. Few of our employees are bound by
non-compete agreements. Competition for personnel in the information technology
services industry is significant. We have had, and expect to continue to have,
difficulty in attracting and retaining an optimal level of qualified
consultants. There can be no assurance that we will be successful in attracting
and retaining the personnel we require to conduct and expand our operations
successfully.
DEPENDENCE ON SIGNIFICANT RELATIONSHIPS AND THE ABSENCE OF LONG-TERM
CONTRACTS -Our five largest clients accounted for 14% of our revenues in 2000
with our largest client accounting for 6% of revenues. We strive to develop
long-term relationships with our clients. Most individual client assignments
are from three to 12 months, however, many of our client relationships have
continued for many years. Although they may be subject to penalty provisions,
clients may generally cancel a contract at any time. In addition, under many
contracts, clients may reduce their use of our services under such contract
without penalty. If any significant client terminates its relationship with
us or substantially decreases its use of our services, it could have a
material adverse effect on our business, financial condition and results of
operations. Additionally, we have a significant relationship with PeopleSoft
as an implementation partner. Approximately 8% of our revenues are from
services related to PeopleSoft software. In the event PeopleSoft products
become obsolete or non-competitive, or if we should lose our "implementation
partner" status with PeopleSoft, we could suffer a material adverse effect.
We have other similar relationships and strategic alliances with other
technology vendors. The sudden loss of any significant relationship or
substantial decline in demand for their products could also adversely affect
us.
MANAGEMENT OF A RAPIDLY CHANGING BUSINESS - Our market is characterized by
rapidly changing technologies, such as the evolution of the Internet, frequent
new product and service introductions and evolving industry standards. If we
cannot keep pace with these changes, our business could suffer. Our success
depends, in part, on our ability to develop service offerings that keep pace
with continuing changes in technology, evolving industry standards and changing
client preferences. Our success will also depend on our ability to develop and
implement ideas for the successful application of existing and new technologies.
We may not be successful in addressing these developments on a timely basis or
our ideas may not be successful in the marketplace. Products and technologies
developed by our competitors may also make our services or product offerings
less competitive or obsolete.
PROJECT RISKS - We provide and intend to continue to provide project services to
our clients. Projects are distinguishable from CIBER's professional services
staff supplementation contracts by the level of responsibility we assume. With
professional services staff supplementation contracts, our clients generally
maintain responsibility for the overall tasks. In a typical project, we assume
major responsibilities for the management of the project and/or the design and
implementation of specific deliverables based upon client-defined requirements.
As our project engagements become larger and more complex and must be completed
in shorter time frames, it becomes more difficult to manage the project and the
likelihood of any mistake increases. In addition, our projects often involve
applications that are critical to our client's business. Our failure to timely
and successfully complete a project and meet our client's expectations could
have a material adverse effect on our business, results of operations or
financial condition. Such adverse effects may include delayed or lost revenues,
additional services being provided at no charge and a negative impact to our
reputation. In addition, claims for damages may be brought against us,
regardless of our responsibility, and our insurance may not be adequate to cover
such claims. Our contracts generally limit our liability for damages that may
arise in rendering our services. However, we cannot be sure these contractual
provisions will successfully protect us from liability if we are sued.
18
We sometimes undertake projects on a fixed-fee basis or cap the amount of fees
we may bill on a time and materials basis. Any increased or unexpected costs or
unanticipated delays could make such projects less profitable or unprofitable
and could have a material adverse effect on our business, results of operations
and financial condition.
COMPETITION - We operate in a highly competitive industry. We believe that we
currently compete principally with IT and Internet professional services firms,
technology vendors and internal information systems groups. Many of the
companies that provide services in our markets have significantly greater
financial, technical and marketing resources than we do. In addition, there are
relatively few barriers to entry into our markets and we have faced, and expect
to continue to face, competition from new entrants into our markets. There can
be no assurance that we will be able to continue to compete successfully with
existing or future competitors or that competition will not have a material
adverse effect on our business, results of operations and financial condition.
INTERNET GROWTH AND USAGE - Our business is dependent upon continued growth of
the use of the Internet by our clients and prospective clients as well as their
customers and suppliers. If Internet usage and commerce conducted over the
Internet does not continue to grow, the demand for our services may decrease
and, as a result, our revenues would decline. Capacity constraints of the
Internet, unless resolved, could impede further growth of Internet usage. In
addition, any laws and regulations relating to the Internet that are adopted by
governments in the United States or abroad that could reduce growth or usage of
the Internet as a commercial medium may impact our business. We cannot predict
how any such government regulations may affect our business. However, if such
regulations were to result in a decrease in the demand for our services, they
could have a material adverse effect on our business, results of operations and
financial condition.
INTERNATIONAL EXPANSION - We expect to expand our international operations. We
currently have offices in Toronto and Vancouver, Canada and Eindhoven, the
Netherlands. We have limited experience in marketing, selling and providing our
services internationally. International operations are subject to political and
economic uncertainties, fluctuations in foreign currency exchange rates and new
tax and legal requirements. Other risks inherent in international operations
include managing geographically distant locations and customers, employees
speaking different languages and different cultural approaches to the conduct of
business. If any of these risks materialize, they could have a material adverse
effect on our business, results of operations and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS - Our quarterly operating
results may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside our control. Factors that may affect our
quarterly revenues or operating results generally include: costs relating to the
expansion of our business; the extent and timing of business acquisitions; our
ability to obtain new and follow-up on client engagements; the timing of
assignments from customers; our consultant utilization rate (including our
ability to transition employees quickly from completed assignments to new
engagements); the seasonal nature of our business due to variations in holidays
and vacation schedules; the introduction of new services by us or our
competitors; price competition or price changes and our ability to manage costs
and economic and financial conditions specific to our clients. Quarterly sales
and operating results can be difficult to forecast, even in the short term. Due
to all of the foregoing factors, it is possible that our revenues or operating
results in one or more future quarters will fail to meet or exceed the
expectations of security analysts or investors. In such event, the price of our
common stock would likely be materially adversely affected.
PRICE VOLATILITY - The market price of our common stock could be subject to
significant fluctuations in response to: variations in quarterly operating
results; changes in earnings estimates by securities analysts; any
differences between our reported results and securities analysts'
expectations; general economic, financial and other factors; and market
conditions that can affect the capital markets. In addition, reaction to
announcements made by us or by our competitors, such as new contracts or
service offerings, acquisitions or strategic investments may impact our stock
price.
19
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from foreign currency fluctuations and changes in
interest rates on any borrowings we may have. We currently do not use derivative
financial or commodity instruments.
FOREIGN EXCHANGE. We are exposed to foreign exchange rate fluctuations as the
financial results of our foreign operations are translated into U.S. dollars in
consolidation. As exchange rates vary, these results, when translated, may vary
from expectations and adversely impact our financial position or results of
operations. During the year ended December 31, 2000, approximately 2% of our
total revenues was attributable to foreign operations. CIBER does not enter into
forward exchange contracts as a hedge against foreign currency exchange risk on
transactions denominated in foreign currencies or for speculative or trading
purposes. We believe that our exposure to foreign currency exchange risk at
December 31, 2000 is not material.
INTEREST RATES. We have a $35 million revolving line of credit with a bank.
There were no outstanding borrowings under this bank line of credit at
December 31, 2000. The interest rate on the line of credit is based on LIBOR,
plus 2%. Therefore, as LIBOR fluctuates, we would experience changes in
interest expense related to any outstanding borrowings.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
CIBER, Inc.:
We have audited the accompanying consolidated balance sheets of CIBER, Inc. and
subsidiaries as of June 30, 1999, December 31, 1999 and 2000, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the two-year period ended June 30, 1999, the six-month
period ended December 31, 1999 and the year ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CIBER, Inc. and
subsidiaries as of June 30, 1999, December 31, 1999 and 2000, and the results of
their operations and their cash flows for each of the years in the two-year
period ended June 30, 1999, the six-month period ended December 31, 1999 and the
year ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
Denver, Colorado
February 8, 2001
21
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS
YEARS ENDED ENDED YEARS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
IN THOUSANDS, EXCEPT PER SHARE DATA 1998 1999 1999 1999 2000
------------- ------------- ---------------- -------------- ------------
(unaudited)
Consulting services $516,692 $660,384 $341,123 $698,354 $586,481
Other revenues 59,796 59,277 20,877 43,593 35,053
-----------------------------------------------------------------------------
Total revenues 576,488 719,661 362,000 741,947 621,534
-----------------------------------------------------------------------------
Cost of consulting services 332,356 423,131 229,853 458,324 401,359
Cost of other revenues 43,150 40,176 12,239 27,194 20,719
Selling, general and administrative expenses 134,640 157,959 83,929 167,649 158,553
Amortization of intangible assets 3,936 7,520 6,754 12,123 14,032
Goodwill impairment and other charges 4,538 1,535 - - 83,768
-----------------------------------------------------------------------------
Operating income (loss) 57,868 89,340 29,225 76,657 (56,897)
Interest income 1,767 2,640 920 2,230 1,093
Interest expense (232) - (190) (190) (436)
Other income, net - - 778 778 381
-----------------------------------------------------------------------------
Income (loss) before income taxes 59,403 91,980 30,733 79,475 (55,859)
Income tax expense 22,926 37,485 13,090 32,774 10,916
-----------------------------------------------------------------------------
Net income (loss) $36,477 $54,495 $17,643 $46,701 $(66,775)
=============================================================================
Pro forma information (unaudited) (Note 1(k)):
Historical net income $36,477
Pro forma adjustment to income tax expense (2,207)
-------------
Pro forma net income $34,270
=============
Earnings (loss) per share - basic $0.67 $0.98 $0.31 $0.81 $(1.15)
Earnings (loss) per share - diluted $0.64 $0.95 $0.30 $0.80 $(1.15)
Weighted average shares - basic 51,355 55,362 57,345 57,377 57,900
Weighted average shares - diluted 53,843 57,141 58,496 58,727 57,900
See accompanying notes to consolidated financial statements.
22
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
IN THOUSANDS, EXCEPT SHARE DATA 1999 1999 2000
---------------- ------------------ ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 61,951 $ 2,858 $ 19,193
Accounts receivable, net 150,976 139,418 127,217
Prepaid expenses and other current assets 5,602 7,595 5,689
Income taxes refundable - - 2,775
Deferred income taxes 2,915 2,960 2,538
-----------------------------------------------------
Total current assets 221,444 152,831 157,412
-----------------------------------------------------
Property and equipment, at cost 47,997 55,510 55,388
Less accumulated depreciation and amortization (22,866) (26,947) (30,082)
-----------------------------------------------------
Net property and equipment 25,131 28,563 25,306
-----------------------------------------------------
Intangible assets, net 157,012 233,975 137,057
Deferred income taxes 1,694 1,773 3,173
Other assets 3,351 5,426 3,399
-----------------------------------------------------
Total assets $ 408,632 $ 422,568 $ 326,347
=====================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,502 $ 18,102 $ 17,092
Acquisition costs payable 2,098 15,268 3,134
Accrued compensation and payroll taxes 36,845 31,841 24,342
Deferred revenues 3,850 874 528
Other accrued expenses and liabilities 8,020 4,945 8,826
Income taxes payable 7,181 3,751 572
Deferred income taxes - 67 -
-----------------------------------------------------
Total current liabilities 71,496 74,848 54,494
Bank line of credit - 5,355 -
-----------------------------------------------------
Total liabilities 71,496 80,203 54,494
-----------------------------------------------------
Minority interest - 109 836
Contingent redemption value of put options - - 775
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued - - -
Common stock, $0.01 par value, 100,000,000 shares
authorized, 58,933,000, 59,414,000 and 59,579,000 shares
issued 589 594 596
Additional paid-in capital 222,652 230,615 229,732
Retained earnings 122,607 139,312 70,098
Accumulated other comprehensive loss - - (1,470)
Treasury stock, 500,000, 1,717,000 and 2,804,000 shares, at cost (8,712) (28,265) (28,714)
-----------------------------------------------------
Total shareholders' equity 337,136 342,256 270,242
-----------------------------------------------------
Total liabilities and shareholders' equity $ 408,632 $ 422,568 $ 326,347
=====================================================
See accompanying notes to consolidated financial statements.
23
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON STOCK PAID-IN RETAINED COMPREHENSIVE TREASURY SHAREHOLDER'S
IN THOUSANDS SHARES AMOUNT CAPITAL EARNINGS LOSS STOCK EQUITY
------ ------ ------- -------- ---- ----- ------
BALANCES AT JUNE 30, 1997 49,547 $495 $ 73,040 $44,079 $ - $ - $117,614
Note payable paid with stock 51 1 1,105 - - - 1,106
Employee stock purchases and options
exercised 1,407 14 5,752 - - - 5,766
Acquisition consideration 96 1 1,150 - - - 1,151
Immaterial poolings of interests 1,145 11 347 1,834 - - 2,192
Tax benefit from exercise of stock options - - 9,149 - - - 9,149
Termination of S corporation tax status of
merged company - - 3,287 (3,287) - - -
Stock compensation expense 2 - 59 - - - 59
Net income - - - 36,477 - - 36,477
Distributions by merged companies - - - (7,670) - - (7,670)
--------- --------- ----------- ---------- --------------- ---------- --------------
BALANCES AT JUNE 30, 1998 52,248 522 93,889 71,433 - - 165,844
Employee stock purchases and options
exercised 1,435 14 14,738 (3,225) - 3,225 14,752
Acquisition consideration 4,286 43 106,492 (96) - 1,049 107,488
Immaterial pooling of interests 961 10 806 - - - 816
Tax benefit from exercise of stock options - - 5,499 - - - 5,499
Stock compensation expense 3 - 395 - - - 395
Stock options exchanged for compensation - - 833 - - - 833
Net income - - - 54,495 - - 54,495
Purchases of treasury stock - - - - - (12,986) (12,986)
--------- --------- ----------- ---------- --------------- ---------- --------------
BALANCES AT JUNE 30, 1999 58,933 589 222,652 122,607 - (8,712) 337,136
Employee stock purchases and options
exercised 457 4 4,485 (923) - 7,326 10,892
Acquisition consideration - - 1,590 (15) - 9,850 11,425
Tax benefit from exercise of stock options - - 1,664 - - - 1,664
Stock compensation expense 24 1 224 - - - 225
Net income - - - 17,643 - - 17,643
Purchases of treasury stock - - - - - (36,729) (36,729)
--------- --------- ----------- ---------- --------------- ---------- --------------
BALANCES AT DECEMBER 31, 1999 59,414 594 230,615 139,312 - (28,265) 342,256
--------- --------- ----------- ---------- --------------- ---------- --------------
Net loss - - - (66,775) - - (66,775)
Unrealized loss on investments, net of
tax of $353,000 - - - - (529) - (529)
Foreign currency translation - - - - (941) - (941)
--------------
Comprehensive loss (68,245)
Employee stock purchases and options
exercised 160 2 (313) (2,439) - 13,670 10,920
Gain on sale of stock by subsidiary - - 71 - - - 71
Tax benefit from exercise of stock options - - 389 - - - 389
Sales and settlement of put options - - (444) - - - (444)
Contingent liability for put options - - (775) - - - (775)
Stock compensation expense 5 - 189 - - - 189
Purchases of treasury stock - - - - - (14,119) (14,119)
--------- --------- ----------- ---------- --------------- ---------- --------------
BALANCES AT DECEMBER 31, 2000 59,579 $596 $229,732 $70,098 $(1,470) $(28,714) $270,242
========= ========= =========== ========== =============== ========== ==============
See accompanying notes to consolidated financial statements.
24
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS
YEARS ENDED ENDED YEARS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
IN THOUSANDS 1998 1999 1999 1999 2000
------------------------------------------------------------------
OPERATING ACTIVITIES: (unaudited)
Net income (loss) $36,477 $54,495 $17,643 $46,701 $(66,775)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Goodwill impairment charge - - - - 80,773
Depreciation 5,532 7,590 4,443 8,809 9,190
Amortization of intangible assets 3,936 7,520 6,754 12,123 14,032
Deferred income taxes (4,672) (2,049) (77) 516 (716)
Other, net 48 395 (598) (240) (782)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Accounts receivable (35,442) (17,789) 17,295 12,953 10,881
Other current and long-term assets (4,454) 416 (3,968) (4,801) (2,103)
Accounts payable (2,072) 1,782 4,420 (896) 850
Accrued compensation and payroll taxes 6,610 9,212 (7,446) (115) (7,045)
Deferred revenues 2,034 (247) (1,760) (1,370) 147
Other accrued expenses and liabilities 3,402 (4,211) (5,782) (9,974) 3,563
Income taxes payable/refundable 14,783 6,252 (2,227) (774) (5,565)
------------------------------------------------------------------
Net cash provided by operating activities 26,182 63,366 28,697 62,932 36,450
------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment (11,665) (13,972) (7,218) (16,825) (8,474)
Acquisitions, net of cash acquired (351) (26,500) (60,090) (82,452) (16,184)
Repayment of advances to Agilera - - - - 9,908
Collection of note receivable - - - - 2,000
Purchases of investments (905) - - - (463)
Sales of investments 1,695 - - - 2,001
------------------------------------------------------------------
Net cash used in investing activities (11,226) (40,472) (67,308) (99,277) (11,212)
------------------------------------------------------------------
FINANCING ACTIVITIES:
Employee stock purchases and options exercised 5,766 14,752 10,892 19,660 10,920
Sale of stock by subsidiary - - - - 123
Proceeds from sale of put options - - - - 692
Cash settlement of put options - - - - (1,136)
Net (payments) borrowings on bank lines of credit (1,985) - 5,355 5,355 (5,355)
Borrowings on notes payable 247 - - - -
Payments on notes payable (2,650) - - - -
Purchases of treasury stock - (12,986) (36,729) (47,920) (14,119)
Distributions by merged companies (6,300) - - - -
------------------------------------------------------------------
Net cash (used in) provided by financing activities (4,922) 1,766 (20,482) (22,905) (8,875)
------------------------------------------------------------------
Effect of foreign exchange rate changes on cash - - - - (28)
Net increase (decrease) in cash and cash equivalents 10,034 24,660 (59,093) (59,250) 16,335
Cash and cash equivalents, beginning of period 27,257 37,291 61,951 62,108 2,858
------------------------------------------------------------------
Cash and cash equivalents, end of period $37,291 $61,951 $2,858 $ 2,858 $19,193
==================================================================
See accompanying notes to consolidated financial statements.
25
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS
CIBER, Inc. and its subsidiaries DigiTerra, Inc., Solution Partners B.V.,
Waterstone, Inc. and Enspherics, Inc. provide information technology ("IT")
system integration consulting and other services and to a lesser extent, resell
certain hardware and software products. Our clients consist primarily of Fortune
2000 and middle market companies across most major industries and governmental
agencies. We operate from branch offices across the United States, plus offices
in Canada and the Netherlands. At December 31, 2000, we had approximately 5,000
employees. We operate our business as follows: CIBER Operations, DigiTerra,
Solution Partners, Waterstone and Enspherics. CIBER Operations refers to the
branch offices doing business under the CIBER name. CIBER Operations provides a
wide range of IT services and products including project execution, supplemental
IT staffing and consulting in leading-edge practice areas such as IT
architecture and strategy, business intelligence/customer loyalty, Internet
solutions, network infrastructure and security, wireless integration and IT
outsourcing. DigiTerra provides package software implementation services ranging
from enterprise resource planning (ERP) to supply chain optimization, customer
relationship management and e-business components. DigiTerra works with software
from PeopleSoft, J.D. Edwards, Oracle, SAP, Lawson, Siebel, Ariba, Rightworks
and Commerce One, among others. DigiTerra also provides related hardware sizing
and procurement services as an authorized remarketer of certain computer
hardware. Solution Partners, located in the Netherlands, provides SAP software
implementation consulting and e-business solutions in custom environments.
Waterstone (formerly known as Neovation, Inc.) was formed in 2000 by combining
our Interactive Papyrus, Inc. subsidiary with the business operations we
acquired from Waterstone Consulting, Inc. Waterstone provides strategic,
technical and creative services including e-business planning, assessments and
solutions, customer relationship management, supply chain management, web
content development and design and custom integration services. Enspherics
provides custom designed IT security solutions to clients who operate in
high-risk environments.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CIBER, Inc. and
all wholly owned and majority owned subsidiaries. All material intercompany
balances and transactions have been eliminated. Agilera, Inc. was consolidated
with us through December 31, 1999 (see Note 5).
(c) CHANGE IN FISCAL YEAR END AND INTERIM FINANCIAL INFORMATION
We changed our year end to December 31 from June 30, effective December 31,
1999.
Unaudited consolidated statements of operations and cash flows for the year
ended December 31, 1999 have been included in the accompanying consolidated
financial statements for comparative purposes.
(d) CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of three months or less
are considered to be cash equivalents. Cash equivalents consist of money market
funds of $19,601,000 and investment grade commercial paper of $33,213,000 at
June 30, 1999, and money market funds of $11,752,000 at December 31, 2000. There
were no cash equivalents at December 31, 1999.
(e) INVESTMENTS
Investments in marketable equity securities are classified as available-for-sale
and are recorded at fair market value, which is determined based on quoted
market prices. Investments are included in prepaid expenses and other current
assets on the consolidated balance sheet. The net unrealized gain or loss, net
of tax, is included in accumulated other comprehensive loss on the consolidated
balance sheet. Realized gains and losses on the
26
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
sale of investments are based on average cost and are included in other
income in the consolidated statements of operations.
(f) PROPERTY AND EQUIPMENT
Property and equipment, which consists primarily of computer equipment, software
and furniture, is stated at cost. Depreciation is computed using straight-line
and accelerated methods over the estimated useful lives, ranging primarily from
three to seven years.
(g) COSTS OF DEVELOPING COMPUTER SOFTWARE FOR INTERNAL USE
Direct costs of time and material incurred for the development of software for
internal use are capitalized as property and equipment. These costs are
depreciated using the straight-line method over the estimated useful life of the
software, ranging from three to seven years.
(h) INTANGIBLE ASSETS
Intangible assets consist of goodwill and noncompete agreements. Goodwill is
amortized over 6 to 20 years. Noncompete agreements are amortized over the terms
of the contracts, which range from one to three years. Amortization is recorded
using the straight-line method.
Intangible assets are reviewed for impairment when events or changes in
circumstances indicate the carrying amount of intangible assets may not be
recoverable. Conditions that may trigger an impairment assessment include a
history of operating losses of the related business, a significant reduction in
the revenues of the related business, and a loss of a major customer, among
others. An impairment would be considered to exist when the estimated
undiscounted future cash flows expected to result from the use of the intangible
asset are less than the carrying amount of the asset. Future cash flows are
estimated at the lowest business unit level which includes all of the operations
that directly benefit from the intangible asset. This level may be a practice,
branch office, region or subsidiary. If the acquired business has been fully
integrated into operations, enterprise-wide goodwill would be evaluated at the
consolidated level. Estimated cash flows at the business unit level are net of
taxes and do not include any allocation of interest or other corporate level
items. Impairment, if any, is measured based on forecasted future discounted
operating cash flows. Considerable management judgment is necessary to estimate
future cash flows. Accordingly, actual results could vary significantly.
(i) REVENUE RECOGNITION
We provide consulting services under time-and-material and fixed-priced
contracts. The majority of our service revenues are recognized under
time-and-material contracts as hours and costs are incurred. Revenues include
reimbursable expenses separately billed to clients. For fixed-priced contracts,
revenue is recognized on the basis of the estimated percentage of completion
based on costs incurred relative to total estimated costs. The cumulative impact
of any revisions in estimated revenues and costs are recognized in the period in
which they become known. Losses, if any, on fixed-price contracts are recognized
when the loss is determined. Under certain national IT services contracts, we
are required by our customer to act as a billing agent for other service
providers to such client. We recognize the net fee under these arrangements as
revenue.
Other revenues include sales of computer hardware products, commissions on
computer product sales and software license and maintenance fees. Revenues
related to the sale of computer products are recognized when the products are
shipped. Where we are the remarketer of certain computer products, commission
revenue is recognized when the products are drop-shipped from the vendor to the
customer. On September 30, 1999, we sold our software business. Software license
fee revenues were recognized over the period of the software implementation and
revenues from maintenance agreements were recognized ratably over the
maintenance period.
27
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Unbilled accounts receivable represent amounts recognized as revenue based on
services performed in advance of billings in accordance with contract terms.
Deferred revenues consist of amounts received or billed in advance of services
to be provided.
(j) 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 respective tax
bases 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. A
tax benefit or expense is recognized for the net change in the deferred tax
asset or liability during the period. The effect on deferred tax assets and
liabilities due to a change in tax rates is recognized in income tax expense in
the period that includes the enactment date.
(k) PRO FORMA NET INCOME
Pro forma net income has been presented for the year ended June 30, 1998 because
certain companies that merged with us in business combinations accounted for as
poolings of interests were S corporations and generally not subject to income
taxes. Accordingly, no provision for income taxes has been included in the
historical consolidated financial statements for the operations of these
companies prior to their merger with us. The related net deferred tax asset or
liability of these companies at the date of their respective mergers with us was
recorded as income tax benefit or expense. The pro forma adjustment to income
taxes has been computed as if the merged companies had been taxable entities
subject to income taxes for all periods prior to their merger with us at the
marginal rates applicable in such periods.
(l) STOCK-BASED COMPENSATION
As permitted by Statement of Financial Accounting Standards No. 123 ("SFAS
123"), we account for stock-based employee compensation in accordance with the
provisions of Accounting Principles Board Opinion 25, and related
interpretations, including FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation (an Interpretation of APB Opinion No.
25)", issued in March 2000. We measure stock-based compensation cost as the
excess, if any, of the quoted market price of CIBER common stock (or the
estimated fair value of subsidiary stock) at the grant date over the amount the
employee must pay for the stock. We generally grant stock options at fair market
value at the date of grant. The pro forma disclosures, as if the fair-value
based method defined in SFAS 123 had been applied, are provided in Note 15.
(m) MINORITY INTEREST
At December 31, 1999, we owned 78% of Interactive Papyrus, Inc. In April
2000, we contributed to Interactive Papyrus the business operations and net
assets that we acquired from Waterstone Consulting, Inc. and increased our
ownership to 88%. We subsequently changed its name to Waterstone, Inc. In
January 2001, we purchased most of the shares that represented the minority
interest in Waterstone for $1.7 million. As a result, in 2001, we will record
goodwill of $792,000, which will be amortized over 10 years. This transaction
increased our ownership in Waterstone to 99%. On November 27, 2000, we
acquired 51% of Enspherics, Inc. The minority stockholders' proportionate
share of the equity of these subsidiaries is reflected as minority interest
in the consolidated balance sheet. The minority stockholders' proportionate
share of the net income (loss) of these subsidiaries is included in other
income, net in the consolidated statement of operations. The minority
interest in the net income of subsidiaries was $4,000 for the six months
ended December 31, 1999. For the year ended December 31, 2000, the minority
interest in the net loss of subsidiaries was $467,000.
(n) COMPREHENSIVE LOSS
Comprehensive loss includes changes in the balances of items that are reported
directly as a separate component of shareholders' equity in the consolidated
balance sheet. Comprehensive loss includes net income (loss) plus changes in the
net unrealized gain/loss on investments and the cumulative foreign currency
translation adjustment.
28
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(o) FOREIGN CURRENCY TRANSLATION
The assets and liabilities of our foreign subsidiaries are translated into U.S.
dollars at current exchange rates and revenues and expenses are translated at
average exchange rates for the period. The resulting cumulative translation
adjustment is included in accumulated other comprehensive loss on the
consolidated balance sheet. Foreign currency transaction gains and losses have
not been significant and are included in the results of operations as incurred.
(p) SUBSIDIARY STOCK SALES
Gains and losses on sales of stock by our subsidiaries are recognized directly
in shareholders' equity through an increase or decrease to additional paid-in
capital in the period in which the transaction occurs.
(q) ESTIMATES
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. These
estimates and assumptions relate to estimates of collectibility of accounts
receivable, the realizability of goodwill, the costs to complete fixed-priced
projects, certain accrued liabilities and other factors.
(r) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of our financial instruments approximates our carrying amounts
due to the relatively short periods to maturity of the instruments and/or
variable interest rates of the instruments which approximate current market
rates.
(s) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
(2) GOODWILL IMPAIRMENT AND OTHER CHARGES
Goodwill impairment and other charges are comprised of the following (in
thousands):
YEARS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1998 1999 2000
----------------- ---------------- -----------------
Goodwill impairment $ - $ - $ 80,773
Employee severance costs - - 1,300
Asset write-down - - 975
DigiTerra professional fees - - 720
Merger costs for poolings of interests 4,538 1,535 -
----------------- ---------------- -----------------
$ 4,538 $ 1,535 $ 83,768
================= ================ =================
During the quarter ended September 30, 2000, we recorded a goodwill impairment
charge of $80.8 million to write-down the goodwill associated with certain
acquisitions. These acquisitions include: Business Impact Systems, Inc. ("BIS"),
Integration Software Consultants, Inc. ("ISC"), York & Associates, Inc.,
Interactive Papyrus, Inc. and Paragon Solutions, Inc. Of the total goodwill
impairment charge, $53.2 million relates to CIBER Operations, $22.2 million
relates to DigiTerra and $5.4 million relates to Waterstone. These businesses
were acquired at a time when the value of IT services companies was much higher
than at the time of the impairment charge. In addition, approximately 88% of the
goodwill impairment charge related to businesses acquired for consideration paid
100% in our stock. Stock consideration typically involves a premium over cash
consideration. These acquired operations experienced a decrease in the demand
for their
29
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
services as post Year 2000 IT spending of many companies decreased. In
addition, in the spring of 2000, the IT services requirements of dot.com
companies decreased significantly. This has led to greater competition within
the IT services industry for the remaining business, and as a result,
revenues, cash flows and expected future growth rates of these operations
have decreased.
Due to the significance of the change in conditions, we performed an evaluation
of the recoverability of the goodwill related to these operations in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Because the estimated future undiscounted cash flows of these operations
were less than the carrying value of the related goodwill, an impairment charge
was required. The impairment charge represents the amount required to write-down
this goodwill to our best estimate of these operations' future discounted cash
flows.
In addition, we reduced the remaining goodwill amortization periods for BIS and
ISC to 10 years and 14 years, respectively. This reduction resulted in
additional goodwill amortization of $330,000 during the year ended December 31,
2000, which increased the net loss by the same amount.
In March 2000, we announced our intent to spin-off our DigiTerra subsidiary to
our shareholders, subject to receiving Board approval and a favorable tax
ruling, as well as favorable market conditions. We expect to complete the
spin-off of DigiTerra in 2001, however, there can be no assurance that such
transaction will be completed. As a result of our planned separation of
DigiTerra, we have incurred certain charges for an asset write-down as well as
professional fees.
Merger costs represent professional fees, primarily broker fees, associated with
certain pooling of interests business combinations.
(3) ACQUISITIONS
We have acquired certain businesses, as set forth below. Each of these
acquisitions has been accounted for under the purchase method of accounting for
business combinations and accordingly, the accompanying consolidated financial
statements include the results of operations of each acquired business since the
date of acquisition.
ACQUISITION FROM JANUARY 1, 2000 THROUGH DECEMBER 31, 2000
ENSPHERICS, INC. ("ENSPHERICS") - On November 27, 2000, we acquired 51% of the
outstanding capital stock of Enspherics for $2.5 million. Per the terms of the
agreement, additional consideration may be paid based on Enspherics achieving
certain performance objectives. We have recorded initial goodwill of $2.5
million related to this acquisition, which will be amortized over 10 years. Any
additional consideration paid will be recorded as additional goodwill.
Enspherics, located in Greenwood Village, Colorado, provides custom designed IT
security solutions to clients who operate in high-risk environments.
ACQUISITIONS FROM JULY 1, 1999 THROUGH DECEMBER 31, 1999
SOLUTION PARTNERS B.V. ("SOLUTION PARTNERS") - On December 2, 1999, we acquired
all of the outstanding capital stock of Solution Partners for initial
consideration of $14.1 million. As part of the purchase price, we issued 171,580
shares of our common stock with a value of $4.0 million. In 2000, we agreed to
pay additional consideration of approximately $1.9 million, of which $1.0
million was paid in 2001 and the remainder is payable in January 2002. The
additional consideration has been recorded as goodwill and as a result, we have
recorded total goodwill of $15.3 million related to this acquisition, which is
being amortized over 20 years. Solution Partners, located in Eindhoven, the
Netherlands, provides e-business and supply chain solutions using SAP software
to companies throughout Europe.
30
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INTERACTIVE PAPYRUS, INC. ("IPI") - On December 2, 1999, we acquired
approximately 78% of the outstanding capital stock of IPI for $6.2 million. As
part of the purchase price, we issued 22,500 shares of our common stock with a
value of $450,000. We originally recorded goodwill of $5.7 million related to
this acquisition, which was being amortized over 6 years. In 2000, we reduced
the goodwill associated with IPI to $924,000 (see Note 2). IPI, located in
Colorado Springs, Colorado, developed interactive web sites to build online
business ventures.
SOFTWARE DESIGN CONCEPTS, INC. ("SDC") - On November 15, 1999, we acquired
certain assets, liabilities and all of the business operations of SDC for $9.0
million in cash and the issuance of 160,378 shares of our common stock with a
value of $3.0 million. The aggregate purchase price was $12.0 million. We have
recorded goodwill of $11.5 million related to this acquisition, which is being
amortized over 20 years. SDC, located in Philadelphia, Pennsylvania, provided
software development and consulting services similar to us.
WATERSTONE CONSULTING, INC. ("WATERSTONE") - On October 29, 1999, we acquired
certain assets, liabilities and all of the business operations of Waterstone for
$30.7 million. As part of the purchase price, we issued 243,347 shares of our
common stock with a value of $4.0 million. We have recorded goodwill of $29.8
million related to this acquisition, which is being amortized over 20 years.
Waterstone, located in Chicago, Illinois, provided consulting services
specializing in supply chain and customer relationship management solutions.
THE ISADORE GROUP, INC. ("ISADORE") - On October 15, 1999, we acquired certain
assets, liabilities and all of the business operations of Isadore for $18.3
million. Additionally, the terms of the purchase provide for additional
consideration of up to $10.4 million based on certain revenue earned during the
3-year period ending December 31, 2002. We have recorded goodwill of $17.5
million related to this acquisition, which is being amortized over 20 years. Any
additional consideration paid will be accounted for as additional goodwill.
Isadore, located in Phoenix, Arizona, provided PeopleSoft higher education
consulting services.
ACQUISITIONS FROM JULY 1, 1998 THROUGH JUNE 30, 1999
DIGITAL SOFTWARE CORPORATION ("DSC") - On April 30, 1999, we acquired certain
assets, liabilities and all of the business operations of DSC for $6.9 million
in cash. We have recorded goodwill of $7.0 million related to this acquisition,
which is being amortized over 15 years. DSC, located in Aurora, Colorado,
provided software engineering services similar to us.
COMPAID CONSULTING SERVICES, INC. ("COMPAID") - On March 2, 1999, we acquired
all of the outstanding capital stock of Compaid for $10.3 million. We have
recorded goodwill of $8.0 million related to this acquisition, which is being
amortized over 15 years. Compaid, headquartered in Atlanta, Georgia, provided
services similar to us.
BUSINESS IMPACT SYSTEMS, INC. ("BIS") - On February 26, 1999, we issued
2,401,028 shares of our common stock and granted options for 3,634 shares of our
common stock (at an aggregate purchase price of $40,000) in exchange for
substantially all of the outstanding assets and liabilities of BIS. The
aggregate purchase price was $62.2 million, including acquisition costs. We had
originally recorded goodwill of $55.6 million related to this acquisition, which
was being amortized over 20 years. In 2000, we reduced the goodwill related to
BIS to $9.8 million and reduced the remaining goodwill amortization period to 10
years (see Note 2). BIS, headquartered in Herndon, Virginia, provided enterprise
integration services.
PARADYME HR TECHNOLOGIES CORPORATION ("PARADYME HRT") - On February 5, 1999, we
acquired certain assets, liabilities and all of the business operations of
Paradyme HRT for initial consideration of $5.0 million. We paid additional
consideration of $2.2 million during 2000 and additional consideration of
$816,000 is to be paid in 2001. Paradyme HRT, located in Columbia, South
Carolina, provided ERP outsourcing services and HR/Payroll business services.
The acquired business initially operated as CIBER Enterprise Outsourcing, Inc.
which became Agilera, Inc. (see Note 5).
31
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
INTEGRATION SOFTWARE CONSULTANTS, INC. ("ISC") - On February 2, 1999, we issued
1,280,289 shares of our common stock in exchange for all of the outstanding
common stock of ISC. The aggregate purchase price was $34.0 million, including
acquisition costs. We had originally recorded goodwill of $31.9 million related
to this acquisition, which was being amortized over 20 years. In 2000, we
reduced the goodwill related to ISC to $11.7 million and reduced the remaining
goodwill amortization period to 14 years (see Note 2). ISC, headquartered in
Philadelphia, Pennsylvania, provided SAP software implementation services.
YORK & ASSOCIATES, INC. ("YORK") - On January 29, 1999, we issued 548,857 shares
of our common stock and granted options for 30,643 shares of our common stock
(at an aggregate exercise price of $159,000) in exchange for substantially all
of the outstanding assets and liabilities of York. The aggregate purchase price
was $14.5 million, including acquisition costs. We had originally recorded
goodwill of $12.2 million related to this acquisition, which was being amortized
over 20 years. In 2000, we wrote-off all of the goodwill related to York because
we exited the primary business for which York was acquired (see Note 2).
PARAGON SOLUTIONS, INC. ("PARAGON") - On January 8, 1999, we acquired certain
assets, liabilities and all of the business operations of Paragon for $4.4
million. The original terms of the purchase provided for additional
consideration of up to $3.3 million based on certain performance criteria during
the 12-month periods ending December 31, 1999 and 2000. In 2000, we paid $2.5
million in final settlement of the purchase agreement. We had originally
recorded total goodwill of $6.8 million related to this acquisition, which was
being amortized over 15 years. In 2000, we reduced the goodwill associated with
Paragon to $1.9 million (see Note 2). Paragon, located in Pittsburgh,
Pennsylvania, provided Oracle software implementation services.
THE DORADUS CORPORATION ("DORADUS") - On November 15, 1998, we acquired all
of the outstanding capital stock of Doradus for $4.1 million. Additional
consideration of $288,000 was paid in during the year ended December 31,
1999. The additional consideration was accounted for as additional goodwill.
We have recorded total goodwill of $4.2 million related to this acquisition,
which is being amortized over 15 years. Doradus, located in Minneapolis,
Minnesota, provided IT consulting services similar to us.
(4) POOLINGS OF INTERESTS
We completed certain business combinations accounted for as poolings of
interests, as set forth below. Our financial statements have been restated for
all periods prior to each pooling of interests to include the accounts of the
merged company.
YEAR ENDED JUNE 30, 1999
THE CUSHING GROUP, INC. ("CUSHING") - On August 31, 1998, we issued 961,135
shares of our common stock in connection with the merger of Cushing.
EJR COMPUTER ASSOCIATES, INC. ("EJR") - On August 11, 1998, we issued 1,155,516
shares of our common stock in connection with the merger of EJR.
YEAR ENDED JUNE 30, 1998
THE SUMMIT GROUP, INC. ("SUMMIT") - On May 4, 1998, we issued 4,262,860 shares
of our common stock in connection with the merger of Summit.
STEP CONSULTING, INC. ("STEP") - On April 30, 1998, we issued 131,242 shares of
our common stock in connection with the merger of Step.
COMPUTER RESOURCE ASSOCIATES, INC. ("CRA") - On March 2, 1998, we issued 530,910
shares of our common stock in connection with the merger of CRA.
32
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ADVANCED SYSTEMS ENGINEERING, INC. ("ASE") - On March 2, 1998, we issued 382,602
shares of our common stock in connection with the merger of ASE.
TECHWARE CONSULTING, INC. ("TECHWARE") - On November 26, 1997, we issued 747,836
shares of our common stock in connection with the merger of Techware.
FINANCIAL DYNAMICS, INC. ("FDI") - On November 24, 1997, we issued 1,128,054
shares of our common stock and granted options for 97,220 shares of our common
stock (at an aggregate exercise price of $217,000) in connection with the merger
of FDI.
THE CONSTELL GROUP, INC. ("CONSTELL") - On October 24, 1997, we issued 500,000
shares of our common stock in connection with the merger of Constell.
BAILEY & QUINN, INC. ("BQI") - On October 22, 1997, we issued approximately
148,000 shares of our common stock in connection with the merger of BQI.
SOFTWAREXPRESS, INC. D/B/A RELIANT INTEGRATION SERVICES, INC. ("RELIANT") - On
August 21, 1997, we issued 1,183,276 shares of our common stock in connection
with the merger of Reliant.
KCM COMPUTER CONSULTING, INC. ("KCM") - On July 18, 1997, we issued 861,700
shares of our common stock in connection with the merger of KCM.
(5) AGILERA INVESTMENT
In March 2000, our wholly owned subsidiary, Agilera, Inc. (formerly named CIBER
Enterprise Outsourcing, Inc.), sold $45 million of convertible preferred stock
to new investors. As a result of participating rights obtained by the preferred
stockholders in connection with their investment, we retained a 41% voting
interest in Agilera. Accordingly, effective January 1, 2000, for financial
reporting purposes, we no longer consolidate the results and accounts of Agilera
and account for our interest in Agilera using the equity method of accounting.
In connection with the preferred stock sale, Agilera paid us $9.9 million in
repayment of our advances to Agilera as of December 31, 1999, reducing our
historical cost basis in our remaining ownership in Agilera to zero. Since the
basis of our investment in Agilera is zero, beginning January 1, 2000 we do not
record our proportionate share of Agilera's net losses. Agilera provides
enterprise application hosting or application service provider ("ASP") services.
In August 2000, Agilera obtained additional equity financing that reduced our
voting interest to 24%. In January 2001, our voting interest in Agilera has been
reduced to approximately 19% as a result of an Agilera business combination.
We provide software implementation and other services to Agilera as a
subcontractor under certain Agilera customer contracts. We have recorded revenue
of $5,986,000 related to these services during the year ended December 31, 2000.
(6) SALE OF LOGISTICSPRO
On September 30, 1999, we sold our LogisticsPRO software business for $2.0
million resulting in a gain of $827,000 that is included in other income. The
after-tax gain was $496,000 or $.01 per diluted share. As consideration, we
received a $2.0 million, 8% promissory note that was paid in full in September
2000. The software business was sold to an entity owned by the management of the
LogisticsPRO business as well as two non-executive officers of DigiTerra.
33
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(7) EARNINGS (LOSS) PER SHARE
The computation of earnings (loss) per share - basic and diluted is as follows
(in thousands, except per share amounts):
SIX MONTHS
YEARS ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------ ----------- --------------- ---------------
Numerator:
Pro forma net income $ 34,270
Net income (loss) $ 54,495 $17,643 $(66,775)
Denominator:
Basic weighted average shares outstanding 51,355 55,362 57,345 57,900
Dilutive effect of employee stock options 2,488 1,779 1,151 -
------------ ----------- --------------- ---------------
Diluted weighted average shares outstanding 53,843 57,141 58,496 57,900
============ =========== =============== ===============
Earnings (loss) per share - basic $0.67 $0.98 $0.31 $(1.15)
Earnings (loss) per share - diluted $0.64 $0.95 $0.30 $(1.15)
Loss per share - diluted for the year ended December 31, 2000 excludes common
stock equivalents because the effect of their inclusion would be anti-dilutive,
or would decrease the reported loss per share. The dilutive common equivalent
shares for the year ended December 31, 2000 were 876,000, had we reported net
income. In addition, the number of antidilutive stock options (options whose
exercise price is greater than the average CIBER stock price during the period)
omitted from the computation of weighted average shares - diluted was 1,182,000,
2,316,000 and 4,175,000 for the year ended June 30, 1999, the six months ended
December 31, 1999 and the year ended December 31, 2000, respectively.
(8) ACCOUNTS RECEIVABLE
Accounts receivable consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1999 1999 2000
------------- -------------- --------------
Billed accounts receivable $ 129,547 $ 116,003 $ 105,193
Unbilled accounts receivable 24,773 26,058 24,087
------------- -------------- --------------
154,320 142,061 129,280
Less allowance for doubtful accounts (3,344) (2,643) (2,063)
------------- -------------- --------------
$ 150,976 $ 139,418 $ 127,217
============= ============== ==============
The activity in the allowance for doubtful accounts consist of the following (in
thousands):
ADDITIONS
--------------------------
BALANCE AT CHARGE BALANCE AT
BEGINNING TO COST AND DEDUCTIONS END
OF PERIOD EXPENSE OTHER (1) (WRITE-OFFS) OF PERIOD
---------- ----------- --------- ------------ ----------
Year ended June 30, 1998 $ 857 $ 2,409 $ 130 $ (886) $ 2,510
Year ended June 30, 1999 2,510 3,312 381 (2,859) 3,344
Six months ended December 31, 1999 3,344 1,784 4 (2,489) 2,643
Year ended December 31, 2000 2,643 5,019 6 (5,605) 2,063
(1) Represents additions due to business combinations accounted for as purchases
and immaterial poolings of interests.
34
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9) INVESTMENTS
Investments (which are included in prepaid expenses and other current assets)
consist of the following at December 31, 2000 (in thousands):
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------- --------------- --------------- ---------------
Equity securities $1,398 $12 $(895) $ 515
The following summarizes gains and losses from the sale of investments for the
year ended December 31, 2000 (in thousands):
Gross realized gains $564
Gross realized losses $(60)
In 2000, we purchased 134,400 shares of Merrill Lynch & Co., Inc. Structured
Yield Product Exchangeable for Stock ("STRYPES"), payable with shares of
common stock of CIBER, Inc. On February 1, 2001, we received 285,044 shares
of our common stock upon the maturity of the STRYPES. We have recorded these
shares as treasury stock at December 31, 2000, at a cost of $1,534,000. The
CIBER, Inc. common stock delivered by Merrill Lynch & Co. in settlement of
the STRYPES was purchased by Merrill Lynch & Co. from a trust controlled by
Bobby G. Stevenson, our Chairman, pursuant to a forward purchase contract
entered into in January 1998.
(10) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1999 1999 2000
-------------- --------------- --------------
Computer equipment and software $ 32,499 $ 38,978 $ 38,946
Furniture and fixtures 11,187 11,557 11,447
Leaseholds and other 4,311 4,975 4,995
-------------- --------------- --------------
47,997 55,510 55,388
Less accumulated depreciation (22,866) (26,947) (30,082)
-------------- --------------- --------------
$ 25,131 $ 28,563 $ 25,306
============== =============== ==============
(11) INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1999 1999 2000 (1)
---------------- ---------------- ----------------
Goodwill $ 167,019 $ 250,468 $ 167,331
Noncompete agreements 7,266 7,534 7,517
---------------- ---------------- ----------------
174,285 258,002 174,848
Less accumulated amortization (17,273) (24,027) (37,791)
---------------- ---------------- ----------------
$ 157,012 $ 233,975 $ 137,057
================ ================ ================
(1) As discussed in Note 2, during 2000, we reduced the value of certain
goodwill by $80,773,000.
35
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(12) REVOLVING LINE OF CREDIT
We have a $35 million unsecured revolving line of credit with a bank. There were
no outstanding borrowings under this bank line of credit at December 31, 2000
and June 30, 1999. At December 31, 1999, we had $5,355,000 outstanding under
this line of credit, which was classified as a long-term liability as the
maturity date was more than 12 months into the future. Outstanding borrowings
bear interest at the three-month London Interbank Offered Rate ("LIBOR") plus 2%
(8.40% at December 31, 2000). The credit agreement requires a commitment fee of
0.225% per annum on any unused portion of the line of credit up to $20 million.
The credit agreement expires on July 1, 2001. The terms and conditions of the
credit agreement include several covenants, including those whereby we agree to
the maintenance of certain net worth and debt service coverage ratios, among
other things. Amounts advanced under the line of credit can be used to
consummate an acquisition and may be required by the bank to be converted into a
five-year term note payable in equal amounts of interest and principal. In such
event, the line of credit would be reduced by the amount of the term note.
(13) LEASES
We have noncancelable operating leases for office space. Rental expense for
operating leases totaled $8,636,000, $10,730,000, $6,218,000 and $12,106,000 for
the years ended June 30, 1998 and 1999, the six months ended December 31, 1999
and the year ended December 31, 2000, respectively.
Future minimum lease payments as of December 31, 2000 are (in thousands):
Year ending December 31:
2001 $ 11,099
2002 9,772
2003 7,845
2004 4,550
2005 2,393
Thereafter 1,351
-------------
Total minimum lease payments $ 37,010
=============
(14) INCOME TAXES
Income tax expense (benefit) consists of the following (in thousands):
SIX MONTHS
YEARS ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
--------------- --------------- --------------- ---------------
Current:
Federal $ 23,190 $ 34,005 $ 11,082 $ 8,211
State and local 4,005 5,297 1,829 2,157
Foreign 403 232 256 1,264
--------------- --------------- --------------- ---------------
27,598 39,534 13,167 11,632
--------------- --------------- --------------- ---------------
Deferred:
Federal (3,988) (1,773) (66) (582)
State and local (684) (276) (11) (113)
Foreign - - - (21)
--------------- --------------- --------------- ---------------
(4,672) (2,049) (77) (716)
--------------- --------------- --------------- ---------------
Income tax expense $ 22,926 $ 37,485 $ 13,090 $10,916
=============== =============== =============== ===============
36
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income tax expense differs from the amounts computed by applying the statutory
U.S. federal income tax rate to income before income taxes as a result of the
following (in thousands):
SIX MONTHS
YEARS ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
-------------- --------------- ---------------- ----------------
Income tax expense (benefit) at the federal
statutory rate of 35% $ 20,791 $ 32,193 $10,757 $(19,551)
Increase (decrease) resulting from:
State and local income taxes, net of federal
income tax benefit 2,152 3,263 1,182 1,329
Nondeductible U.S. goodwill amortization - 1,008 1,114 1,860
Nondeductible goodwill write-down - - - 26,752
Nondeductible merger costs 1,540 537 - -
S corporation income and change in tax
status of merged companies (1,703) - - -
Other 146 484 37 526
-------------- --------------- ---------------- ----------------
Income tax expense $ 22,926 $ 37,485 $13,090 $ 10,916
============== =============== ================ ================
The components of the net deferred tax asset or liability are as follows (in
thousands):
JUNE 30, DECEMBER 31,
1999 1999 2000
-----------------------------------------
Deferred tax assets:
Intangible assets, due to differences in amortization
periods $ 3,272 $ 3,481 $ 5,213
Accrued expenses, not currently tax deductible 3,008 2,825 2,413
Investments - - 353
Other 1,688 577 110
-----------------------------------------
7,968 6,883 8,089
Deferred tax liabilities:
Property and equipment (1,559) (1,527) (2,040)
Accounts receivable (1,800) (690) (239)
Other - - (99)
-----------------------------------------
Net deferred tax asset $ 4,609 $ 4,666 $ 5,711
=========================================
Balance sheet classification of deferred tax asset (liability):
Deferred tax asset - current $ 2,915 $ 2,960 $ 2,538
Deferred tax asset - long term 1,694 1,773 3,173
Deferred tax liability - current - (67) -
-----------------------------------------
Net deferred tax asset $ 4,609 $ 4,666 $ 5,711
=========================================
Based on our evaluation of current and anticipated future taxable income, we
believe sufficient taxable income will be generated to realize the deferred tax
assets.
37
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(15) STOCK-BASED PLANS
Stock-based compensation plans are described below.
EMPLOYEES' STOCK OPTION PLAN - We have a stock option plan for employees and up
to 10,500,000 shares of CIBER, Inc. common stock are authorized for issuance
under this plan. At December 31, 2000, 1,087,000 options were available for
future grants. The plan administrators may grant to officers, employees and
consultants, restricted stock, stock options, performance bonuses or any
combination thereof. The Compensation Committee of the Board of Directors
determines the number and nature of awards. Options become exercisable as
determined at the date of grant by the Board of Directors and expire within 10
years from the date of grant.
1989 STOCK OPTION PLAN - We established a stock option plan in 1989 that was
discontinued during 1994. The options expire twenty years after the date of
grant through 2013. At December 31, 2000, options for 859,000 shares were
outstanding and vested at an average exercise price of $0.27.
DIRECTORS' STOCK OPTION PLAN - Up to 200,000 shares of CIBER, Inc. common stock
are authorized for issuance to non-employee, non-affiliate directors under this
plan. Such stock options are non-discretionary and granted annually at the fair
market value of our common stock on the date of grant. The number of options
granted annually is fixed by the plan. Options expire 10 years from the date of
grant.
At December 31, 2000, there were 9,098,000 shares of CIBER, Inc. common stock
reserved for future issuance under our stock option plans.
DIRECTORS' STOCK COMPENSATION PLAN - A total of 50,000 shares of CIBER, Inc.
common stock are authorized for issuance to non-employee directors under this
plan, of which 10,214 shares have been issued through December 31, 2000. Each
non-employee director is issued shares having a fair market value of
approximately $2,500 for attendance at each meeting of our Board of Directors.
During the years ended June 30, 1998 and 1999, the six months ended December 31,
1999 and the year ended December 31, 2000, we issued 1,233, 1,980, 1,445 and
3,892 shares, respectively, of common stock under this plan.
STOCK OPTION EXCHANGE PROGRAM - We offered each employee of our DigiTerra
subsidiary the option to cancel their outstanding CIBER, Inc. stock options in
exchange for options to be issued under a DigiTerra stock option plan on or
about July 5, 2001, with an exercise price equal to the fair market value on the
date of grant. DigiTerra's plan is not yet finalized, but is expected to have
similar terms as our Employees' Stock Option Plan. Under this exchange program,
on January 4, 2001, DigiTerra employees cancelled 1,079,000 options at an
average price of $18.55. Of these cancelled options, 409,000 were exercisable at
December 31, 2000.
On September 1, 1998, our Board of Directors authorized a repricing program for
non-executive employees who were originally granted options under our Employees'
Stock Option Plan from March 1, 1998 to August 31, 1998 at exercise prices
ranging from $28.88 to $38.00 that repriced all of these outstanding stock
options to an exercise price of $27.06 per share. Options to purchase 537,050
shares of common stock were repriced. On October 9, 1998, our Board of Directors
authorized another repricing program for non-executive employees who were
originally granted options under our Employees' Stock Option Plan on October 1,
1998 at an exercise price of $20.13 that repriced all of these outstanding stock
options to an exercise price of $16.00 per share. Options to purchase 71,200
shares of common stock were repriced. All of the repriced options follow the
vesting schedule of the original options granted.
On October 9, 1998, our Board of Directors authorized a program which allowed
certain directors, who were originally granted options under the Directors'
Stock Option Plan from October 1, 1997 to September 30, 1998 at exercise prices
ranging from $21.53 to $40.25, to cancel these stock options and replace them
with options under the Employees' Stock Option Plan at an exercise price of
$16.00 per share. Options to purchase 48,000 shares of common stock were
replaced.
38
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the status of the CIBER, Inc. stock option plans as of June 30,
1998 and 1999, and the six months ended December 31, 1999, and changes during
the periods ending on those dates is presented below (shares in thousands):
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
1998 1999 1999
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
Outstanding at beginning of period 4,103 $ 4.17 5,187 $12.34 5,364 $15.36
Granted 2,541 21.04 2,760 22.57 2,457 18.46
Exercised (1,213) 2.11 (960) 4.73 (476) 10.17
Canceled (244) 16.61 (1,623) 24.34 (417) 21.39
---------- ---------- ----------
Outstanding at end of period 5,187 $12.34 5,364 $15.36 6,928 $16.45
========== ========== ==========
Options exercisable at period end 1,850 1,875 2,270
========== ========== ==========
A summary of the status of the CIBER, Inc. stock option plans as of December 31,
2000 and changes during the year ending on that date is presented below (shares
in thousands):
YEAR ENDED,
DECEMBER 31, 2000
-------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- --------------
Outstanding at beginning of year 6,928 $16.45
Granted 2,594 9.96
Exercised (168) 7.96
Canceled (1,949) 19.54
----------
Outstanding at end of year 7,405 $13.55
==========
Options exercisable at year end 3,514
==========
The weighted average fair values of CIBER, Inc. options granted during the years
ended June 30, 1998 and 1999, the six months ended December 31, 1999 and the
year ended December 31, 2000 were $11.45, $16.24, $9.20 and $6.41, respectively.
39
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the range of exercise prices and the weighted-average contractual
life of outstanding CIBER, Inc. stock options at December 31, 2000 is as follows
(shares in thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER EXERCISE REMAINING NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE (YEARS) EXERCISABLE PRICE
- --------------------- -------------- --------------- -------------- ------------- ------------
$ 0.01 - $ 4.38 1,778 $ 2.32 9.2 1,129 $ 1.15
4.44 - 11.00 929 8.31 8.4 369 9.93
11.38 - 17.09 2,344 15.64 7.7 1,017 16.60
17.25 - 33.38 2,354 22.03 8.2 999 22.80
- --------------------- -------------- --------------- -------------- ------------- ------------
$ 0.01 - $ 33.38 7,405 $ 13.55 8.3 3,514 $ 12.70
===================== ============== =============== =============== ============= =============
WATERSTONE, INC. EQUITY INCENTIVE PLAN - In 1999, our Waterstone subsidiary
adopted the Waterstone, Inc. Equity Incentive Plan (formerly the Interactive
Papyrus, Inc. Equity Incentive Plan). Under the plan, the plan committee may
grant to officers, employees and consultants stock options, restricted stock,
performance shares or performance units. A committee of the Board of Directors
of Waterstone determines the number and nature of awards. Options become
exercisable as determined at the date of grant by the committee and expire
within 10 years from the date of grant. Waterstone issued options for 664,000
and 1,514,900 shares of its stock during the six months ended December 31, 1999
and the year ended December 31, 2000, respectively, at exercise prices ranging
from $0.90 to $1.75 per share (estimated fair value at the date of grant). These
options vest over three to four years. During 2000, there were no options
exercised and options for 695,000 shares were canceled. As of December 31, 2000,
there were 1,472,900 options outstanding at a weighted average exercise price of
$1.37 and 212,375 options exercisable at a weighted average exercise price of
$0.90.
EMPLOYEE STOCK PURCHASE PLAN ("ESPP") - We have a stock purchase plan that
allows eligible employees to purchase, through payroll deductions, shares of
CIBER, Inc. common stock at 85% of the fair market value at specified dates. Up
to 2,000,000 shares of common stock are authorized to be issued under the ESPP.
An additional 2,750,000 shares may be issued subject to shareholder approval at
the 2001 annual meeting. If shareholder approval is not obtained, our Board of
Directors has authorized that any shares in excess of the 2,000,000 authorized
are to be issued pursuant to our Employees' Stock Option Plan. During the years
ended June 30, 1998 and 1999, the six months ended December 31, 1999 and the
year ended December 31, 2000, employees purchased 197,565, 633,405, 440,290 and
837,850 shares of common stock, respectively. Through December 31, 2000,
2,502,846 shares have been issued under the ESPP, of which 502,846 shares were
issued under the Employees' Stock Option Plan registration statement.
40
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We apply APB 25 in accounting for our stock-based compensation plans. The
compensation expense that has been recorded for these plans for the years ended
June 30, 1998 and 1999, the six months ended December 31, 1999 and the year
ended December 31, 2000 was $59,000, $395,000, $225,000 and $189,000,
respectively. Had we determined compensation cost for our stock-based
compensation plans based on the fair value at the grant date, as calculated in
accordance with SFAS 123, our net income (loss), pro forma net income, and pro
forma income (loss) per share would have been as indicated in the pro forma
amounts below (in thousands, except per share data):
SIX MONTHS
YEARS ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
----------- ----------- --------------- ----------------
Net income (loss) As reported $36,477 $54,495 $17,643 $(66,775)
Pro forma 31,516 41,373 11,323 (81,295)
Pro forma net income As reported 34,270 n/a n/a n/a
Pro forma 29,309 n/a n/a n/a
Earnings (loss) per share - basic As reported .67 .98 .31 (1.15)
Pro forma .57 .75 .20 (1.40)
Earnings (loss) per share - diluted As reported .64 .95 .30 (1.15)
Pro forma .54 .72 .19 (1.40)
The effect of applying SFAS 123 in this disclosure may not be indicative of the
effect on reported net income for future years. SFAS 123 does not apply to
options granted prior to July 1, 1995.
The fair value of options at the date of grant was estimated using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
SIX MONTHS
YEARS ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
--------------- --------------- ----------------- ----------------
Expected life 5 years 5 years 5 years 5 years
Risk free interest rate 6.0% 4.8% 6.0% 6.0%
Expected volatility 50% 80% 60% 80%
Dividend yield 0% 0% 0% 0%
(16) 401(k) SAVINGS PLAN
We have a savings plan under Section 401(k) of the Internal Revenue Code. Our
contributions are determined based on the employee's completed years of service,
the employee's contribution and our matching contribution percentage. In
addition, certain companies that have merged with us in business combinations
accounted for as poolings of interests have had similar defined contribution
retirement plans. We recorded expense of approximately $4,519,000, $4,555,000,
$2,464,000 and $3,593,000 for the years ended June 30, 1998 and 1999, the six
months ended December 31, 1999 and the year ended December 31, 2000,
respectively, related to these plans.
(17) STOCK PURCHASE RIGHTS
On September 21, 1998, CIBER, Inc. paid a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of CIBER, Inc. common
stock ("Common Stock"). A Right is also attached to all shares of Common Stock
issued after the dividend date. Each Right entitles the registered holder to
purchase one one-hundredth of a share of Series A Junior Preferred Stock, par
value $0.01, at a purchase price of $250, subject to adjustment. The Rights
become exercisable ten business days following a public announcement that a
person or group has acquired, or has commenced or intends to commence a tender
41
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
offer for 15% or more of our outstanding Common Stock. In the event the Rights
become exercisable, each Right will entitle its holder, other than the Acquiring
Person (as defined in the Rights Agreement), to that number of shares of our
Common Stock having a market value of two times the exercise price of the Right.
In the event the Rights become exercisable because of a merger or certain other
business combination, each Right will entitle its holder to purchase common
stock of the acquiring company having a market value of two times the exercise
price of the Right. If the Rights are fully exercised, the shares issued would
cause substantial dilution to the Acquiring Person or the shareholders of the
acquiring company.
We can redeem the Rights in their entirety, prior to their becoming exercisable,
at $0.001 per Right. The Rights expire on August 28, 2008, unless extended or
earlier redeemed.
(18) SHARE REPURCHASE PROGRAM
On June 21, 1999, our Board of Directors authorized the repurchase of up to
5,888,000 shares (10%) of our common stock. As of December 31, 2000, we have
purchased 4,680,000 shares for $59,560,000 under this program.
(19) BUSINESS AND CREDIT CONCENTRATIONS
Our clients are located principally throughout the United States. Our revenue
and accounts receivable are concentrated with large companies in several
industries. Our largest client accounted for approximately 5%, 6%, 7% and 6% of
total revenues for the years ended June 30, 1998 and 1999, the six months ended
December 31, 1999 and the year ended December 31, 2000, respectively. In
addition, our five largest clients accounted for, in the aggregate,
approximately 14%, 15%, 16% and 14% of our total revenues for the years ended
June 30, 1998 and 1999, the six months ended December 31, 1999 and the year
ended December 31, 2000, respectively. We have a policy to regularly monitor the
creditworthiness of our clients and generally do not require collateral. We have
a concentration of revenues related to clients purchasing software from
PeopleSoft, Inc. Approximately 9%, 10%, 8% and 8% of our total revenues for the
years ended June 30, 1998 and 1999, the six months ended December 31, 1999 and
the year ended December 31, 2000, respectively, were generated from implementing
PeopleSoft software.
(20) SEGMENT INFORMATION
We manage our operations based on our legal operating entities that are
differentiated by products and services offered. We have two reportable
segments, CIBER Operations and DigiTerra. All Other includes our subsidiaries,
Waterstone, Solution Partners, Enspherics and, through December 31, 1999,
Agilera. A description of each of these operations' products and services is
included in Note 1. Beginning in 2000, our corporate department only serves
CIBER's branch operations and therefore, the related activity is included in the
CIBER Operations segment. Prior year information has been restated to conform to
this presentation including an allocation of certain corporate costs to
DigiTerra. We evaluate each segment based on operating income before
amortization of intangible assets and goodwill impairment and other charges. The
accounting policies of the reportable segments are the same as those disclosed
in the Summary of Significant Accounting Policies.
42
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following presents information about our segments (in thousands):
SIX MONTHS
YEARS ENDED ENDED YEARS ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 1999 2000
------------- -------------- ---------------- ------------- --------------
(unaudited)
Total revenues:
CIBER Operations $ 467,463 $ 549,779 $ 264,349 $ 547,211 $ 457,282
DigiTerra 109,910 172,938 94,705 193,252 148,247
All Other - 1,591 5,038 6,629 20,477
Inter-segment (885) (4,647) (2,092) (5,145) (4,472)
------------- -------------- ---------------- ------------- --------------
Total $ 576,488 $ 719,661 $ 362,000 $ 741,947 $ 621,534
============= ============== ================ ============= ==============
Inter-segment revenues:
CIBER Operations $ (625) $ (795) $ (211) $ (527) $ (136)
DigiTerra (260) (3,852) (1,881) (4,618) (2,936)
All Other - - - - (1,400)
------------- -------------- ---------------- ------------- --------------
Total $ (885) $ (4,647) $ (2,092) $ (5,145) $ (4,472)
============= ============== ================ ============= ==============
Income (loss) from operations:
CIBER Operations $ 48,656 $ 65,150 $ 21,936 $ 55,802 $ 32,974
DigiTerra 17,686 34,010 16,772 36,472 8,650
All Other - (765) (2,729) (3,494) (721)
------------- -------------- ---------------- ------------- --------------
Total 66,342 98,395 35,979 88,780 40,903
Amortization of intangibles (3,936) (7,520) (6,754) (12,123) (14,032)
Goodwill impairment and
other charges (4,538) (1,535) - - (83,768)
------------- -------------- ---------------- ------------- --------------
Operating income (loss) $ 57,868 $ 89,340 $ 29,225 $ 76,657 $ (56,897)
============= ============== ================ ============= ==============
Total capital expenditures:
CIBER Operations $ 7,800 $ 6,743 $ 3,851 $ 7,628 $ 5,240
DigiTerra 3,865 7,120 1,678 7,399 962
All Other - 109 1,639 1,748 2,272
------------- -------------- ---------------- ------------- --------------
Total capital expenditures $ 11,665 $ 13,972 $ 7,168 $ 16,775 $ 8,474
============= ============== ================ ============= ==============
Total assets:
CIBER Operations $ 195,222 $ 300,716 $ 265,654 $ 265,654 $ 306,961
DigiTerra 37,176 103,353 110,381 110,381 96,489
All Other - 6,026 62,135 62,135 26,553
CIBER investment in subsidiaries* (10,272) (994) (14,623) (14,623) (103,516)
Elimination of inter-segment
accounts receivable (341) (469) (979) (979) (140)
------------- -------------- ---------------- ------------- --------------
Total assets $ 221,785 $ 408,632 $ 422,568 $ 422,568 $ 326,347
============= ============== ================ ============= ==============
* As a result of our incorporation of DigiTerra on April 3, 2000, CIBER
Operations' investment in subsidiaries increased by $94,961,000.
Revenues from foreign operations were $11,418,000 for the year ended December
31, 2000, and were not significant during the prior periods presented. Total
assets of foreign operations were $17,528,000 and $21,305,000 at December 31,
1999 and 2000, respectively, and were not significant at June 30, 1999.
43
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(21) SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
Supplemental statement of cash flow information is as follows (in thousands):
SIX MONTHS
YEARS ENDED ENDED YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
---- ---- ---- ----
Acquisitions:
Fair value of assets acquired $ - $ 142,514 $ 84,373 $ 4,891
Liabilities assumed - (10,586) (5,371) (579)
Common stock issued - (106,285) (11,425) -
Change in acquisition costs payable - - (7,888) 11,862
Minority interest - - (105) 10
Additional cash consideration for previous
acquisitions 351 857 506 -
------------- ------------- ---------------- ----------------
Cash paid for acquisitions $ 351 $ 26,500 $ 60,090 $16,184
============= ============= ================ ================
Noncash investing and financing activities:
Issuance of common stock in satisfaction
of acquisition costs payable $ 1,151 $ 1,203 $ - $ -
Stock options exchanged for accrued compensation $ - $ 833 $ - $ -
Property and other assets distributed by merged
company $ 1,370 $ - $ - $ -
Cash paid for interest $ 182 $ - $ 94 $ 547
Cash paid for income taxes $12,194 $ 32,941 $ 15,139 $16,921
(22) COMPARATIVE FINANCIAL INFORMATION (UNAUDITED)
The following represents financial information for the six months ended December
31, 1998, which is included for comparative purposes (in thousands):
Total revenues $339,714
Operating income 41,908
Income before income taxes 43,238
Income tax expense 17,801
Net income 25,437
44
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(23) SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain statement of operations data for each of
the quarters indicated below and, in our opinion, contains all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation thereof.
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000 MARCH JUNE SEPT. DEC.
----- ---- ----- ----
Revenues $ 166,306 $ 157,357 $ 153,285 $ 144,586 $ 621,534
Amortization of intangible assets 4,046 4,041 2,931 3,014 14,032
Goodwill impairment and other charges 2,275 323 80,773 397 83,768
Operating income (loss) 5,493 6,894 (73,927) 4,643 (56,897)
Net income (loss) 3,325 3,980 (76,888) 2,808 (66,775)
Earnings (loss) per share - basic $0.06 $0.07 $(1.32) $0.05 $(1.15)
Earnings (loss) per share - diluted $0.06 $0.07 $(1.32) $0.05 $(1.15)
SIX MONTHS ENDED DECEMBER 31, 1999 SEPT. DEC.
----- ----
Revenues $ 187,042 $ 174,958 n/a n/a $ 362,000
Amortization of intangible assets 3,023 3,731 n/a n/a 6,754
Operating income 16,400 12,825 n/a n/a 29,225
Net income 10,260 7,383 n/a n/a 17,643
Earnings per share - basic $0.18 $0.13 n/a n/a $0.31
Earnings per share - diluted $0.18 $0.13 n/a n/a $0.30
FISCAL YEAR ENDED JUNE 30, 1999 SEPT. DEC. MARCH JUNE
----- ---- ----- ----
Revenues $ 165,658 $ 174,056 $ 184,901 $ 195,046 $ 719,661
Amortization of intangible assets 1,082 1,069 2,314 3,055 7,520
Goodwill impairment and other charges 1,535 - - - 1,535
Operating income 18,760 23,148 23,880 23,552 89,340
Net income 11,117 14,320 14,883 14,175 54,495
Earnings per share - basic $0.21 $0.27 $0.27 $0.24 $0.98
Earnings per share - diluted $0.20 $0.26 $0.26 $0.24 $0.95
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III is omitted from this Report on Form 10-K
because the Registrant will file a definitive proxy statement (the "Proxy
Statement") within 120 days of December 31, 2000 and certain information
included therein is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item is incorporated by reference to CIBER's
2001 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to CIBER's
2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to CIBER's
2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to CIBER's
2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements are filed as part of this report:
Independent Auditors' Report
Consolidated Statements of Operations - Years Ended June 30, 1998 and
1999, the Six Months Ended December 31, 1999, and the Years
Ended December 31, 1999 (unaudited) and 2000.
Consolidated Balance Sheets - June 30, 1999, and December 31, 1999
and 2000.
Consolidated Statements of Shareholders' Equity - Years Ended June
30, 1998 and 1999, the Six Months Ended December 31, 1999 and
the Year Ended December 31, 2000.
Consolidated Statements of Cash Flows - Years Ended June 30, 1998 and
1999, the Six Months Ended December 31, 1999, and the Years
Ended December 31, 1999 (unaudited) and 2000.
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
None.
46
(2) Exhibits
Number Description of Exhibits
3(i) Amended and Restated Certificate of Incorporation of CIBER,
Inc.; Certificate of Amendment to Amended and Restated
Certificate of Incorporation of CIBER, Inc. dated October 29,
1996; Certificate of Amendment to Amended and Restated
Certificate of Incorporation of CIBER, Inc. dated March 4,
1998 incorporated by reference to the Quarterly Report on Form
10-Q for the quarter ended March 31, 1998; Certificate of
Amendment to Amended and Restated Certificate of Incorporation
of CIBER, Inc. dated October 29, 1999 incorporated by
reference to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999
3(ii) Amended and Restated Bylaws of CIBER, Inc. as adopted
December 2, 1999, incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000
4.1 Form of Common Stock Certificate (1)
4.2 Rights Agreement, dated as of August 31, 1998, between CIBER,
Inc. and UMB Bank, N. A., and exhibits, incorporated by
reference to the Form 8-K filed by CIBER on September 16, 1998
10.1 1989 CIBER, Inc. Employee Stock Option Plan (1)
10.2 Form of CIBER, Inc. Non-Employee Directors' Stock Option Plan (1)
10.3 CIBER, Inc. Equity Incentive Plan (Amended and restated as of
May 4, 1998 and subsequently amended as of October 28, 1999)
incorporated by reference to the Proxy Statement for the year
ended June 30, 1999
10.4 CIBER, Inc. Non-Employee Directors' Stock Compensation Plan
(as amended July 1, 1997), incorporated by reference to the
Annual Report on Form 10-K for the year ended June 30, 1998
10.5 Unsecured Credit Agreement with UMB Bank Colorado dated
November 1, 2000, incorporated by reference to the Quarterly
Report on Form 10-Q for the quarter ended September 30, 2000
10.6 Agreement and Plan of Reorganization and Liquidation by and
among CIBER, Inc., CIBER Integration Services, Inc., Business
Impact Systems, Inc. and the Affiliated Stockholders of
Business Impact Systems, Inc. dated February 26, 1999,
incorporated by reference to the Current Report on Form 8-K
filed with the Commission on July 1, 1999
10.7 Salary Continuation Retirement Plan for Mac J. Slingerlend,
incorporated by reference to the Annual Report on Form 10-K
for the year ended June 30, 1996
10.8 Employment Agreement between CIBER, Inc. and Mac J.
Slingerlend (2)
10.9 Employment Agreement between CIBER, Inc. and Joseph A. Mancuso
(2)
10.10 Promissory Note between CIBER, Inc. and Joseph A. Mancuso,
incorporated by reference to the Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999
10.11 Waterstone, Inc. Equity Incentive Plan, as amended and
restated October 2, 1999*
10.12 Employment Agreement between CIBER, Inc. and David G. Durham*
10.13 Employment Agreement between DigiTerra, Inc. and Steve Boyd*
21.1 List of Subsidiaries of CIBER, Inc.*
23.1 Consent of KPMG LLP*
------------
(1) Incorporated by reference to the Registration Statement on
Form S-1, as amended (File No. 33-74774), as filed with the
Commission on February 2, 1994.
(2) Incorporated by reference to the Annual Report on Form 10-K
for the year ended June 30, 1999.
* Filed herewith
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 2000
None.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CIBER, INC.
(Registrant)
Date: March 23, 2001 By /s/ Mac J. Slingerlend
--------------------------------------
Mac J. Slingerlend
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
SECRETARY
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ BOBBY G. STEVENSON Chairman of the Board and Founder March 23, 2001
----------------------
Bobby G. Stevenson
/s/ MAC J. SLINGERLEND Chief Executive Officer, President, March 23, 2001
---------------------- Secretary and Director
Mac J. Slingerlend
/s/ DAVID G. DURHAM Chief Financial Officer, Senior Vice March 23, 2001
------------------- President and Treasurer (Principal
David G. Durham Financial Officer)
/s/ CHRISTOPHER L. LOFFREDO Vice President/Chief Accounting Officer March 23, 2001
- --------------------------- (Principal Accounting Officer)
Christopher L. Loffredo
/s/ JAMES G. BROCKSMITH, JR. Director March 23, 2001
- ----------------------------
James G. Brocksmith, Jr.
/s/ ARCHIBALD J. MCGILL Director March 23, 2001
-------------------------
Archibald J. McGill
/s/ RICHARD A. MONTONI Director March 23, 2001
------------------------
Richard A. Montoni
/s/ JAMES A. RUTHERFORD Director March 23, 2001
-----------------------
James A. Rutherford
48