SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: Commission file number:
SEPTEMBER 30, 1996 0-23488
CIBER, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-2046833
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5251 DTC PARKWAY
SUITE 1400
ENGLEWOOD, CO 80111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Telephone Number: (303) 220-0100
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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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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As of September 30, 1996, there were 17,934,591 shares of the Registrant's
common stock ($0.01 par value) outstanding.
CIBER, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Statements of Operations
Three months ended September 30, 1996 and 1995 (Unaudited) 2
Consolidated Balance Sheets
September 30, 1996 and June 30, 1996 (Unaudited) 3
Consolidated Statements of Cash Flows
Three months ended September 30, 1996 and 1995 (Unaudited) 4
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION 9
SIGNATURES 9
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1995(1) 1996
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Revenues $ 38,258 $ 49,489
Salaries, wages and other direct costs 26,000 33,431
Selling, general and administrative expenses 8,654 10,656
Amortization of intangible assets 437 517
Merger costs -- 597
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Operating income 3,167 4,288
Interest income 16 212
Interest expense (104) --
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Income before income taxes 3,079 4,500
Income tax expense 1,158 2,866
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Net income $ 1,921 $ 1,634
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Pro forma information:
Historical net income 1,921 1,634
Pro forma adjustment to income tax expense (50) 969
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Pro forma net income $ 1,871 $ 2,603
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Pro forma income per common and common equivalent share $ 0.11 $ 0.14
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Weighted average common and common equivalent shares 17,200 19,069
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(1) Restated - See Note 2.
See accompanying notes to consolidated financial statements.
2
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, SEPTEMBER 30,
1996(1) 1996
IN THOUSANDS, EXCEPT SHARE DATA ------- ------------
ASSETS
Current assets:
Cash and cash equivalents $17,071 $19,401
Accounts receivable 34,969 34,732
Prepaid expenses and other assets 628 1,134
Income taxes -- 195
Deferred income taxes 417 --
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Total current assets 53,085 55,462
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Property and equipment, at cost 4,992 5,624
Less accumulated depreciation and amortization (2,508) (2,712)
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Net property and equipment 2,484 2,912
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Intangible assets, net 12,775 17,148
Deferred income taxes 458 530
Other assets 920 857
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Total assets $69,722 $76,909
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables $ 1,521 1,829
Accrued compensation 6,670 9,588
Accrued expenses and other liabilities 2,584 2,161
Income taxes payable 640 --
Deferred income taxes -- 1,654
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Total current liabilities 11,415 15,232
Long-term acquisition costs payable 200 200
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Total liabilities 11,615 15,432
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Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, no shares issued -- --
Common stock, $0.01 par value, 40,000,000 shares authorized,
17,790,000 and 17,935,000 shares issued and outstanding 178 179
Additional paid in capital 37,237 41,102
Retained earnings 20,692 20,196
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Total shareholders' equity 58,107 61,477
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Commitments and contingencies
Total liabilities and shareholders' equity $69,722 $76,909
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(1) Restated - See Note 2.
See accompanying notes to consolidated financial statements.
3
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1995(1) 1996
IN THOUSANDS ------- -------
OPERATING ACTIVITIES:
Net income $ 1,921 $ 1,634
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes 84 956
Depreciation and amortization 581 809
Compensation expense related to stock and stock options 4 23
Changes in operating assets and liabilities, net of the
effects of acquisitions:
Accounts receivable (1,732) 237
Intangible assets (127) (140)
Other current and long-term assets (606) (443)
Trade payables 14 308
Accrued compensation 2,035 2,873
Income taxes payable 265 (835)
Other liabilities (402) (423)
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Net cash provided by operating activities 2,037 4,999
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INVESTING ACTIVITIES:
Acquisitions (956) (4,980)
Purchases of property and equipment (239) (445)
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Net cash used in investing activities (1,195) (5,425)
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FINANCING ACTIVITIES:
Net payments on bank lines of credit (700) --
Proceeds from sales of common stock, net 147 572
Payments on notes payable (110) --
Current portion of tax benefit from exercise of stock options 379 2,184
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Net cash provided by (used in) financing activities (284) 2,756
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Net increase in cash and cash equivalents 558 2,330
Cash and cash equivalents, beginning of period 2,335 17,071
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Cash and cash equivalents, end of period $ 2,893 $19,401
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Supplemental cash flow information:
Cash paid for interest $ 100 $ --
Cash paid for income taxes 445 366
(1) Restated - See Note 2.
See accompanying notes to consolidated financial statements.
4
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared by
the Company, without audit. Certain information and note disclosures
normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principals have been omitted.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in
the Company's June 30, 1996 Annual Report on Form 10-K. In the opinion of
management, these unaudited consolidated financial statements include all
adjustments necessary for a fair presentation of the financial position and
results of operations for the periods presented.
Pro forma net income has been presented because certain companies, which
have merged with CIBER and have been accounted for as poolings of
interests, were S corporations and generally not subject to federal income
taxes. The pro forma adjustment to income taxes has been computed as if
the merged companies had been taxable entities subject to federal and
state income taxes for all periods prior to their merger with CIBER at
the marginal rates applicable in such periods. In addition, the pro forma
adjustment to income tax expense has been affected to exclude one-time tax
expense or benefit resulting from the change in tax status of these merged
companies. Also, the computation of weighted average common and common
equivalent shares includes the shares issued in connection with business
combinations accounted for as a pooling of interests as if they had been
outstanding for all periods prior to the merger.
2. POOLING OF INTERESTS
On September 3, 1996, Spectrum Technology Group, Inc. ("Spectrum") merged
with the Company in a business combination accounted for as a pooling of
interests. Accordingly, the Company's financial statements have been
restated for all periods prior to the merger to include the results of
operations, financial position, and cash flows of Spectrum. The Company
issued 853,116 shares of its common stock in exchange for all of the
outstanding common stock of Spectrum. Spectrum, located in Somerville,
New Jersey, provides management consulting solutions to business
problems, specifically in the areas of data warehousing, data modeling
and enterprise architecture, as well as project management and systems
integration services. In connection with the merger, the Company incurred
merger costs of $597,000 during the quarter ended September 30, 1996.
Revenues, net income (loss), and pro forma net income of the separate
companies and of the two companies combined were (in thousands):
CIBER SPECTRUM COMBINED
----- -------- --------
Three Months ended September 30, 1996
Revenues $45,292 $4,197 $49,489
Net income (loss) 2,169 (535) 1,634
Pro forma net income 2,169 434 2,603
Three Months ended September 30, 1995
Revenues 34,869 3,389 38,258
Net income 1,848 73 1,921
Pro forma net income 1,798 73 1,871
Year ended June 30, 1996
Revenues 156,873 15,278 172,151
Net income 8,142 1,151 9,293
Pro forma net income 8,531 229 8,760
5
During the quarter ended December 31, 1995, Spectrum elected S corporation
status for federal income tax purposes, effective for its tax year ended
December 31, 1995. As an S corporation, Spectrum was generally not
subject to income taxes. As a result of the change in Spectrum's tax
status, income tax expense for the year ended June 30, 1996 includes
a one-time tax benefit of $818,000, resulting from the elimination of
Spectrum's net deferred tax liability. Thereafter, no provision for
income taxes is included for the operations of Spectrum prior to its
merger with CIBER. Upon Spectrum's merger with CIBER, Spectrum's
S corporation status was terminated and the Company has recorded a
one-time income tax expense of $1,202,000 during the quarter ended
September 30, 1996 to record the net deferred tax liability of Spectrum
at the merger date.
3. SHAREHOLDERS' EQUITY
Changes in shareholder's equity during the three months ended September 30,
1996 were as follows (in thousands):
BALANCE AT BEGINNING OF PERIOD, AS RESTATED (SEE NOTE 2) $58,107
Issuance of common stock for options exercised 214
Sale of common stock under employee stock purchase plan 328
Sale of common stock 30
Tax benefit from exercise of stock options 1,141
Compensation expense related to stock and stock options 23
Net income 1,634
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BALANCE AT END OF PERIOD $61,477
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4. ACQUISITION
In July 1996, the Company acquired certain assets, liabilities and all of
the business operations of the Business Systems Development division of
DataFocus, Inc., Fairfax, Virginia, a subsidiary of KTI, Inc. This
acquisition was accounted for under the purchase method of accounting.
Accordingly, the Company's consolidated financial statements include the
results of operations of this acquired business since the date of
acquisition. Pro forma results of operations have not been presented
because the effects were not material to revenues or net income. The
aggregate purchase price was $4,980,000, of which $4,751,000 has been
allocated to goodwill and $229,000 has been allocated to other net assets.
This division provides Microsoft technology based computer software
consulting services.
5. RELATED PARTY TRANSACTIONS
CIBER Network Services, Inc. ("CNSI"), a related party, has a inventory
purchase line of credit from AT&T Capital Corporation that is guaranteed
by the Company. Certain of the Company's officers have also guaranteed
this line of credit and indemnified the Company from any loss on its
guaranty. Effective October 25, 1996, the maximum borrowings available
under this line of credit was increased from $2,000,000 to $3,000,000.
At September 30, 1996, there was $1,239,000 outstanding on this line of
credit.
6. SUBSEQUENT EVENTS
On October 29, 1996 the Company's shareholders approved (i) an increase in
the number of authorized shares of common stock from 20,000,000 to
40,000,000, (ii) an increase in the number of shares of common stock
reserved for issuance pursuant to the Company's Equity Incentive Plan
(the "Employees' Plan") from 1,000,000 to 2,000,000, and (iii) an increase
in the number of shares of common stock reserved for issuance pursuant to
the Company's Employee Stock Purchase Plan from 500,000 to 1,000,000.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company had cash and cash equivalents of $19.4 million and a current ratio
of 3.64:1 at September 30, 1996. It had total liabilities of $15.4 million
versus total shareholders' equity of $61.5 million. Net cash provided by
operating activities was $5.0 million and $2.0 million for the three months
ended September 30, 1996 and 1995, respectively. Net income, excluding noncash
charges (primarily depreciation, amortization and deferred income taxes)
provided cash of $3.4 million and $2.6 million during the three months ended
September 30, 1996 and 1995, respectively. In addition, changes in operating
assets and liabilities provided cash of $1.6 million during the three months
ended September 30, 1996 versus using cash of $553,000 during the same period
in 1995.
Investing activities, primarily acquisitions, used cash of $5.4 million and
$1.2 million during the three months ended September 30, 1996 and 1995,
respectively. The Company acquired the Business Systems Development division
of DataFocus, Inc. in July 1996 and acquired the Rochester, Minnesota branch
office of Broadway & Seymour, Inc. in September 1995.
Financing activities provided cash of $2.8 million during the three months ended
September 30, 1996 versus using cash of $284,000 during the same period in 1995.
During the three months ended September 30, 1996, the Company recognized $1.1
million as a direct increase to additional paid in capital from the tax benefits
resulting from the exercise of stock options. This, together with $1.0 million
of current tax benefits resulting from the exercise of stock options which were
accounted for as deferred tax assets at June 30, 1996, reduced the Company's
income taxes payable, and provided cash of $2.2 million during the three months
ended September 30, 1996. The Company did not borrow under its $15 million
revolving line of credit during the three months ended September 30, 1996.
During, the three months ended September 31, 1995, the Company used cash of
$700,000 to reduce its borrowings under its lines of credit.
RESULTS OF OPERATIONS
The Company's revenues were primarily generated from two areas, information
technology consulting services and strategic consulting services. Information
technology consulting services are provided by the Company's CIBER Information
Services division ("CIS") while strategic consulting services are provided by
the Company's wholly-owned subsidiaries, Spectrum Technology Group, Inc.
("Spectrum") and Business Information Technology, Inc. ("BIT").
The Company's total revenues for the three months ended September 30, 1996
increased 29.4% to $49.5 million from $38.3 million for the three months ended
September 30, 1995. For the three months ended September 30, 1996, CIS revenues
increased 27.7% to $36.4 million from $28.5 million for the three months ended
September 30, 1995 and strategic consulting services revenues increased 34.2% to
$13.1 million from $9.8 million for the three months ended September 30, 1995.
CIS revenues accounted for 73.5% and 74.4% of total revenues for the three
months ended September 30, 1996 and 1995, respectively. The increase in the
Company's CIS revenues was derived primarily from increases in hours billed and,
to a lesser extent, an increase in average billing rates. The increase in hours
billed was due primarily to internal growth in branch offices and the inclusion
of operations of the Minnesota branch and the Columbus branch for the three
months ended September 30, 1996 versus only one month for the Minnesota branch
for the three months ended September 30, 1995. These acquired branches
accounted for approximately $1.4 million of additional revenues for the three
months ended September 30, 1996 as compared to 1995. Strategic consulting
services revenues have increased primarily due to increased volume of customers
implementing PeopleSoft, Inc. software, increased national management
consulting level sales, increased project responsibilities for existing clients
and the acquisition of the Business Systems Development division of DataFocus,
Inc. in July 1996.
Salaries, wages and other direct costs are comprised primarily of consultant
wages, payroll taxes, direct benefits and related costs, and increased 28.6% to
$33.4 million (67.5% of revenues) for the three months ended September 30, 1996
from $26.0 million (68.0% of revenues) for the three months ended September 30,
1995.
7
Selling, general and administrative expenses ("SG&A") increased 23.1% to $10.7
million (21.5% of revenues) for the three months ended September 30, 1996 from
$8.7 million (22.6% of revenues) for the three months ended September 30, 1995.
This decrease in SG&A expenses as a percentage of revenues was due primarily to
the Company's ability to contain overhead salaries and spread fixed costs over
greater revenues. SG&A expenses may vary as a percentage of revenues depending
on the acquisitions and mergers completed, if any, during any given period.
Amortization of intangible assets increased 18.3% to $517,000 for the three
months ended September 30, 1996 from $437,000 for the three months ended
September 30, 1995. This increase was primarily due to the Company's
acquisitions during fiscal 1997 and 1996.
Net interest income was $212,000 for the three months ended September 30, 1996
as compared to net interest expense of $88,000 for the three months ended
September 30, 1995. As a result of the Company's November 1995 public sale of
common stock, the Company reduced its borrowings under its bank line of credit
and significantly increased its investment in interest earning cash equivalent
instruments.
The Company's effective tax rates were 63.7% and 37.6% for the three months
ended September 30, 1996 and 1995, respectively. The increase was primarily due
to a one-time charge of $1.2 million to income tax expense related to Spectrum's
termination of its S corporation status upon its merger with CIBER, which was
partially offset by non-taxable S corporation income, and to a lesser extent,
nondeductible merger costs. As a result of these one-time merger related tax
effects and merger costs of $597,000, net income decreased to $1.6 million for
the three months ended September 30, 1996 from $1.9 million in the corresponding
period in the prior year.
The Company's pro forma net income increased 39.1% to $2.6 million (5.3% of
revenues) for the three months ended September 30, 1996 from $1.9 million (4.9%
of revenues) for the three months ended September 30, 1995. The pro forma
adjustment to income tax expense 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 which were not subject
to income taxes.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Cautionary statement under the "Safe-Harbor" provisions of the Initial Private
Securities Litigation Reform Act of 1995: Included in this report and other
information presented elsewhere by management from time to time, including, but
not limited to, the Annual Report to Shareholders, quarterly shareholder
letters, filings with the Securities and Exchange Commission, news releases and
investor presentations, are forward-looking statements about business
strategies, market potential, future financial performance and other matters
which may reflect management's current expectations. These forward-looking
statements involve risks and uncertainties that could cause actual results to
vary materially from those referred to in such statements. Factors that could
cause or contribute to such variance include, but are not limited to: dependence
on significant clients, continued acceptance and growth of PeopleSoft, Inc.
software, the Company's ability to attract and retain qualified consultants,
project risks, the Company's ability to effectively manage and integrate
business combinations, and competition. Please refer to a discussion of these
and other factors in the Company's Annual Report on Form 10-K and other
Securities and Exchange Commission filings. The Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise.
8
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule
No Reports on Form 8-K were filed during the period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned there
unto duly authorized.
CIBER, INC.
(Registrant)
Date NOVEMBER 8, 1996 By /s/ MAC J. SLINGERLEND
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Mac J. Slingerlend
President and Chief Operating Officer
Date NOVEMBER 8, 1996 By /s/RICHARD A. MONTONI
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Richard A. Montoni
Executive Vice President/Chief Financial Officer
9