SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
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:
MARCH 31, 1998 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
------------
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
--- ---
As of March 31, 1998, there were 46,482,313 shares of the Registrant's common
stock ($0.01 par value) outstanding.
FORM 10-Q
CIBER, INC.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Statements of Operations
Three and nine months ended March 31, 1998 and 1997 3
Consolidated Balance Sheets
March 31, 1998 and June 30, 1997 4
Consolidated Statements of Cash Flows
Nine months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION 16
SIGNATURES 17
2
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1997 1998 1997 1998
-------- -------- -------- --------
Consulting services $80,769 $115,186 $219,261 $323,148
Product sales 13,710 10,864 34,304 38,635
-------- -------- -------- --------
Total revenues 94,479 126,050 253,565 361,783
-------- -------- -------- --------
Cost of consulting services 53,790 74,029 147,559 210,478
Cost of product sales 11,937 9,378 29,071 32,690
Selling, general and administrative expenses 18,876 25,933 53,834 76,261
Amortization of intangible assets 782 978 2,071 2,886
Merger costs -- 504 1,218 2,691
-------- -------- -------- --------
Operating income 9,094 15,228 19,812 36,777
Interest and other income 313 398 956 1,156
Interest expense (67) (6) (231) (150)
-------- -------- -------- --------
Income before income taxes 9,340 15,620 20,537 37,783
Income tax expense 3,425 6,701 8,821 17,216
-------- -------- -------- --------
Net income $ 5,915 $ 8,919 $11,716 $ 20,567
-------- -------- -------- --------
-------- -------- -------- --------
Pro forma information (Note 1):
Historical net income $ 5,915 $ 8,919 $11,716 $ 20,567
Pro forma adjustment to income tax expense (316) 259 455 1,140
-------- -------- -------- --------
Pro forma net income $ 5,599 $ 9,178 $12,171 $ 21,707
-------- -------- -------- --------
-------- -------- -------- --------
Pro forma income per share - basic $ 0.13 $ 0.20 $0.29 $ 0.48
Pro forma income per share - diluted $ 0.12 $ 0.19 $0.27 $ 0.45
Weighted average shares - basic 42,942 46,283 42,006 45,671
Weighted average shares - diluted 45,520 48,875 44,813 48,172
Prior period information has been restated for poolings of interests through
March 31, 1998 (see Note 2) and for the March 1998 two-for-one common stock
split.
See accompanying notes to consolidated financial statements.
3
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, MARCH 31,
IN THOUSANDS, EXCEPT SHARE DATA 1997 1998
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 25,854 $ 40,451
Investments 1,984 --
Accounts receivable 66,375 92,814
Inventories 917 787
Prepaid expenses and other assets 2,089 4,750
Deferred income taxes 4,160 --
-------- --------
Total current assets 101,379 138,802
-------- --------
Property and equipment, at cost 14,839 22,185
Less accumulated depreciation and amortization (6,758) (10,340)
-------- --------
Net property and equipment 8,081 11,845
-------- --------
Intangible assets, net 34,383 32,464
Deferred income taxes 1,112 1,675
Other assets 1,689 1,688
-------- --------
Total assets $146,644 $186,474
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank revolving lines of credit $ 1,550 $ --
Notes payable 1,809 --
Trade payables 6,190 5,627
Accrued compensation and payroll taxes 13,957 24,644
Other accrued expenses and liabilities 7,115 7,648
Income taxes payable 2,104 1,603
Deferred income taxes 1,214 1,727
-------- --------
Total current liabilities 33,939 41,249
Notes payable, net of current portion 975 --
Long-term acquisition costs payable 100 --
-------- --------
Total liabilities 35,014 41,249
-------- --------
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, 80,000,000 shares authorized,
44,128,000 and 46,482,000 shares issued and outstanding 441 465
Additional paid-in capital 68,710 86,385
Retained earnings 42,479 58,375
-------- --------
Total shareholders' equity 111,630 145,225
-------- --------
Total liabilities and shareholders' equity $146,644 $186,474
-------- --------
-------- --------
Prior period information has been restated for poolings of interests through
March 31, 1998 (see Note 2) and for the March 1998 two-for-one common stock
split.
See accompanying notes to consolidated financial statements.
4
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31,
IN THOUSANDS 1997 1998
-------- --------
OPERATING ACTIVITIES:
Net income $11,716 $20,567
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,772 6,159
Deferred income taxes 26 (1,094)
Other 66 41
Changes in operating assets and liabilities,
net of the effects of acquisitions:
Accounts receivable (10,733) (20,937)
Inventories 1,141 130
Other current and long-term assets (1,808) (3,277)
Trade payables (2,450) (2,249)
Accrued compensation and payroll taxes 5,270 9,265
Other accrued expenses and liabilities 120 1,655
Income taxes payable 2,381 11,370
-------- --------
Net cash provided by operating activities 9,501 21,630
-------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (19,290) (351)
Purchases of property and equipment (3,918) (7,015)
Purchases of investments (1,487) (905)
Sales of investments 779 1,695
-------- --------
Net cash used in investing activities (23,916) (6,576)
-------- --------
FINANCING ACTIVITIES:
Proceeds from sales of common stock, net 19,488 4,607
Net payments on bank lines of credit (1,762) (1,985)
Payments on notes payable (1,360) (2,032)
Borrowings on notes payable 451 239
Distributions by merged companies (1,619) (1,286)
-------- --------
Net cash provided by (used in) financing activities 15,198 (457)
-------- --------
Net increase in cash and cash equivalents 783 14,597
Cash and cash equivalents, beginning of period 20,802 25,854
Adjustment to conform fiscal year of merged companies (421) --
-------- --------
Cash and cash equivalents, end of period $21,164 $40,451
-------- --------
-------- --------
Prior period information has been restated for poolings of interests through
March 31, 1998 (see Note 2).
See accompanying notes to consolidated financial statements.
5
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements of CIBER, Inc. and
subsidiaries ("CIBER" or the "Company") have been prepared without audit.
Certain information and note disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted
accounting principles 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 Annual
Report on Form 10-K for the fiscal year ended June 30, 1997 and the audited
supplemental consolidated financial statements and notes thereto included in
the Company's Current Report on Form 8-K dated March 30, 1998. 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. Interim
results of operations for the three and nine month periods ended March 31,
1998 are not necessarily indicative of operating results for the full fiscal
year.
PRO FORMA NET INCOME. Pro forma net income has been presented because
certain companies, which have merged with CIBER 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 consolidated financial statements for the operations of these
companies prior to their merger with CIBER. 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
CIBER at the marginal rates applicable in such periods. In addition, the pro
forma adjustment to income tax expense has been affected to exclude the
one-time tax expense or benefit resulting from changes in the tax status of
these merged companies. During the three month periods ended March 31, 1998
and December 31, 1997, CIBER recorded one-time income tax expense charges of
$355,000 and $1,110,000, respectively, to record the net deferred tax
liability of merged S corporations.
EARNINGS PER SHARE. The Company has adopted Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128"). SFAS 128
requires the restatement of all prior-period earnings per share ("EPS") data.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS includes the affects of the
potential dilution of stock options, determined using the treasury stock
method. The computation of weighted average shares includes the shares and
options 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.
STOCK SPLIT. On March 4, 1998 the Company increased its authorized shares of
common stock to 80,000,000 from 40,000,000 and the Board of Directors
approved a two-for-one stock split to be effected in the form of a stock
dividend. The stock split had a record date of March 18, 1998 and a payable
date of March 31, 1998. All agreements concerning stock options and other
commitments paid in shares provide for the issuance of additional shares due
to the stock split. All references to number of shares and to per share
information in the accompanying consolidated financial statements and notes
to consolidated financial statements have been adjusted to reflect the stock
split on a retroactive basis.
(2) POOLINGS OF INTERESTS
From July 1, 1997 to March 31, 1998, the following companies have merged with
CIBER in business combinations accounted for as poolings of interests:
COMPUTER RESOURCE ASSOCIATES, INC. ("CRA") - On March 2, 1998, CIBER issued
530,910 shares of its common stock and assumed substantially all of CRA's
liabilities in exchange for all of the assets of CRA. CRA, headquartered in
Harrisburg, Pennsylvania, provided consulting services similar to the CIS
Division of CIBER.
6
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
ADVANCED SYSTEMS ENGINEERING, INC. ("ASE") - On March 2, 1998, CIBER issued
382,602 shares of its common stock and assumed substantially all of ASE's
liabilities in exchange for all of the assets of ASE. ASE located in Aurora,
Colorado, provided consulting services similar to the CIS Division of CIBER.
TECHWARE CONSULTING, INC. ("TECHWARE") - On November 26, 1997, CIBER issued
747,836 shares of its common stock and assumed substantially all of
Techware's liabilities in exchange for all of the assets of Techware.
Techware, headquartered in Irving, Texas, provided consulting services
similar to the CIS Division of CIBER.
FINANCIAL DYNAMICS, INC. ("FDI") - On November 24, 1997, CIBER issued
1,128,054 shares of its common stock, granted options for 97,220 shares of
its common stock (at an aggregate exercise price of $217,000) and assumed
substantially all of FDI's liabilities in exchange for all of the assets of
FDI. The CIBER stock options replaced existing FDI stock options. FDI,
headquartered in McLean, Virginia, provided consulting services similar to
CIBER's Spectrum Technology Group, Inc. ("Spectrum") subsidiary.
THE CONSTELL GROUP, INC. ("CONSTELL") - On October 24, 1997, CIBER issued
500,000 shares of its common stock in exchange for all of the outstanding
common stock of Constell. Constell, headquartered in Elmwood Park, New
Jersey, provided consulting services similar to Spectrum and the CIS Division
of CIBER.
BAILEY & QUINN, INC. ("BQI") - On October 22, 1997, CIBER issued
approximately 148,000 shares of its common stock and assumed substantially
all of BQI's liabilities in exchange for all of the assets of BQI. BQI,
located in Norcross, Georgia, provided consulting services similar to the CIS
Division of CIBER.
SOFTWAREXPRESS, INC. D/B/A RELIANT INTEGRATION SERVICES, INC. ("RELIANT") -
On August 21, 1997, CIBER issued 1,183,276 shares of its common stock and
assumed substantially all of Reliant's liabilities in exchange for all of the
assets of Reliant. Reliant, located in Menlo Park, California, provided
network integration services and equipment, and has become part of CNSI.
KCM COMPUTER CONSULTING, INC. ("KCM") - On July 18, 1997, CIBER issued
861,700 shares of its common stock in exchange for all of the outstanding
common stock of KCM. KCM, located in Calverton, Maryland, provided
consulting services similar to the CIS Division of CIBER.
The Company's consolidated financial statements have been restated to include
the results of operations, financial position, and cash flows of Reliant,
Constell, FDI, Techware, ASE and CRA. Generally, in recording mergers, the
fiscal year ends of merged companies, if different from CIBER's, have been
conformed to CIBER's June 30 fiscal year end. In recording the Constell and
ASE mergers with CIBER, Constell's and ASE's operations for the twelve months
ended June 30, 1997 were combined with CIBER's financial statements for the
year ended June 30, 1997 and Constell's and ASE's operations for the twelve
months ended December 31, 1995 and 1994 were combined with CIBER's financial
statements for the years ended June 30, 1996 and June 30, 1995, respectively.
As a result, Constell's operations for the six month period from January 1,
1996 to June 30, 1996 (which included revenues, net loss and pro forma net
loss of $5,998,000, $159,000 and $96,000, respectively) are not included in
CIBER's restated consolidated financial statements and ASE's operations for
the six month period from January 1, 1996 to June 30, 1996 (which included
revenues, net income and pro forma net income of $5,226,000, $430,000 and
$258,000, respectively) are not included in CIBER's restated consolidated
financial statements. The poolings of interests with KCM and BQI are
considered by management to be immaterial, and therefore, the Company's
historical financial statements have not been restated for these business
combinations. Selected financial data of CIBER, Reliant, and of Constell,
FDI and Techware, collectively, and of ASE and CRA, collectively, prior to
their mergers with CIBER, and on a combined basis, were (in thousands, except
per share data):
7
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
PRIOR TO MERGER WITH CIBER
-------------------------------------
CONSTELL, ASE
FDI, & &
CIBER RELIANT TECHWARE CRA COMBINED
--------------------------------------------------------------------
Six Months Ended December 31, 1997
Revenues $220,746 -- -- $14,987 $235,733
Net income 10,997 -- -- 651 11,648
Pro forma net income 12,004 -- -- 525 12,529
Pro forma income per share - diluted $.26 $.26
Three Months Ended September 30, 1997
Revenues $94,539 -- $10,867 $7,123 $112,529
Net income (loss) 5,779 -- (6) 411 6,184
Pro forma net income 5,650 -- 59 321 6,030
Pro forma income per share - diluted $.13 $.13
Year Ended June 30, 1997
Revenues $262,274 $35,536 $35,242 $24,129 $357,181
Net income 14,625 1,801 340 1,670 18,436
Pro forma net income 15,933 1,086 278 1,240 18,537
Pro forma income per share - diluted $.39 $.41
Year Ended June 30, 1996
Revenues $187,653 $30,299 $20,788 $13,024 $251,764
Net income 10,007 880 493 893 12,273
Pro forma net income 9,228 528 423 625 10,804
Pro forma income per share - diluted $.24 $.26
Year Ended June 30, 1995
Revenues $143,845 $32,072 $13,508 $8,137 $197,562
Net income 5,205 998 757 672 7,632
Pro forma net income 5,092 614 555 556 6,817
Pro forma income per share - diluted $.14 $.17
(3) SHAREHOLDERS' EQUITY
Changes in shareholders' equity during the nine months ended March 31, 1998
were (in thousands):
Additional Total
Common stock paid-in Retained shareholders'
---------------------
Shares Amount capital earnings equity
------ ------ --------- -------- ----------
BALANCES AT JULY 1, 1997, AS RESTATED (SEE NOTE 2) 44,128 $441 $68,710 $42,479 $111,630
Employee stock purchases and options exercised 1,196 12 4,595 -- 4,607
Immaterial poolings of interests 1,009 10 347 1,290 1,647
Acquisition consideration 96 1 1,150 -- 1,151
Note payable paid with stock 51 1 1,105 -- 1,106
Tax benefit from exercise of stock options -- -- 7,121 -- 7,121
Termination of S corporation tax Status of merged companies -- -- 3,305 (3,305) --
Compensation expense related to stock and stock options 2 -- 52 -- 52
Net income -- -- -- 20,567 20,567
Distributions by merged companies -- -- -- (2,656) (2,656)
-------------------------------------------------------------------
BALANCES AT MARCH 31, 1998 46,482 $465 $86,385 $58,375 $145,225
-------------------------------------------------------------------
-------------------------------------------------------------------
8
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) ACQUISITIONS AND RELATED PARTY TRANSACTIONS
During the three months ended March 31, 1998, the following transactions
occurred that related to previous fiscal year acquisitions accounted for
under the purchase method of accounting for business combinations.
Prior to the acquisition of CIBER Network Services, Inc. ("CNSI") on December
2, 1996, CNSI was 85% beneficially owned by certain officers of the Company.
The terms of purchase provided for contingent consideration of up to $2.6
million if CNSI achieves certain performance objectives in each of the 12
month periods ending October 31, 1997, 1998 and 1999. Any contingent
consideration earned is payable at the sellers' option in the Company's
common stock, at the then prevailing market price, or in cash. At June 30,
1997, the Company believed that the contingent consideration for the period
ended October 31, 1997 would be earned, and recorded additional goodwill and
an accrued liability of $1.2 million. In January 1998, the Company paid
additional consideration of $1.2 million, consisting of 48,692 shares of the
Company's common stock and $124,000 in cash, of which certain officers of the
Company and members of their families received 40,832 shares of the Company's
common stock and cash of $118,000.
In January 1998, the Company paid additional consideration of $227,000
related to its March 1996 acquisition of Oasys, Inc.
(5) NOTES PAYABLE AND BANK REVOLVING LINES OF CREDIT
Several companies which have merged with CIBER since July 1, 1997 had
outstanding balances under revolving lines of credit and notes payable. The
notes payable were secured by certain assets of the merged companies. Upon
merger with CIBER, these revolving lines of credit and notes payable were
paid in full and cancelled. In connection with the merger of Techware with
CIBER, CIBER issued 50,938 shares of its common stock having a value of
$1,106,000 in satisfaction of a note payable, including accrued interest, to
a Techware shareholder.
(6) SUBSEQUENT EVENTS
On April 30, 1998, Step Consulting, Inc. ("Step") merged with CIBER in a
business combination to be accounted for as a pooling of interests. The
Company issued 135,522 shares of its common stock and assumed substantially
all of Step's liabilities in exchange for all of the assets of Step. Step,
headquartered in Greensboro, North Carolina, provided consulting services
similar to Spectrum. The effects of this merger on the Company's revenues,
pro forma net income and pro forma income per share would not have been
material. As a result, management does not intend to restate the Company's
historical financial statements for this business combination.
On May 4, 1998, The Summit Group, Inc. ("Summit") merged with CIBER in a
business combination to be accounted for as a pooling of interests. The
Company issued 4,262,860 shares of its common stock in exchange for all of
the outstanding common stock of Summit. Summit, headquartered in Mishawaka,
Indiana, provides: enterprise resource solutions; custom strategic consulting
services; Logistics PRO, a proprietary warehousing and traffic software; and
is an industry remarketer of certain third party computer products. The
accompanying consolidated financial statements have not been restated for the
Summit merger. The Company's consolidated financial statements issued in the
future will be restated to include the results of operations, financial
position, and cash flows of Summit.
9
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
The following table sets forth certain supplemental statement of operations
and other data of the Company that has been restated to reflect the May 4,
1998 pooling of interests with Summit.
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
-------- -------- -------- -------- --------
YEAR ENDED JUNE 30, 1998
Revenues $123,242 $135,353 $141,611 N/A $400,206
Merger costs 614 1,573 504 N/A 2,691
Operating income 10,488 11,960 17,704 N/A 40,152
Net income 6,490 6,064 11,392 N/A 23,946
Pro forma net income 6,214 6,859 10,662 N/A 23,735
Pro forma income per share - diluted $ 0.12 $ 0.13 $ 0.20 N/A $ 0.45
Pro forma income per share - diluted,
excluding merger costs $ 0.13 $ 0.16 $ 0.21 N/A $ 0.50
YEAR ENDED JUNE 30, 1997
Revenues $ 83,801 $ 90,861 $102,998 $113,157 $390,817
Merger costs 622 596 -- -- 1,218
Operating income 6,020 5,900 9,568 10,846 32,334
Net income 3,278 3,817 6,337 7,264 20,696
Pro forma net income 3,644 3,704 5,852 6,693 19,893
Pro forma income per share - diluted $ 0.08 $ 0.08 $ 0.12 $ 0.13 $ 0.40
Pro forma income per share - diluted,
excluding merger costs $ 0.09 $ 0.09 $ 0.12 $ 0.13 $ 0.43
YEAR ENDED JUNE 30, 1996
Revenues $ 60,350 $ 62,696 $ 71,841 $ 80,689 $275,576
Merger costs -- -- -- 901 901
Operating income 4,765 4,074 4,495 5,800 19,134
Net income 3,268 3,859 3,369 3,884 14,380
Pro forma net income 2,852 2,586 2,911 3,719 12,068
Pro forma income per share - diluted $0.06 $0.06 $0.06 $0.08 $0.26
Pro forma income per share - diluted,
excluding merger costs $0.06 $0.06 $0.06 $0.09 $0.27
YEAR ENDED JUNE 30, 1995
Revenues $216,491
Merger costs 1,075
Operating income 13,465
Net income 9,628
Pro forma net income 8,015
Pro forma income per share - diluted $0.18
Pro forma income per share - diluted,
excluding merger costs $0.21
YEAR ENDED JUNE 30, 1994
Revenues $158,409
Merger costs --
Operating income 9,069
Net income 7,538
Pro forma net income 5,765
Pro forma income per share - diluted $0.15
Pro forma income per share - diluted,
excluding merger costs $ 0.15
10
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 THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE HEREIN. 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. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY INCLUDE, AMONG OTHERS, GROWTH THROUGH BUSINESS COMBINATIONS
AND INTERNAL EXPANSION, THE COMPANY'S ABILITY TO ATTRACT AND RETAIN QUALIFIED
CONSULTANTS, DEPENDENCE ON SIGNIFICANT RELATIONSHIPS AND THE ABSENCE OF
LONG-TERM CONTRACTS, MANAGEMENT OF A LARGE AND RAPIDLY GROWING BUSINESS,
PROJECT RISKS, PRICING AND MARGIN PRESSURES, AND COMPETITION. MANY OF THESE
FACTORS ARE BEYOND THE COMPANY'S ABILITY TO PREDICT OR CONTROL. 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 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, THE
COMPANY'S PAST FINANCIAL PERFORMANCE SHOULD NOT BE RELIED ON AS AN INDICATION
OF FUTURE PERFORMANCE.
OVERVIEW
The Company's revenues are generated from two areas, the CIBER Information
Services ("CIS") Division and CIBER Solutions. The CIS Division provides
application software development and maintenance services and, through its
CIBR2000 Division, millenium date change solutions. CIBER Solutions provides
services through the Company's wholly-owned subsidiaries, Spectrum Technology
Group, Inc. ("Spectrum"), Business Information Technology, Inc. ("BIT") and
CIBER Network Services, Inc. ("CNSI"). Spectrum provides information
technology 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. BIT specializes in
the implementation and integration of human resource and financial software
application products, plus workflow automation and manufacturing/distribution
software systems, primarily for client/server networks. Substantially all of
BIT's revenues are derived from assisting clients implementing PeopleSoft,
Inc. ("PeopleSoft") software. CNSI provides a wide range of local-area and
wide-area network solutions, from design and procurement to installation and
maintenance with services including Internet and Intranet connectivity. A
portion of CNSI's revenues are derived from sales of computer networking
equipment ("product sales"). Subsequent to March 31, 1998, The Summit Group,
Inc. ("Summit") merged with CIBER. Summit, which will operate within CIBER
Solutions, provides software implementation and strategic consulting
services, proprietary warehousing and traffic software, and is an industry
remarketer of certain third party computer products.
Generally the operations of CIBER Solutions (excluding product sales) result
in higher gross margins, somewhat offset by higher selling, general and
administrative expenses as a percentage of revenues, than operations of the
CIS Division. Since 1996, CIBER Solutions has represented an increasing
portion of the Company's business, which has been a major factor in the
Company's improved operating performance. The merger on May 4, 1998 with
Summit is expected to result in improved gross margins, offset somewhat by
increased selling, general, and administrative expense as a percentage of
revenues in comparison to the Company's performance prior to restatement for
Summit.
BUSINESS COMBINATIONS
The Company has grown significantly 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. The Company's acquisitions involve the capitalization of
intangible assets, that are amortized over periods of up to 15 years for
financial reporting purposes. The Company's consolidated financial statements
include the results of operations of an acquired business since the date of
acquisition. Mergers result in a one-time charge in the period in which the
transaction is completed for costs associated with the business combination.
Unless the effects are immaterial, the Company's consolidated financial
statements are restated for all periods prior to a merger to
11
include the results of operations, financial position and cash flows of the
merged company. The effects of such restatement on prior periods is often to
increase selling, general and administrative expense as a percentage of
revenues. This is mostly due to the prior operations of merged companies
having been charged for certain expenses, such as bonuses and salaries of
prior owners/operators or costs unique to the prior operations, which are
decreased or not incurred subsequent to the merger. As a result of this,
selling, general and administrative expenses as a percentage of revenues,
absent other factors, is generally improved in the period subsequent to the
merger.
From July 1, 1997 to March 31, 1998, the following companies have merged with
CIBER in business combinations accounted for as poolings of interests.
COMPUTER RESOURCE ASSOCIATES, INC. ("CRA") - On March 2, 1998, CIBER issued
530,910 shares of its common stock and assumed substantially all of CRA's
liabilities in exchange for all of the assets of CRA. CRA, headquartered in
Harrisburg, Pennsylvania, provided consulting services similar to the CIS
Division of CIBER.
ADVANCED SYSTEMS ENGINEERING, INC. ("ASE") - On March 2, 1998, CIBER issued
382,602 shares of its common stock and assumed substantially all of ASE's
liabilities in exchange for all of the assets of ASE. ASE located in Aurora,
Colorado, provided consulting services similar to the CIS Division of CIBER.
TECHWARE CONSULTING, INC. ("TECHWARE") - On November 26, 1997, CIBER issued
747,836 shares of its common stock and assumed substantially all of
Techware's liabilities in exchange for all of the assets of Techware.
Techware, headquartered in Irving, Texas, provided consulting services
similar to the CIS Division of CIBER.
FINANCIAL DYNAMICS, INC. ("FDI") - On November 24, 1997, CIBER issued
1,128,054 shares of its common stock, granted options for 97,220 shares of
its common stock (at an aggregate exercise price of $217,000) and assumed
substantially all of FDI's liabilities in exchange for all of the assets of
FDI. The CIBER stock options replaced existing FDI stock options. FDI,
headquartered in McLean, Virginia, provided consulting services similar to
Spectrum.
THE CONSTELL GROUP, INC. ("CONSTELL") - On October 24, 1997, CIBER issued
500,000 shares of its common stock in exchange for all of the outstanding
common stock of Constell. Constell, headquartered in Elmwood Park, New
Jersey, provided consulting services similar to Spectrum and the CIS Division
of CIBER.
BAILEY & QUINN, INC. ("BQI") - On October 22, 1997, CIBER issued
approximately 148,000 shares of its common stock and assumed substantially
all of BQI's liabilities in exchange for all of the assets of BQI. BQI,
located in Norcross, Georgia, provided consulting services similar to the CIS
Division of CIBER.
SOFTWAREXPRESS, INC. D/B/A RELIANT INTEGRATION SERVICES, INC. ("RELIANT") -
On August 21, 1997, CIBER issued 1,183,276 shares of its common stock and
assumed substantially all of Reliant's liabilities in exchange for all of the
assets of Reliant. Reliant, located in Menlo Park, California, provided
network integration services and equipment, and has become part of CNSI.
KCM COMPUTER CONSULTING, INC. ("KCM") - On July 18, 1997, CIBER issued
861,700 shares of its common stock in exchange for all of the outstanding
common stock of KCM. KCM, located in Calverton, Maryland, provided
consulting services similar to the CIS Division of CIBER.
THREE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1997
The Company's total revenues for the three months ended March 31, 1998 increased
33% to $126.1 million from $94.5 million for the quarter ended March 31, 1997.
This 33% revenue increase represents a 43% increase in consulting revenues
offset by a 21% planned decrease in lower margin product sales. For the three
months ended March 31, 1998, CIS consulting revenues increased 44% to $82.3
million from $57.2 million for the same quarter of last year and CIBER Solutions
consulting revenues increased 39% to $32.9 million from $23.6 million for the
same quarter of last year. CIBER Solutions' product sales decreased to $10.9
million for the three months ended March 31, 1998 from $13.7 million for the
same quarter last year. CIS consulting revenues accounted for 71% of total
consulting revenues for the three months ended March 31, 1998 and 1997,
12
and accounted for 65% and 61% of total revenues for the three months ended
March 31, 1998 and 1997, respectively.
Of the 43% increase in consulting revenues for the three months ended March
31, 1998 in comparison to the three months ended March 31, 1997,
approximately 9% was due to revenues from acquired businesses or immaterial
poolings of interests. The remainder of the increase was due to increased
revenues from existing operations. Management believes this growth is
reflective of increased demand for IT services, including an increased demand
for year 2000 code renovation services and increased demand for PeopleSoft
implementation services.
Gross margin percentage improved to 33.8% of revenues for the three months
ended March 31, 1998 from 30.4% of revenues for the same quarter of last
year. This improvement is due to improved gross margins on both consulting
services and product sales.
Selling, general and administrative expenses were 20.6% of revenues for the
three months ended March 31, 1998 compared to 20.0% of revenues for the same
quarter last year. This increase as a percentage of revenues is due to the
decrease in product sales during the quarter ended March 31, 1998.
Amortization of intangible assets increased to $978,000 for the three months
ended March 31, 1998 from $782,000 for same quarter last year. This increase
was primarily due to the amortization of intangible assets resulting from the
acquisitions of DTA, CNSI and Spectrum NT in fiscal 1997.
Merger costs, primarily transaction related broker and professional costs, of
$504,000 were incurred during the three months ended March 1998 and related
to the mergers of ASE and CRA.
After the pro forma adjustment to income tax expense, the Company's pro forma
effective tax rates for the three months ended March 31, 1998 and 1997 were
41.2% and 40.1%, respectively. The pro forma effective tax rate for the
quarter ended March 31, 1988 is higher than the Company's "normal" effective
tax rates primarily due to non-deductible merger costs.
The Company's pro forma net income increased 64% to $9.2 million (7.3% of
revenues) for the three months ended March 31, 1998 from $5.6 million (5.9%
of revenues) for the quarter ended March 31, 1997.
NINE MONTHS ENDED MARCH 31, 1998 AS COMPARED TO NINE MONTHS ENDED MARCH 31,
1997
The Company's total revenues for the nine months ended March 31, 1998
increased 43% to $361.8 million from $253.6 million for the nine months ended
March 31, 1997. This 43% revenue increase represents a 47% increase in
consulting revenues and a 13% increase in product sales. For the nine months
ended March 31, 1998, CIS consulting revenues increased 44% to $230.1 million
from $159.4 million for the same period of last year and CIBER Solutions
consulting revenues increased 55% to $93.1 million from $59.9 million for the
same period of last year. CIBER Solutions product sales increased to $38.6
million for the nine months ended March 31, 1998 from $34.3 million for the
same period last year. CIS consulting revenues accounted for 71% and 73% of
total consulting revenues for the nine months ended March 31, 1998 and 1997,
respectively, and accounted for 64% and 63% of total revenues for the nine
months ended March 31, 1998 and 1997, respectively.
Of the 47% increase in consulting revenues for the nine months ended March
31, 1998 in comparison to the nine months ended March 31, 1997, approximately
14% was due to revenues from acquired businesses or immaterial poolings of
interests. The remainder of the increase was due to increased revenues from
existing operations. Management believes this growth is reflective of
increased demand for IT services, including an increased demand for year 2000
code renovation services and increased demand for PeopleSoft implementation
services.
Gross margin percentage improved to 32.8% of revenues for the nine months
ended March 31, 1998 from 30.3% of revenues for the same period of last year.
This improvement is due to improved gross margins on
13
consulting services, which resulted primarily from the shift in mix towards
greater CIBER Solutions consulting revenues as a percentage of total revenues
and improved margins in consulting services.
Selling, general and administrative expenses were 21.1% of revenues for the
nine months ended March 31, 1998 compared to 21.2% of revenues for the same
period last year.
Amortization of intangible assets increased to $2,886,000 for the nine months
ended March 31, 1998 from $2,071,000 for same period last year. This increase
was primarily due to the amortization of intangible assets resulting from the
acquisitions of DTA, CNSI and Spectrum NT in fiscal 1997.
Merger costs, primarily transaction related broker and professional costs, of
$2,691,000 were incurred during the nine months ended March 1998 related to
the mergers of KCM, Reliant, Constell, BQI, FDI, Techware, ASE and CRA with
CIBER. Merger costs of $1,218,000 incurred during the nine months ended March
31, 1997 related to the mergers of Spectrum, Technical Support Group, Inc.
and Technology Management Group, Inc. with CIBER.
After the pro forma adjustment to income tax expense, the Company's pro forma
effective tax rates for the nine months ended March 31, 1998 and 1997 were
42.5% and 40.7%, respectively. The pro forma effective tax rates are higher
than the Company's "normal" effective tax rates primarily due to
non-deductible merger costs incurred in both periods.
The Company's pro forma net income increased 78% to $21.7 million (6.0% of
revenues) for the nine months ended March 31, 1998 from $12.2 million (4.8%
of revenues) for the nine months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $40.5 million and a current
ratio of 3.4:1 at March 31, 1998. It had total liabilities of $41.2 million
versus total shareholders' equity of $145.2 million. At March 31, 1998 the
Company had no outstanding borrowing under its bank revolving line of credit
and had no long-term debt. Net cash provided by operating activities was
$21.6 million and $9.5 million for the nine months ended March 31, 1998 and
1997, respectively. Accounts receivable days sales outstanding ("DSO") was 67
days at March 31, 1998 as compared to 58 days at June 30, 1997, which
increase management believes is normal and due to the shift in mix towards
greater CIBER Solutions revenues as a percentage of total revenues as well as
seasonality.
Investing activities used cash of $6.6 million and $23.9 million during the
nine months ended March 31, 1998 and 1997, respectively. During the nine
months ended March 31, 1998 and 1997, the Company used cash of $7.0 million
and $3.9 million, respectively, to purchase property and equipment. During
the nine months ended March 31, 1997, the Company used cash of $19.3 million
in connection with the acquisitions of Spectrum NT, CNSI and DTA.
Financing activities used cash of $457,000 during the nine months ended March
31, 1998 and provided cash of $15.2 million during the nine months ended
March 31, 1997. The Company obtained net cash proceeds from sales of common
stock of $4.6 million and $19.5 million, during the nine months ended March
31, 1998 and 1997, respectively. In connection with the mergers and
acquisitions during fiscal 1998 and 1997, the Company paid-off the bank lines
of credit and notes payable of these merged and acquired companies.
The Company has $20 million unsecured revolving line of credit with a bank.
Borrowings bear interest at the three month London Interbank Offered Rate
("LIBOR") plus 2%. This line of credit expires December 1998.
The Company's subsidiary, CNSI, has $5.0 million of inventory financing lines
of credit with financial corporations. Amounts outstanding under these
lines of credit, which totaled approximately $2.5 million at March 31, 1998,
are included in accounts payable on the Company's balance sheet.
The Company does not expect any year 2000 compliance issues to arise related
to its primary internal business information systems. The Company is not
aware of any material operational issues or costs associated with preparing
its internal systems for the Year 2000. However, the Company also utilizes
other third party software and other products, including those of customers
and vendors, that may or may not be Year 2000 compliant.
14
The failure of any critical technology components to operate properly may
have an adverse impact on business operations or require the Company to incur
unanticipated expenses to remedy any problems.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section is not applicable to the Company.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the special meeting of shareholders of CIBER, Inc. held on
March 4, 1998, the following matter was voted upon with the
results as indicated below.
An amendment to the Company's certificate of incorporation to
increase the number of authorized shares of common stock from
40,000,000 to 80,000,000.
For Against Abstain
---------- ---------- ----------
18,030,759 103,056 3,597
THESE AMOUNTS ARE NOT ADJUSTED FOR THE MARCH 1998 TWO-FOR-ONE
STOCK SPLIT.
ITEM 5. OTHER INFORMATION
None
16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 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.
Exhibit 27.1 - Financial Data Schedule.
A Report on Form 8-K was filed on January 14, 1998 that announced
the revenue and earnings results for the three and six months
ended December 31, 1997 and provided summary financial data
restated to reflect poolings of interests through December 31,
1997.
A Report on Form 8-K was filed on March 5, 1998 that announced a
two-for-one split of the Company's common stock.
A Report on Form 8-K was filed on March 12, 1998 that announced
the mergers of Advanced Systems Engineering, Inc. and Computer
Resource Associates, Inc. with the Company.
A Report on Form 8-K was filed on March 30, 1997 that provided
supplemental audited consolidated financial statements of the
Company restated for poolings of interest through March 2, 1998
and restated for the March 1998 stock split.
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: MAY 8, 1998 By /s/ MAC J. SLINGERLEND
-----------------------
Mac J. Slingerlend
President and Chief Executive Officer
Date: MAY 8, 1998 By /s/ RICHARD A. MONTONI
-----------------------
Richard A. Montoni
Executive Vice President/Chief Financial Officer
17