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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997.
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, ENGLEWOOD, 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
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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 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. __X__
The aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant as of August 29, 1997 was $594,495,168 based
upon the closing price of $39.9375 per share as reported on the New York
Stock Exchange on that date.
As of August 29, 1997, there were 20,948,220 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III hereof.
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CIBER, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
TABLE OF CONTENTS
PART I Page
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Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Company's Common Stock and Related
Shareholder Matters 8
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes In and Disagreements with Independent Auditors
on Accounting and Financial Disclosure 35
PART III
Item 10. Directors and Executive Officers 35
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management 36
Item 13. Certain Relationships and Related Transactions 36
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 37
Signatures 39
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PART I
ITEM 1. BUSINESS
GENERAL
CIBER, Inc. and Subsidiaries ("CIBER" or the "Company") is a nationwide
provider of information technology consulting, including application software
staff supplementation, management consulting solutions for "business/IT"
problems, package software implementation services, system life-cycle project
responsibility, millennium date change conversion services and networking
procurement and engineering services.
The Company's revenues are generated from two areas, the CIBER Information
Services ("CIS") Division and the Solutions Consulting Group ("SCG"). The CIS
Division provides application software development and maintenance services
and, through its CIBR2000 Division, millenium date change solutions. SCG is
comprised of 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. A substantial
portion of BIT's revenues is 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.
The Company currently services its clients through a nationwide network of
over 50 offices in over 20 states, plus Canada. The Company currently
employs approximately 3,700 employees, approximately 3,000 of whom are
billable consultants trained in operating systems, standard and
state-of-the-art programming languages, application software design
techniques, process re-engineering and management resource planning,
local-area and wide-area networking and certain widely-used software
packages. These services are generally provided on-site to large
clients with substantial information technology requirements.
The Company began operations in 1974 to assist companies in need of computer
programming support. In the mid-1980s, the Company initiated a growth
strategy that included expanding its range of computer-related services,
developing a professional sales force and selectively acquiring or merging
established complementary companies. Since fiscal 1993, the Company's
revenues have increased from $81.4 million to $262.3 million in fiscal 1997,
a compound annual growth rate of 34%. Over the same period, pro forma net
income increased from $1.6 million in fiscal 1993 to $15.9 million in fiscal
1997, a compound annual growth rate of 77%.
BUSINESS STRATEGY
The Company's strategy is to expand its business by continuing to build
long-term relationships with major clients based on high-quality information
technology services tailored to meet client needs. The Company's traditional
time and material application software programming services have been
expanded to include a comprehensive array of management consulting,
information systems design, development, integration and implementation, as
well as project management services. The Company's strategy includes the
following key elements:
- - BUILD STRONG CLIENT RELATIONSHIPS. The Company is committed to providing
quality custom software application and development services that meet the
demands of large companies with substantial data processing operations.
Management believes the Company's emphasis on building long-term
relationships with major clients has been a primary reason for the Company's
success. Most of the Company's largest clients have been significant clients
for many years. For example, the Company's largest and second largest
clients, accounting for approximately 7% and 5%, respectively, of fiscal 1997
revenues, have been clients for over 10 and 17 years, respectively. The
Company focuses significant resources on continuous qualification as an
approved vendor on its clients' vendor lists and, over the past five years,
has regularly qualified as such a vendor for more than two dozen Fortune 500
companies.
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- - GROW THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION. The Company
intends to expand by acquiring companies that broaden the Company's array of
consulting services, that have strategic client relationships or that are
located in attractive geographic locations. The Company also intends to
expand the operations of existing offices primarily by providing additional
information technology services to existing clients. The Company may also
start new branches in attractive markets with its own personnel.
- - EXPAND INTEGRATION AND IMPLEMENTATION SERVICES. The Company's concentrated
effort on providing time and material programming services has expanded to
include management level strategic systems solutions, as well as the
implementation of clients' long-term information technology strategies, from
design and development of their information systems through testing and
implementation, to migration from mainframe to client/server architectures,
as well as package software project implementation. As a result of these
efforts, the Company is taking greater responsibility for projects and
providing greater value-added services to its clients. This expansion of
focus, combined with the Company's stringent controls and high quality
processes, methodologies, tools and templates, help position the Company as
a full-service provider for its existing and new clients' information
technology and application needs.
- - FOCUS ON QUALITY SERVICE. The Company seeks to be a leader in providing
quality services and processes to its clients. The Company's corporate and
CIS operations have received ISO 9002 certification, an international
standard for consistency in operating procedures. The Company believes that
it is currently the sole provider or computer-related services with ISO 9002
certification on a national basis. Many of the Company's clients are
expected to require this certification in the next several years. ISO 9002
certification has enhanced the Company's ability (i) to achieve preferred
supplier status from larger companies, (ii) to satisfy current and
prospective clients who insist on a documented quality assurance system and
(iii) to improve its operations by facilitating cost controls and other
efficiencies on a continuing basis. The CIS and CIBR2000 divisions have also
qualified for ISO 9001 certification, which certification relates to project
development activities. The CIS Division has also achieved Ford Motor
Company "Q-1" status.
SERVICES
CIS DIVISION
CIBER INFORMATION SERVICES. The CIS Division supports the life cycle of
computer systems, from strategy and design to development and implementation
and, finally, to maintenance and support. The Company's technical staff
performs a wide variety of tasks to identify, analyze and solve clients' data
processing and computing problems. Generally, these services are provided
on-site to clients whose personnel do not have the requisite technical skills
or to clients with specific projects requiring additional staffing that do
not justify permanent personnel increases. The scope of the work performed
by the Company ranges from specific, minor tasks of short duration to large,
complex tasks that require a large number of consultants for a year or
longer. Examples of larger tasks include developing new systems and
maintaining mature mainframe systems that cannot be quickly replaced.
Typically, the Company's professional staff augments and becomes part of the
clients' software development team on a specific application or project. A
key element of the CIS strategy is to maintain offices in those geographic
locations where the Company has significant client relationships. CIBER
Associates, a group dedicated entirely to IBM support, which is CIBER's
largest client at 7% of revenues, is part of the CIS Division. Currently,
the CIS Division operates out of over 30 branch offices.
CIBR2000. In April 1996, the CIBR2000 group was launched to provide
millennium date conversion services to assist clients in remedying customized
computer programs that can only perform correctly up to December 31, 1999.
CIBR2000 reviews and analyzes clients' existing programs, develops solution
alternatives for the year 2000 date change and implements conversion
solutions to correct this problem. CIBR2000 solutions include impact
assessment, solution plan development, corrections implementation and
validation/testing. Each CIBR2000 project follows a common methodology that
is governed by the Company's Quality Process which is certified to the ISO
9001 international standard. Currently, the Company is performing millenium
work at its CIBR2000 Solution Center, as well as at client sites.
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SOLUTIONS CONSULTING GROUP
SPECTRUM TECHNOLOGY GROUP, INC. Spectrum focuses its services on executive
management level, strategic systems solutions to business problems, including
data modeling, data warehousing and enterprise architecture. Spectrum also
develops systems on a project basis and is responsible for the Company's
Microsoft technology-based consulting group known as Spectrum NT. Spectrum
assists clients in aligning their technology platforms with their strategic
business objectives. As the marketplace continues to evolve, the Company
intends to assist clients in customizing their technology platforms, which
the Company believes will help grow its integrated application solutions
business.
BUSINESS INFORMATION TECHNOLOGY, INC. BIT assists clients in implementing
package application software on client/server systems. Clients seeking these
services are generally businesses that are migrating from the mainframe to,
or that are developing or implementing, client/server architectures.
Approximately 12% or the Company's fiscal 1997 revenues were generated from
clients implementing PeopleSoft software. The Company believes that, as
package software companies such as PeopleSoft continue to enhance the
functionality and performance of their products and such products become more
widely used, package software implementation services will present an
increasing opportunity for the Company.
CIBER NETWORK SERVICES, INC. CNSI provides cross-platform multi-vendor
computer systems integration, complete network solutions and other related
services to clients with networking needs. CNSI operates from five offices
including the Menlo Park, California office which was added in August 1997.
Networking services provided by CNSI include strategic planning, network
design and configuration, technical support services, resources (hardware and
software), project management, installation, and network administration and
support.
BUSINESS COMBINATIONS
The Company has expanded its geographic breadth, diversified its technical
expertise, expanded its client base and believes it has achieved other
competitive advantages through business combinations. Following each CIS
Division merger or acquisition, the Company seeks to add value to the
operations acquired by implementing the Company's automated office
information systems and ISO 9002 processes, and by providing national
recruiting support to its new offices. Given the highly fragmented nature of
the information technology services industry, the Company intends to pursue
business combinations as part of its growth and operation strategy. The
success of this strategy depends not only upon the Company's ability to
identify and acquire businesses on a cost effective basis, but also upon its
ability to integrate acquired operations into its organization effectively,
to retain and motivate personnel and to retain clients of acquired or merged
companies.
Acquired branches have accounted for approximately 50% of the Company's
employee growth over the past five years. In reviewing potential business
combinations, the Company focuses on the target company's geographic area,
client base, reputation in specific software services, acquisition
availability, cost, anticipated financial performance, sales, management and
recruiting personnel and potential client demand, among other factors.
Since the Company's initial public offering in March 1994, the Company has
completed the following business combinations:
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CONSULTANTS
APPROXIMATE TOTAL AT
DATE NAME MAIN OFFICE CONSIDERATION (1) ACQUISITION
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August 1997* SoftwarExpress, Inc. - d/b/a Reliant Menlo Park, California $21.6 million 40
Integration Services, Inc.
July 1997* KCM Computer Consulting, Inc. Calverton, Maryland $15.2 million 151
March 1997 Davis, Thomas & Associates, Inc. Minneapolis, Minnesota $13.5 million 117
December 1996 CIBER Network Services, Inc. Edison, New Jersey $ 4.5 million(2) 50
November 1996 Technical Support Group, Inc. Chicago, Illinois $13.5 million 70
November 1996 Technology Management Group, Inc. Seattle, Washington $13.7 million 108
September 1996 Spectrum Technology Group, Inc. Somerville, New Jersey $16.6 million 110
July 1996 DataFocus, Inc. (3) Fairfax, Virginia $ 5.0 million 45
May 1996 Practical Business Solutions, Inc. Boston, Massachusetts $12.9 million 125
March 1996 OASYS, Inc. Columbus, Ohio $ 0.8 million 18
September 1995 Broadway & Seymour, Inc. (4) Rochester, Minnesota $ 1.0 million 45
June 1995 Business Information Technology, Inc. Concord, California $10.3 million 125
May 1995 Spencer & Spencer Systems, Inc. St. Louis, Missouri $ 5.3 million 141
January 1995 Interface Systems, Inc. Holmdel, New Jersey $ 3.4 million 48
July 1994 Eurosystems International, Inc. (4) Phoenix, Arizona $30.0 thousand 3
June 1994 C.P.U., Inc. Rochester, New York $12.4 million 190
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* SUBSEQUENT TO CIBER'S JUNE 30, 1997 FISCAL YEAR END.
(1) APPROXIMATE TOTAL CONSIDERATION INCLUDES THE VALUE OF CIBER COMMON STOCK
AND OPTIONS FOR CIBER COMMON STOCK ISSUED, IF A MERGER, OR CASH PAID,
COMMON STOCK ISSUED AND LIABILITIES ASSUMED, IF AN ACQUISITION.
(2) IF THE ACQUIRED BUSINESS ACHIEVES CERTAIN LEVELS OF REVENUE OR NET
INCOME, THE COMPANY WILL BE REQUIRED TO PAY ADDITIONAL CONSIDERATION OF UP
TO $2.6 MILLION IN CASH OR COMMON STOCK.
(3) THE COMPANY ACQUIRED ONLY THE BUSINESS SYSTEMS DEVELOPMENT DIVISION OF
THIS COMPANY.
(4) THE COMPANY ACQUIRED ONLY ONE BRANCH OFFICE OF THIS COMPANY.
CLIENTS
The Company focuses its client marketing efforts on large companies with
substantial needs for supplemental programmer staffing, package software
implementation and systems integration services and other computer-related
professional services. Such clients afford the Company opportunities to
develop long-term relationships based on the high quality, consistent
services the Company has provided for more than 22 years. Although most
consultant assignments are from three to 12 months, many of the Company's
client relationships have continued for more than 10 years. Client
assignments within the SCG tend to be less of a recurring nature than within
the CIS Division. This is due to the often one-time implementation focused
assignments, particularly for BIT and CNSI.
The ability to serve large clients in diverse industries demonstrates the
Company's adaptability to a wide variety of client environments. Whether
clients are in the services or manufacturing sector, the Company recruits and
provides consultants having skills matching the requirements of each client's
project. The Company routinely satisfies the diverse information technology
needs of clients in a wide variety of industries.
Since approximately 1990, larger clients have started to limit the number of
information technology vendors they use. In order to achieve the reduction
in the number of vendors used, companies often review and screen both
existing and potential vendors and generate select lists of approved vendors.
The factors considered for placement of a company on a vendor list include
geographic and technical breadth of operations, quality assurance programs,
reliability and cost effectiveness. The Company focuses significant
resources on continuous qualification as an
4
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approved vendor on its clients' vendor lists and, over the past five years,
has regularly qualified as such a vendor for more than two dozen Fortune 500
companies.
Certain customers account for a significant portion of the Company's
revenues. The Company's five largest clients represented 22%, 26%, 22% of the
Company's total revenues for the years ended June 30, 1997, 1996, and 1995,
respectively. Some of the Company's significant clients include: American
Express Company, AT&T, Fidelity Investments, Inc., Ford Motor Company, GTE
Corporation, IBM, MCI Telecommunications Corporation, Monsanto Corp., US West
Communications, Inc., and Xerox Corporation; each of which has been a client
for over five years.
The Company normally offers professional services through agreements that
specify that services are rendered on a best efforts basis, that the Company
makes no express or implied warranties and that the client must continue to
pay all charges incurred prior to the termination of the agreement. Because
services are typically rendered on an as required basis, the Company does not
consider the backlog of unfinished assignments significant in understanding
its business. The typical client contract term is one to three years and
there can be no assurance that a client will renew its contract when it
terminates. The Company's contracts are generally cancelable by the client
at any time and clients may unilaterally reduce their use of the Company's
services under such contracts without penalty. The termination or
significant reduction of the Company's business relationship with any of its
significant clients could have a material adverse effect on the Company's
operating results.
Through BIT, the Company has a significant relationship with PeopleSoft as an
implementation partner. In fiscal 1997, 12% of the Company's total revenues
was derived from clients who purchased implementation services for their
PeopleSoft software. In the event PeopleSoft products become obsolete or
non-competitive, or if BIT should lost its "implementation partner" status
with PeopleSoft, the Company would suffer a material adverse effect.
The Company generally prices its services to clients on a time and materials
basis and maintains price ranges that reflect the technical skills and
experience levels of the Company's consultants. The Company has provided and
intends to continue to provide increased project services to its clients.
Projects are distinguishable from the Company's core business of time and
material consulting by the level of responsibility assumed by the Company.
In a typical project, the Company independently develops a program or
maintains a system, whereas, for time and materials contracts, the Company's
clients generally maintain responsibility for the overall task. The failure
of a project or the failure of the Company to provide project services in a
satisfactory manner could have a material adverse effect on the Company.
Further, the Company may undertake projects on a fixed price basis and
guarantee performance based upon defined operating specifications. Cost
overruns, unsatisfactory performance or unanticipated difficulties in such
projects could have a material adverse effect on the Company's results of
operations.
SALES FORCE
The Company maintains an experienced sales force of approximately 130
employees who market the Company's services to senior business executives,
chief information officers, information systems managers, other users of
programming services and purchasing/buying groups. The purchasing
departments of the Company's larger CIS Division clients commonly select a
limited list of preferred vendors. Once on the vendor list, the Company's
sales representatives are eligible to work directly with managers of projects
or application systems seeking consultant assistance. New client contacts
are generated through a variety of methods, including client referrals,
personal sales calls, direct mailings to targeted clients and telemarketing.
OFFICES
The Company's CIS Division branch office network is integral to its business
strategy. Through the branch office network, the Company can (i) offer a
broad range of consulting services on a local basis, (ii) respond to changing
market demands for information technology services through a variety of
contacts in many industries and geographic areas and (iii) maintain a quality
professional staff because of its nationwide reputation and its training
programs. Additionally, the offices can market their services as being
provided by a company with a national presence and a long history in the
information technology services business.
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The Company believes its operating procedures and financial controls are two
of its primary strengths. Business plans, generally at the office level, are
prepared annually and include monthly projections for the ensuing fiscal
year. Results are tracked monthly to compare actual performance to projected
results. The Company has centralized accounting and cash management functions
to help ensure integrity of data and control of information flow. Operating
data is available on a weekly basis. The Company believes that these
practices enhance results from acquired businesses as well.
The Company established its office network through the internal start-up and
staffing of offices in new geographic locations and through the acquisition
of information technology services companies, their professional staffs and
client relationships. The Company's network of offices currently consists of
over 50 offices in over 20 states plus Canada. The number of consultants
working out of any office ranges from as few as five to over 150. The
average is approximately 60 consultants per office.
CONSULTANT RECRUITMENT
The Company's future success will depend in part on its ability to hire
adequately trained personnel who address the increasingly sophisticated needs
of its clients. The Company's on-going consultant needs arise from (i)
increasing demand for the Company's services, (ii) turnover, which is
generally high in the industry, and (iii) the clients' requests for
programmers trained in the newest software technologies. Few of the
Company's employees are bound by non-compete agreements. Competition for
personnel in the information technology services industry is significant and
the Company has had, and expects to continue to have, difficulty in
attracting and retaining an optimal level of qualified personnel. In
particular, competition for the limited number of qualified project managers
and professionals with certain specialized skills, such as a working
knowledge of certain sophisticated software, is intense. Because of this,
the recruitment of the Company's skilled consultant group is a critical
element to the Company's success. The Company devotes significant resources
to meeting its personnel requirements. The Company currently has
approximately 110 full-time recruiters in its offices and 24 in its National
Recruiting Group. The National Recruiting Group maintains a national,
proprietary database of relocatable and harder to find consultants (due to
unique or specialized skill sets), augments local recruiting, advertises
nationally and over the Internet for new consultants, travels to branches to
train new recruiters and performs related tasks.
The Company invests heavily in a number of programs designed to retain its
trained personnel. The Company sponsors a tuition reimbursement program
available to all employees and, in addition, maintains a library of technical
training courses available for home study. The Company makes available an
employee stock purchase plan, incentive stock options and a matching
provision as part of its 401(k) savings plan to all employees.
It is often difficult to match the availability of consultants with client
requirements. Pre-marketing and lead times from clients help, but consultant
availability remains a significant factor in determining whether the Company
or a competitor will obtain the available business. The Company believes
that careful coordination of its recruiting and sales activities gives it an
advantage over many of its smaller competitors.
COMPETITION
The information technology services industry is extremely competitive. A
number of companies compete with the Company in select markets with
substantially similar services. In most of the markets in which the Company
competes, the Company believes that there are participants that have
significantly greater financial, technical and marketing resources than the
Company. The Company believes, however, that no one competitor dominates any
of its markets.
There are few very large competitors with annual revenues over $100 million.
There are, however, according to The Updata Group, an independent consulting
firm, over 3,000 software service firms with yearly revenues over $1 million
competing for market share. Most of these firms participate in just one
geographic area. The Company's competition, therefore, varies significantly
from office to office. Often, local competitors are the Company's primary
competition. At certain offices, particularly those with major clients,
national competitors are the Company's significant competition. Each office
must adapt to the circumstances under which it operates.
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In particular, the Company believes that its CIS Division competes most
directly with the following national companies: Keane, Inc., Analysts
International Corporation, Computer Horizons Corporation and Computer Task
Group, Inc. For project management services, Electronic Data Systems
Corporation, Andersen Consulting, Computer Sciences Corporation and Cambridge
Technology Partners, Inc. and others are competitors. Many of these
companies are national and international in scope and have greater resources
than the Company. BIT and Spectrum often compete with "Big Six" accounting
firms, as well as larger systems consulting firms. The Company also competes
with the internal data processing staffs of its clients, which clients can
add to their employee base as an alternative to using a consulting firm.
Additionally, many large accounting and management consulting firms offer
services that overlap with a significant portion of the Company's services.
Also, computer hardware and software companies are increasingly becoming
involved in systems integration projects. Recently, temporary placement
agencies, such as Corestaff, Olsten and Interim, have begun expanding their
businesses to provide computer-related services to their customers.
Additionally, over the past several years there has been an influx of foreign
nationals who provide skilled computer programming services at lower pay
scales than other domestic programmers. Some of these foreign nationals are
being hired as consultants directly by the Company's clients and potential
clients, as well as by certain of the Company's competitors. Moreover, in an
attempt to decrease costs, some of the Company's clients and potential
clients are outsourcing their business to competitors in foreign countries,
including Ireland, India and the former Soviet Union. An increase in the use
of skilled foreign national labor at lower rates or foreign software service
firms by the Company's competitors or clients could have a material adverse
effect on the Company.
In order to remain on its clients' vendor lists and to develop new client
relationships, the Company must satisfy requirements at competitive rates.
Although the Company continually attempts to lower its costs, there are other
software services organizations and temporary placement agencies that provide
the same or similar services as the Company at similar or lower costs.
Additionally, certain of the Company's clients require that their vendors
reduce rates after services have commenced. There can be no assurance that
the Company will be able to compete effectively on pricing or other
requirements and, as a result, the Company could lose clients or be unable to
maintain historic gross margin levels or to operate profitably. With respect
to the Company's implementation services for software packages, the
manufacturers of such software may have training requirements that inhibit
the Company from competing effectively with other packaged software
implementation providers.
EMPLOYEES
As of August 31, 1997, the Company had approximately 3,700 full-time
employees, including approximately 700 personnel in administrative positions
and approximately 3,000 billable consultants. Administrative personnel are
principally branch managers, sales representatives, recruiters and
administrative assistants located throughout the Company's offices. None of
the Company's employees are subject to a collective bargaining arrangement.
The Company has entered into employment agreements with its executive
officers. The Company believes its relations with its employees are good.
ITEM 2. PROPERTIES
The Company's executive offices are located at 5251 DTC Parkway, Suite 1400,
Englewood, Colorado 80111. The Company leases approximately 22,600 square
feet of office space in Denver for its corporate offices, which lease expires
in August, 2002.
The Company leases office space at various other locations under leases
ranging from month-to-month up to five-year terms. In total, the Company had
48 leases totaling approximately 214,000 square feet at June 30, 1997. Total
office rent expense for the year ended June 30, 1997 was $2.8 million for all
offices. The Company's facilities are adequate for its current level of
operations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
fourth quarter of the Company's fiscal year ended June 30, 1997.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock has been listed on the New York Stock Exchange under
the symbol "CBR" since June 19, 1997 and was, prior to that date, on the Nasdaq
National Market. The table below sets forth the high and low sales price per
share of the Company's common stock for the periods indicated.
High Low
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Fiscal Year Ended June 30, 1996:
First Quarter $12 1/2 $ 8 3/8
Second Quarter 17 1/8 9
Third Quarter 16 7/8 9 5/8
Fourth Quarter 25 14 7/8
Fiscal Year Ended June 30, 1997:
First Quarter 39 13 1/4
Second Quarter 41 3/4 29 1/4
Third Quarter 34 1/4 22
Fourth Quarter 44 7/8 22
Fiscal Year Ended June 30, 1998:
First Quarter (through September 5, 1997) 40 1/2 33 1/8
ITEM 6. SELECTED FINANCIAL DATA*
<TABLE>
Year Ended June 30 1993 1994 1995 1996 1997
IN THOUSANDS, EXCEPT PER SHARE DATA
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<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $81,420 98,985 143,845 187,653 262,274
Operating income $ 2,977 4,715 8,709 14,559 25,778
Net income $ 1,729 3,104 5,205 10,007 14,625
Pro forma net income $ 1,636 2,874 5,092 9,228 15,933
Pro forma income per share $ .11 .19 .29 .48 .78
Cash dividends $ - - - - -
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Weighted average common and common
equivalent shares outstanding 14,334 15,138 17,653 19,065 20,329
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BALANCE SHEET DATA:
Total assets $21,784 36,206 48,402 73,266 122,718
Total long-term liabilities $ 3,000 400 300 200 100
Total shareholders' equity $ 7,939 22,192 28,060 59,419 102,536
Shares outstanding at year end 12,199 15,669 15,795 18,403 19,823
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FINANCIAL PERFORMANCE:
Revenue growth 18.3% 21.6% 45.3% 30.5% 39.8%
Operating income margin 3.7% 4.8% 6.1% 7.8% 9.8%
Pro forma net income margin 2.0% 2.9% 3.5% 4.9% 6.1%
Stock price at year end $ N/A 4.375 8.875 22.00 34.1875
</TABLE>
* RESTATED FOR POOLING OF INTERESTS BUSINESS COMBINATIONS THROUGH JUNE 30, 1997.
8
<PAGE>
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 THE COMPANY'S 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.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDE, AMONG
OTHERS, GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION, THE
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 PRESSURE AND
COMPETITION, WHICH ARE DISCUSSED HEREIN UNDER THE CAPTION "FACTORS THAT MAY
AFFECT FUTURE RESULTS". MANY OF THESE FACTORS ARE BEYOND THE COMPANY'S ABILITY
TO PREDICT OR CONTROL. 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 have increased from $81.4 million in fiscal 1993 to
$262.3 million in fiscal 1997. The Company's revenues are generated from two
areas, the CIBER Information Services ("CIS") Division and the Solutions
Consulting Group ("SCG"). The CIS Division accounted for approximately 71% of
the Company's total revenues in fiscal 1997, while SCG accounted for the
remainder. The CIS Division provides application software development and
maintenance services and, through its CIBR2000 Division, millenium date change
solutions. SCG is comprised of 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. 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 large portion of CNSI's revenues is derived from
sales of computer networking equipment ("product sales").
The Company has grown significantly through mergers and acquisitions as well as
through internal growth. Growth in revenues from internal operations ("organic
growth") was approximately 27% in fiscal 1997. 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, which intangible assets are generally 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. The Company's 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. In
addition, selling, general and administrative expenses may vary as a percentage
of revenues depending on the fluctuations in the selling, general and
administrative expenses of merged companies, if any, during any given period.
From July 1, 1994 to June 30, 1997, the Company completed the following
acquisitions: The Phoenix branch of Eurosystems International, Inc., July 1994;
Interface Systems, Inc. ("ISI"), January 1995; the Minnesota Branch of Broadway
& Seymour, Inc. (the "Minnesota Branch"), September 1995; OASYS, Inc. (the
"Columbus Branch"), March 1996; the Business Systems Development division of
DataFocus, Inc. ("Spectrum NT"), July 1996; CIBER Network Services, Inc.,
December 1996; and, Davis, Thomas & Associates Inc. ("DTA"), March 1997. In
addition, the Company has completed the following mergers: Spencer & Spencer
Systems, Inc. ("SSSI"), May 1995; Business Information Technology, Inc., June
1995; Practical Business Solutions, Inc. ("PBSI"), May 1996; Spectrum
Technology Group, Inc., September 1996; Technology Management Group, Inc.
("TMG"), November 1996; and Technical Support Group, Inc. ("TSG"), November
1996. The Company's June 30, 1997 consolidated financial statements include the
accounts of these merged companies for all periods prior to their respective
merger.
9
<PAGE>
In addition, subsequent to June 30, 1997, the Company completed the following
two mergers:
KCM COMPUTER CONSULTING, INC. ("KCM") - On July 18, 1997, KCM merged with CIBER
in a business combination to be accounted for as a pooling of interests. The
Company issued 430,850 shares of its common stock in exchange for all of the
outstanding common stock of KCM. KCM, located in Calverton, Maryland,
provides consulting services similar to the CIS Division of CIBER. 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.
SOFTWAREXPRESS, INC. D/B/A RELIANT INTEGRATION SERVICES, INC. ("RELIANT") - On
August 21, 1997, Reliant merged with CIBER in a business combination to be
accounted for as a pooling of interests. The Company issued 591,638 shares of
its common stock and assumed all of Reliant's liabilities in exchange for all
of the assets of Reliant. Reliant, located in Menlo Park, California, provides
network integration services and equipment. The Company's consolidated
financial statements included herein, have not been restated for the Reliant
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 Reliant. Reliant had revenues of approximately $32 million, $30
million and $36 million during the years ended June 30, 1995, 1996 and 1997,
respectively. The effects of this merger on the Company's pro forma net income
and pro forma income per share are not expected to be material.
In general, except for CNSI's product sales, the Company's SCG revenues provide
higher gross margins than its CIS revenues, however, the SCG activities also
involve higher selling, general and administrative expenses as a percentage of
revenues. Consequently, fluctuations in gross margin and selling, general and
administrative expenses as a percentage of revenues may be due to changes in
the mix of revenues between CIS and SCG. Management believes that operating
income before amortization and merger costs, as a percentage of revenues, is a
meaningful indicator of company performance because it reflects the effects of
revenue mix.
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, certain items from the
Company's consolidated statements of operations, expressed as a percentage of
revenues and percentage change in the dollar amount of such items compared to
the prior year:
<TABLE>
Dollar % Increase
Percentage of Revenues (Decrease)
Year Ended June 30, Year to Year
--------------------------- -------------------------
1995 1996 1997 1995:1996 1996:1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 30.5% 39.8%
---------------------------
---------------------------
Gross margin 31.8% 31.4% 32.4% 28.8 44.1
Selling, general and administrative expenses 24.0 22.2 21.0 20.5 32.3
---------------------------
Operating income before amortization
and merger costs 7.8 9.2 11.4 54.4 72.5
Amortization of intangible assets 1.0 .9 1.1 28.7 54.3
Merger costs .7 .5 .5 (16.2) 35.2
---------------------------
Operating income 6.1 7.8 9.8 67.2 77.1
Interest income (expense), net (.2) .2 .4 - 87.7
---------------------------
Income before income taxes 5.9 8.0 10.2 76.9 77.4
Income tax expense 2.3 2.7 4.6 52.7 139.3
---------------------------
Net income 3.6% 5.3% 5.6% 92.3 46.1
---------------------------
---------------------------
Pro forma net income 3.5% 4.9% 6.1% 81.2 72.7
---------------------------
---------------------------
</TABLE>
10
<PAGE>
FISCAL YEAR ENDED JUNE 30, 1997 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1996
The Company's total revenues for fiscal 1997 increased 39.8% to $262.2 million
from $187.7 million for fiscal 1996. In fiscal 1997, CIS revenues increased
29.5% to $186.5 million from $144.0 million in fiscal 1996 and SCG revenues
increased 73.4% to $75.7 million from $43.7 million in fiscal 1996. CIS
revenues represented 71.1% and 76.7% of total revenues in fiscal 1997 and
fiscal 1996, 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. In addition, the acquisition
of DTA accounted for approximately $2.5 million of additional CIS revenues in
fiscal 1997 as compared to fiscal 1996. SCG revenues increased approximately
$21.7 million due to the acquisitions of DTA, CNSI and Spectrum NT, of which
$12.2 million was CNSI product revenues. The remaining increase in SCG
revenues is primarily due to increased volume of customers implementing
PeopleSoft software and, to a lesser extent, increases in other consulting
services and increases in billing rates.
Gross margin increased 44.1% to $84.9 million (32.4% of revenues) in fiscal
1997 from $58.9 million (31.4% of revenues) in fiscal 1996. This improvement
is due to greater SCG revenues as a percentage of total revenues and due to
improved pricing.
Selling, general and administrative expenses increased 32.3% to $55.1 million
(21.0% of revenues) in fiscal 1997 from $41.7 million (22.2% of revenues) in
fiscal 1996. The decrease as a percentage of revenues is primarily due to
greater economies of scale at the administrative level of the Company.
Amortization of intangible assets increased 54.3% to $2.8 million in fiscal
1997 from $1.8 million in fiscal 1996. This increase was due primarily to the
Company's acquisitions of DTA, CNSI and Spectrum NT in fiscal 1997.
Merger costs, primarily transaction closing costs, of $1.2 million were
incurred in fiscal 1997 related to the mergers of TSG, TMG and Spectrum with
CIBER. Merger costs of $901,000 in fiscal 1996 related to the merger of PBSI.
Net interest income increased to $946,000 (0.4% of revenues) in fiscal 1997
from $504,000 (0.2% of revenues) in fiscal 1996 due to increased average cash
balances available for investment. 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 increased its investment in interest earning cash equivalent
instruments. Generally, since November 1995, the Company has not borrowed
money.
After the pro forma adjustment to income tax expense, the Company's pro forma
effective tax rates for fiscal 1997 and 1996 were 40.4% and 38.7%,
respectively. This increase was due to increased nondeductible merger costs, an
increase in the Company's statutory federal tax rate from 34% to 35%, and
increased state and other taxes. 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. The effective
tax rates on a historical basis for fiscal 1997 and 1996 were 45.3% and 33.6%,
respectively. The Company's fiscal 1997 historical effective tax rate is
unusually high due to one-time income tax expense charges of $1.7 million
related to the termination of the S corporation status of TSG and Spectrum upon
their merger with CIBER, and to a lesser extent, nondeductible merger costs,
which were partially offset by nontaxable S corporation income. In fiscal
1996, Spectrum converted to an S corporation and recognized a one-time tax
benefit of $818,000, which lowered the Company's effective rate.
The Company's pro forma net income increased 72.7% to $15.9 million (6.1% of
revenues) in fiscal 1997 from $9.2 million (4.9% of revenues) in fiscal 1996.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
The Company's total revenues for fiscal 1996 increased 30.5% to $187.7 million
from $143.8 million for fiscal 1995. In fiscal 1996, CIS revenues increased
26.6% to $144.0 million from $113.8 million in fiscal 1995 and SCG revenues
increased 45.2% to $43.7 million from $30.0 million in fiscal 1995. CIS
revenues represented 76.7% and 79.1% of total revenues in fiscal 1996 and
fiscal 1995, respectively. The increase in the Company's CIS revenues
11
<PAGE>
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. Acquisitions accounted for
approximately $6.0 million of additional CIS revenues in fiscal 1996 as
compared to fiscal 1995. SCG revenues increased primarily due to increased
volume of customers implementing PeopleSoft software and, to a lesser extent,
increases in other consulting services and increases in billing rates.
Gross margin increased 28.8% to $58.9 million in fiscal 1996 from $45.8 million
in fiscal 1995. Gross margin as a percentage of revenues remained relatively
constant at 31.4% in fiscal 1996 compared to 31.8% in fiscal 1995.
Selling, general and administrative expenses increased 20.5% to $41.7 million
(22.2% of revenues) in fiscal 1996 from $34.6 million (24.0% of revenues) in
fiscal 1995. The decrease as a percentage of revenues is primarily due to
greater economies of scale at the administrative level of the Company.
Amortization of intangible assets increased 28.7% to $1.8 million in fiscal
1996 from $1.4 million in fiscal 1995. This increase was due primarily to the
Company's acquisitions of the Minnesota Branch and the Columbus Branch in
fiscal 1996 and the acquisition of ISI during fiscal 1995.
Merger costs of $901,000 were incurred in fiscal 1996 related to the merger of
PBSI with CIBER. Merger costs of $1.1 million in fiscal 1995 related to the
mergers of BIT and SSSI.
Net interest income was $504,000 (0.2% of revenues) in fiscal 1996 as compared
to net interest expense of $193,000 (0.2% of revenues) in fiscal 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 increased its
investment in interest earning cash equivalent instruments. Generally, since
November 1995, the Company has not borrowed money. Net interest income
increased due to increased average cash balances available for investment.
After the pro forma adjustment to income tax expense, the Company's pro forma
effective tax rates for fiscal 1996 and 1995 were 38.7% and 40.2%,
respectively. This decrease was due to decreased nondeductible merger costs,
which was partially offset by increased state and local taxes. 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. The effective tax rates on a historical basis for
fiscal 1996 and 1995 were 33.6% and 38.9%, respectively. The Company's fiscal
1996 historical effective tax rate is unusually low due to a one-time tax
benefit of $818,000 as a result of Spectrum's conversion to an S corporation.
The Company's pro forma net income increased 81.2% to $9.2 million (4.9% of
revenues) in fiscal 1996 from $5.1 million (3.5% of revenues) in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had $60.8 million of working capital, of which
$23.0 million was cash and cash equivalents, and had a current ratio of 4:1.
The Company has primarily used its operating cash flow and the net proceeds
from public offerings to finance working capital needs and acquisitions. The
Company believes that its cash and cash equivalents, its operating cash flow
and the availability of credit under its bank revolving line of credit will be
sufficient to finance working capital needs through at least fiscal 1998.
Net cash provided by operating activities was $11.4 million, $4.4 million and
$2.4 million in fiscal 1997, 1996 and 1995, respectively. Net income excluding
noncash items (primarily depreciation, amortization and deferred income taxes)
provided cash of $18.4 million, $11.4 million and $7.6 million in fiscal 1997,
1996 and 1995, respectively. This was partially offset by changes in operating
assets and liabilities, which used cash of $7.0 million, $7.0 million and $5.2
million in fiscal 1997, 1996 and 1995, respectively. Changes in operating
assets and liabilities have used significant amounts of cash primarily as a
result of increases in accounts receivable. The Company's accounts receivable
have increased 37.3% and 32.9% as a result of the Company's 39.8% and 30.5%
increase in revenues in fiscal 1997 and 1996, respectively. Accounts receivable
days sales outstanding ("DSO") was 60 days at June 30, 1997 as compared to 63
days at June 30, 1996.
12
<PAGE>
Net cash used in investing activities in fiscal 1997, 1996 and 1995 was $22.4
million, $3.6 million and $4.8 million, respectively. The Company used cash
of $19.3 million, $1.7 million and $4.9 million for acquisitions during fiscal
1997, 1996 and 1995, respectively. The Company also purchased property and
equipment, primarily computer equipment, of $3.1 million, $1.8 million and $1.0
million during fiscal 1997, 1996 and 1995, respectively.
Net cash provided by financing activities in fiscal 1997, 1996 and 1995 was
$16.5 million, $12.7 million and $4.1 million, respectively, The Company
obtained net cash proceeds from sales of common stock of $20.3 million, $20.3
million and $223,000 in fiscal 1997, 1996 and 1995, respectively. In
connection with the Company's acquisition of CNSI in fiscal 1997, the Company
assumed CNSI's $1.9 million outstanding balance under a bank line of credit and
$1.1 million of notes payable. The Company repaid these debt obligations and
canceled CNSI's bank line of credit. The Company used $5.8 million in fiscal
1996 to reduce its borrowings under bank lines of credit, while in fiscal 1995
the Company borrowed $4.1 million on the lines of credit.
For the years ended June 30, 1997 and 1996, the Company recognized $6,366,000
and $2,643,000, respectively, as a direct increase to additional paid-in
capital for the income tax benefits resulting from the exercise of stock
options by employees.
The Company has a $20 million revolving line of credit with a bank.
Outstanding borrowings bear interest at the three month London Interbank
Offered Rate ("LIBOR") plus 2%. Borrowings are unsecured. The credit
agreement requires a commitment fee of 0.225% per annum on any unused portion
of the line of credit up to $15 million. The credit agreement expires in
December 1997. The terms and conditions of the credit agreement include
several covenants, including those whereby the Company agrees to the
maintenance of a certain tangible 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.
The Company's subsidiary, CNSI, also has a $3.0 million inventory financing
line of credit with AT&T Capital Corporation. This line of credit expires in
October 1997 and is secured by certain assets of the Company. CNSI obtains
inventory from various vendors who obtain payment directly from AT&T Capital
Corporation. CNSI then pays AT&T Capital Corporation within 30 days of
invoice. Amounts outstanding under this line of credit, which totaled $940,000
at June 30, 1997, are included in accounts payable on the Company's balance
sheet.
The Company expects, although there can be no assurance, to be able to renew
these lines of credit on similar terms.
ASSET MANAGEMENT
The Company's accounts receivable have increased 37.3% and 32.9% as a result of
the Company's 39.8% and 30.5% increase in revenues in fiscal 1997 and 1996,
respectively. The Company's accounts receivable totaled $51.7 million at June
30, 1997. Clients are generally billed weekly, bi-weekly or monthly for
services. Due to the high quality and large size of the Company's clients,
bad debt expenses have averaged less than 0.1% of revenue for the last several
years. During the last three fiscal years, approximately 85% of the Company's
receivables have been collected within 60 days of invoice. Delays in
collection of accounts receivable generally relate to missing time sheets,
delayed receipt of purchase order numbers and payables procedures of the
Company's clients. The Company believes substantially all accounts receivable
on its June 30, 1997 balance sheet will be collected, although there can be no
assurance that all accounts receivable will be collected.
SEASONALITY
The Company experiences a moderate amount of seasonality. Typically, operating
income as a percentage of revenues is lowest in the last quarter of each
calendar year (the Company's second fiscal quarter) because more holidays and
vacations are taken at that time of year resulting in fewer hours billed in
that period.
13
<PAGE>
The following table sets forth certain statement of operations data for each
of the Company's last eight quarters and, in the opinion of management of the
Company, contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation thereof. See Note 14 of Notes
to Consolidated Financial Statements for additional quarterly financial
information.
<TABLE>
FISCAL 1996 - THREE MONTHS ENDED FISCAL 1997 - THREE MONTHS ENDED
----------------------------------------- --------------------------------------------
IN THOUSANDS SEPT. 30 DEC. 31 MAR. 31 JUNE 30(1) SEPT. 30(1) DEC. 31(1) MAR. 31 JUNE 30
-------- ------- ------- ---------- ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $41,943 $43,066 $48,291 $54,353 $54,030 $59,720 $69,651 $78,873
Operating income,
excluding merger costs 3,306 3,135 3,978 5,041 5,029 5,112 7,913 8,942
Operating income,
excluding merger costs, as
a percentage of revenues 7.9% 7.3% 8.2% 9.3% 9.3% 8.6% 11.4% 11.3%
</TABLE>
(1) OPERATING INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1996, SEPTEMBER 30,
1996 AND DECEMBER 31, 1996 EXCLUDES MERGER COSTS OF $901,000, $622,000 AND
$596,000, RESPECTIVELY, RELATING TO POOLINGS OF INTERESTS.
RECENT ACCOUNTING PRONOUNCEMENTS
For the quarter ended December 31, 1997, the Company will be required to adopt
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. SFAS 128 replaces the presentation of primary EPS, with a
presentation of basic EPS and diluted EPS. Under SFAS 128, basic EPS excludes
dilution for common stock equivalents and is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Upon adopting SFAS 128,
the Company's diluted EPS will be the same as the income per share as currently
reported by the Company while the Company's basic EPS will be greater than the
income per share as currently reported.
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 the Company's business
strategies, market potential, future financial performance and other matters
which reflect management's current expectations. Without limiting the
foregoing, the words "believes", "anticipates", "plans", "expects" and similar
expressions are intended to identify forward-looking statements. The Company
disclaims 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.
The Company operates 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
affect on the Company's business, financial condition or results of operations.
GROWTH THROUGH BUSINESS COMBINATIONS AND INTERNAL EXPANSION - As an integral
part of its business strategy, the Company intends to continue to expand by
acquiring application software consulting businesses in attractive markets or
with desirable client relationships, as well as businesses with complementary
information technology consulting and system integration activities. The
Company continuously evaluates potential business combinations and aggressively
pursues attractive transactions. From June 1994 through August 1997, the
Company completed 16 business combinations. The success of this strategy
depends not only upon the Company's ability to identify and acquire businesses
on a cost-effective basis, but also upon its ability to integrate acquired
operations into its organization effectively, to retain and motivate key
personnel and to retain clients of acquired businesses. Business combinations
involve numerous risks, including the ability to manage geographically remote
offices, the diversion
14
<PAGE>
of management's attention from other business concerns and the risks of
entering markets in which the Company has limited or no direct experience. In
addition, acquisitions may involve the expenditure of significant funds and
the incurrence of significant charges associated with the amortization of
goodwill or other intangible assets or future write-downs of the recorded
values of assets acquired. There can be no assurance that any business
combination will result in long-term benefits to the Company or that
management will be able to manage effectively the resulting business.
Additionally, the Company experiences competition for acquisitions. The
Company may open new offices in attractive markets with its own personnel.
Many of the Company's branch offices were originally start-up operations. Not
all branch offices, whether start-up or acquired, have been successful.
There can be no assurance that the Company will be able to start-up,
identify, acquire, or integrate what will ultimately be successful branch
office operations.
The Company's internal growth rate has been in excess of 20% for the past
several years and is due in part to the growth of industry demand for
information technology professional services, including the recent increase in
demand resulting from year 2000 millenium date change service needs. There can
be no assurance that this increased industry demand will continue in future
years and, in particular, beyond the year 2000.
ABILITY TO ATTRACT AND RETAIN QUALIFIED CONSULTANTS - The Company's future
success will depend in part on its ability to hire and provide adequately
trained consultants who can fulfill the increasingly sophisticated needs of its
clients. The Company's on-going personnel needs arise from: (i) increased
demand for the Company's services, (ii) turnover, which is generally high in
the industry and (iii) client requests for consultants trained in the newest
software and hardware technologies. Few of the Company's employees are bound
by non-compete agreements. Competition for consultants in the information
technology services industry is significant and the Company has had and expects
to continue to have difficulty in attracting and retaining an optimal level of
qualified consultants. In particular, competition is intense for the limited
number of qualified project managers and professionals with specialized skills,
such as a working knowledge of certain sophisticated software. There can be no
assurance that the Company will be successful in attracting and retaining the
personnel it requires to continue to grow.
DEPENDENCE ON SIGNIFICANT RELATIONSHIPS AND THE ABSENCE OF LONG-TERM CONTRACTS
- - The Company's five largest clients accounted for 22% of the Company's total
revenues for the fiscal year ended June 30, 1997. No one client accounted for
more than 10% of the Company's total revenues in fiscal 1997, while in fiscal
1996, AT&T Corp. accounted for approximately 11% of the Company's total
revenues. The typical client contract term is one to three years and there can
be no assurance that a client will renew its contract when it terminates. In
addition, the Company's contracts are generally cancelable by the client at any
time and clients may unilaterally reduce their use of the Company's services
under such contracts without penalty. The termination or significant reduction
of its business relationship with any of its significant clients would have a
material adverse effect on the Company. Additionally, the Company has a
significant relationship with PeopleSoft as a PeopleSoft implementation
partner. In fiscal 1997, the Company derived 12% of its total revenues from
clients who purchased implementation services for their PeopleSoft systems. In
the event PeopleSoft products become obsolete or non-competitive or if the
Company should lose its "implementation partner" status with PeopleSoft, the
Company would suffer a material adverse effect.
MANAGEMENT OF A LARGE AND RAPIDLY GROWING BUSINESS - The Company's rapid growth
could place a substantial strain on its operational, administrative and
financial resources. The Company's ability to manage its staff and facilities
growth effectively will require it to continue to improve its operational,
financial and other internal systems, and to train, motivate and manage its
consultants. If the Company's management is unable to manage growth effectively
or its consultants are unable to achieve anticipated performance levels, or if
the integration of new businesses results in a material diversion of manage
ment's attention to the day-to-day operations of the business, the Company's
results of operations would be materially adversely affected.
PROJECT RISKS - The Company has provided and intends to continue to provide
increased project services to its clients. Projects are distinguishable from
the Company's time and material contracts by the level of responsibility
assumed by the Company and the potentially longer and more costly sales cycle
of a project. These factors may cause fluctuations in quarterly results. In a
typical project, the Company independently develops a program or maintains a
system, whereas with time and material contracts, the Company's clients
generally maintain responsibility for the overall task. The failure of a
project or the failure of the Company to provide project services
15
<PAGE>
in a satisfactory manner could have a material adverse effect on the Company.
Further, because the Company may undertake projects on a fixed price basis
and guarantee performance based upon defined operating specifications, cost
overruns, unsatisfactory performance or unanticipated difficulties in
completing such projects could have a material adverse effect on the
Company's results of operations.
PRICING AND MARGIN PRESSURE - Many of the Company's larger clients purchase
information technology services primarily from a limited number of pre-approved
vendors. In order to remain on its clients' vendor lists and to develop new
client relationships, the Company must satisfy client requirements at
competitive rates. Although the Company continually attempts to lower its
costs, there are other software services organizations and temporary placement
agencies that provide the same or similar services at equal or lower costs.
Furthermore, as competition intensifies between information technology service
providers, there may be increased demand for qualified consultants resulting in
upward market pressure on consultant compensation. Additionally, certain of
the Company's clients require that their vendors reduce rates after services
have commenced. There can be no assurance that the Company will be able to
compete effectively on pricing or other requirements and, as a result, the
Company could lose clients or be unable to maintain historic gross margin
levels or to operate profitably. With respect to the Company's implementation
services for software packages, the manufacturers of such software may have
training requirements that inhibit the Company from competing effectively with
other packaged software implementation providers. In addition, as the Company
expands its service offerings to include a greater number of fixed price
projects, the Company may experience a decrease in margins as a result of
unanticipated cost overruns resulting from the inability to meet various
project requirements.
COMPETITION - The Company operates in a highly competitive and rapidly changing
industry and competes with a variety of companies for positions on the vendor
lists of particular clients. Most of these competing companies, many of which
are significantly larger and have greater financial, technical and marketing
resources, provide the same services as those offered by, and some offer a
wider variety of services than, the Company. Many large accounting and
management consulting firms offer services that overlap with a significant
portion of the Company's services, and the Company competes with the internal
information technology staffs of its clients and potential clients. Also,
computer hardware and software companies are increasingly becoming involved in
systems integration projects. Recently, temporary placement agencies, such as
CoreStaff, Olsten and Interim, have begun expanding their businesses to provide
computer-related services. There can be no assurance that the Company will be
able to continue to compete successfully with its existing competitors or will
be able to compete successfully with new competitors. Additionally, over the
past several years there has been an influx of foreign nationals who provide
skilled computer programming services at lower pay scales than other domestic
programmers. Some of these foreign nationals are being hired as consultants
directly by the Company's clients and potential clients, as well as by certain
of the Company's competitors. Moreover, in an attempt to decrease costs, some
of the Company's clients and potential clients are awarding business to
competitors with operations in "low cost" foreign countries, including Ireland,
India and the former Soviet Union. An increase in the use of skilled foreign
national labor at lower rates or foreign software service firms by the
Company's competitors or clients could have a material adverse effect on the
Company.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS - The Company's quarterly
operating results may fluctuate significantly in the future as a result of a
variety of factors, many of which are outside the Company's control. Factors
that may affect the Company's quarterly revenues or operating results generally
include: costs relating to the expansion of the Company's business, the extent
and timing of business acquisitions, the incurrence of merger costs, the timing
of assignments from customers, the seasonal nature of the Company's business
due to variations in holidays and vacation schedules, the introduction of new
services by the Company or its competitors, price competition or price changes
and general economic conditions specific to the information technology,
consulting, or information technology staffing industries. 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 the Company's 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 trading
price of the Company's common stock would likely be materially adversely
affected.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This section is not applicable to the Company.
16
<PAGE>
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, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year
period ended June 30, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
August 1, 1997, except as to Note 13(b),
which is as of August 21, 1997
17
<PAGE>
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
IN THOUSANDS, EXCEPT PER SHARE DATA 1995(1) 1996(1) 1997
-------- -------- --------
Revenues $143,845 $187,653 $262,274
Salaries, wages and other direct costs 98,075 128,724 177,373
Selling, general and administrative expenses 34,591 41,674 55,135
Amortization of intangible assets 1,395 1,795 2,770
Merger costs 1,075 901 1,218
-------- -------- --------
Operating income 8,709 14,559 25,778
Interest income 98 720 946
Interest expense (291) (216) -
-------- -------- --------
Income before income taxes 8,516 15,063 26,724
Income tax expense 3,311 5,056 12,099
-------- -------- --------
Net income $ 5,205 $ 10,007 $ 14,625
-------- -------- --------
-------- -------- --------
Pro forma information (unaudited) (Note 1(i)):
Historical net income $ 5,205 $ 10,007 $ 14,625
Pro forma adjustment to income tax expense (113) (779) 1,308
-------- -------- --------
Pro forma net income $ 5,092 $ 9,228 $ 15,933
-------- -------- --------
-------- -------- --------
Pro forma income per share $ .29 $ .48 $ .78
-------- -------- --------
-------- -------- --------
Weighted average common and common
equivalent shares 17,653 19,065 20,329
-------- -------- --------
-------- -------- --------
(1) Restated for poolings of interests through June 30, 1997 - See Note 2.
See accompanying notes to consolidated financial statements.
18
<PAGE>
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1997
IN THOUSANDS, EXCEPT SHARE DATA 1996(1) 1997
------- --------
ASSETS
Current assets:
Cash and cash equivalents $17,465 $ 22,997
Accounts receivable 37,671 51,736
Inventories - 330
Prepaid expenses and other assets 760 1,615
Deferred income taxes 417 4,160
------- --------
Total current assets 56,313 80,838
------- --------
Property and equipment, at cost 5,475 9,500
Less accumulated depreciation and amortization (2,745) (4,316)
------- --------
Net property and equipment 2,730 5,184
------- --------
Intangible assets, net 12,801 34,383
Deferred income taxes 458 1,112
Other assets 964 1,201
------- --------
Total assets $73,266 $122,718
------- --------
------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables $ 1,555 $ 3,502
Accrued compensation 8,242 10,111
Other accrued expenses and liabilities 2,741 4,746
Income taxes payable 642 1,723
Deferred income taxes 467 -
------- --------
Total current liabilities 13,647 20,082
Long-term acquisition costs payable 200 100
------- --------
Total liabilities 13,847 20,182
------- --------
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, 40,000,000
shares authorized, 18,403,000 and 19,823,000
shares issued and outstanding 184 198
Additional paid-in capital 37,248 68,606
Retained earnings 21,987 33,732
------- --------
Total shareholders' equity 59,419 102,536
------- --------
Total liabilities and shareholders' equity $73,266 $122,718
------- --------
------- --------
(1) Restated for poolings of interests through June 30, 1997 - See Note 2.
See accompanying notes to consolidated financial statements.
19
<PAGE>
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
COMMON STOCK ADDITIONAL TOTAL
------------ PAID-IN RETAINED SHAREHOLDERS'
IN THOUSANDS SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1994 (1) 15,669 $157 $11,799 $10,236 $ 22,192
Employee stock purchases and options exercised 102 1 131 - 132
Acquisition 24 - 100 - 100
Sale of common stock by merged companies - - 91 - 91
Tax benefit from exercise of stock options - - 422 - 422
Termination of S corporation tax status of merged company - - 854 (854) -
Reversal of deferred compensation liability - - 86 - 86
Compensation expense related to stock options - - 19 - 19
Net income - - - 5,205 5,205
Distributions by merged company - - - (187) (187)
----------------------------------------------------
BALANCES AT JUNE 30, 1995 (1) 15,795 158 13,502 14,400 28,060
Public offering, net of offering costs of $1,532 1,912 19 18,971 - 18,990
Employee stock purchases and options exercised 672 7 1,241 - 1,248
Acquisition 24 - 100 - 100
Sale of common stock by merged companies - - 36 - 36
Tax benefit from exercise of stock options - - 2,643 - 2,643
Termination of S corporation tax status of merged company - - 736 (736) -
Compensation expense related to stock options - - 19 - 19
Net income - - - 10,007 10,007
Distributions by merged company - - - (1,684) (1,684)
----------------------------------------------------
BALANCES AT JUNE 30, 1996 (1) 18,403 184 37,248 21,987 59,419
Public offering, net of offering costs of $1,390 610 6 16,921 - 16,927
Employee stock purchases and options exercised 716 7 3,323 - 3,330
Acquisitions 93 1 2,568 - 2,569
Sale of common stock by merged companies - - 77 - 77
Tax benefit from exercise of stock options - - 6,366 - 6,366
Termination of S corporation tax status of merged company - - 2,041 (2,041) -
Compensation expense related to stock and stock options 1 - 62 - 62
Net income - - - 14,625 14,625
Distributions by merged company - - - (839) (839)
----------------------------------------------------
BALANCES AT JUNE 30, 1997 19,823 $198 $68,606 $33,732 $102,536
----------------------------------------------------
----------------------------------------------------
</TABLE>
(1) Restated for poolings of interests through June 30, 1997 - See Note 2.
See accompanying notes to consolidated financial statements.
20
<PAGE>
CIBER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
IN THOUSANDS 1995(1) 1996(1) 1997
------- ------- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,205 $10,007 $ 14,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,998 2,649 4,526
Deferred income taxes 342 (1,224) (811)
Compensation expense related to stock and stock options 19 19 62
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Accounts receivable (8,211) (9,331) (10,867)
Other current and long-term assets (598) (531) (1,356)
Trade payables 523 (58) 28
Accrued compensation 1,810 432 1,433
Other accrued expenses and liabilities 667 1,035 216
Income taxes payable 637 1,449 3,561
------- ------- --------
Net cash provided by operating activities 2,392 4,447 11,417
------- ------- --------
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (4,948) (1,725) (19,290)
Purchases of property and equipment (1,009) (1,845) (3,094)
Sales of short-term investments 1,140 - -
------- ------- --------
Net cash used in investing activities (4,817) (3,570) (22,384)
------- ------- --------
FINANCING ACTIVITIES:
Proceeds from sales of common stock, net 223 20,274 20,334
Net borrowings (payments) on bank lines of credit 4,131 (5,800) (1,900)
Payments on notes payable (55) (110) (1,096)
Distributions by merged company (187) (1,684) (839)
------- ------- --------
Net cash provided by financing activities 4,112 12,680 16,499
------- ------- --------
Net increase in cash and cash equivalents 1,687 13,557 5,532
Cash and cash equivalents, beginning of year 2,221 3,908 17,465
------- ------- --------
Cash and cash equivalents, end of year $ 3,908 $17,465 $ 22,997
------- ------- --------
------- ------- --------
</TABLE>
(1) Restated for poolings of interests through June 30, 1997 - See Note 2.
See accompanying notes to consolidated financial statements.
21
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, 1996 AND 1997
(1) NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS
CIBER, Inc. and Subsidiaries ("CIBER" or the "Company") is a nationwide
provider of information technology consulting services, including application
software staff supplementation, management consulting for "business/IT"
problems, package software implementation services, system life-cycle project
responsibility, millennium date change conversion services, and networking
procurement and engineering services. At June 30, 1997, CIBER had
approximately 2,750 consultants operating out of over 50 branch offices in
over 20 states plus Canada.
The Company's CIBER Information Services ("CIS") Division provides
application software development and maintenance services and, through its
CIBR2000 Division, millenium date change solutions. The CIBER Solutions
Consulting Group ("SCG") is comprised of 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. A substantial portion of BIT's
revenues are derived from assisting clients implementing PeopleSoft, Inc.
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.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated.
(c) 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 and investment grade commercial paper.
(d) INVENTORIES
Inventories consist of computer networking equipment and supplies and are
stated at the lower of cost or market using the first-in, first-out method.
(e) PROPERTY AND EQUIPMENT
Property and equipment, which consists primarily of equipment and furniture,
is stated at cost. Depreciation is computed using the straight-line and
accelerated methods over the estimated useful lives, ranging primarily from
five to seven years. Depreciation expense was $603,000, $854,000 and
$1,756,000 for the years ended June 30, 1995, 1996 and 1997, respectively.
(f) INTANGIBLE ASSETS
Intangible assets consist of goodwill, client lists, noncompete agreements,
and software license costs. Goodwill is amortized over 12 to 15 years. Client
lists are amortized over the estimated useful lives ranging from two to eight
years. Noncompete agreements and software license costs are amortized over
the terms of the contracts that range from one to six years. Amortization is
recorded using the straight-line method.
22
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets are reviewed for impairment when events indicate the
carrying amount of intangible assets may not be recoverable. Impairments
would be considered to exist when the estimated non-discounted future cash
flows expected to result from the use of the intangible asset are less than
the carrying amount of the asset. Impairment, if any, will be measured based
on forecasted future discounted operating cash flows.
(g) REVENUE RECOGNITION
The Company recognizes revenue as services are rendered and as product is
shipped. Product revenues were $12,206,000 for the year ended June 30, 1997.
Revenues also include reimbursable expenses directly incurred in providing
services to clients, that totaled $3,896,000, $4,610,000 and $5,906,000 for
the years ended June 30, 1995, 1996 and 1997, respectively.
(h) 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
basis. Deferred tax assets and liabilities are measured 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.
Certain companies, which have merged with CIBER in business combinations
accounted for as poolings of interests, had elected S corporation status for
U.S. federal income tax purposes, and therefore, were generally not subject
to income taxes. Accordingly, no income tax expense is included in the
historical consolidated financial statements for the operations of these
companies prior to their merger with CIBER. The related net deferred tax
liability of these companies at the date of their merger with CIBER has been
recorded as income tax expense. Specifically, prior to their merger with
CIBER, Spectrum, Technical Support Group, Inc. ("TSG"), Practical Business
Solutions, Inc. ("PBSI") and Spencer & Spencer Systems, Inc. ("SSSI") were S
corporations. Spectrum had elected S corporation status during the quarter
ended December 31, 1995, and as a result, income tax expense for the quarter
ended December 31, 1995 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 in the consolidated
financial statements for the operations of Spectrum prior to its merger with
CIBER. Upon the mergers of Spectrum and TSG with CIBER, CIBER recorded
one-time income tax expense charges of $1,202,000 and $515,000, respectively,
to record the net deferred tax liability of Spectrum and TSG at the
respective merger dates. See note 1(i).
(i) PRO FORMA NET INCOME
To properly reflect the Company's pro forma net income, the net income of
Spectrum, TSG, PBSI, and SSSI prior to their merger with CIBER, which was not
subject to income taxes because of their S corporation status, has been tax
effected and included in the pro forma adjustment to income tax expense in
the accompanying consolidated statements of operations. This adjustment was
computed as if these 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.
23
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition, the pro forma adjustment to income tax expense for the years
ended June 30, 1995, 1996 and 1997 has been effected to exclude income tax
expense of $284,000, $475,000, and $1,717,000, respectively, representing the
one-time income tax expense resulting from the termination of the S
corporation status of these companies. Also, the pro forma adjustment to
income tax expense for the year ended June 30, 1996 has been effected to
exclude the income tax benefit of $818,000 resulting from Spectrum's
conversion to an S corporation.
(j) PRO FORMA INCOME PER SHARE
Pro forma income per share is computed on the basis of the weighted average
number of common and common equivalent shares outstanding during the period.
Common equivalent shares of 1,954,000, 1,709,000 and 1,333,000 in fiscal
1995, 1996 and 1997, respectively, consist of stock options, determined using
the treasury stock method. The shares and the options issued in connection
with business combinations accounted for as poolings of interests have been
treated as if they had been issued and outstanding for all periods prior to
the merger.
(k) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with the
provisions of Accounting Principles Board Opinion 25, and related
interpretations ("APB 25"). The Company uses the intrinsic value-based
method for measuring stock-based compensation cost which measures
compensation cost as the excess, if any, of the quoted market price of CIBER
common stock at the grant date over the amount the employee must pay for the
stock. CIBER generally grants stock options at fair market value at the date
of grant.
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123") which allows entities to continue to apply the
provisions of APB 25 and to provide pro forma disclosures of net income and
income per share as if the fair-value based method defined in SFAS 123 had
been applied. The pro forma disclosures required by SFAS 123 are included in
Note 8.
(l) ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximate their
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.
(n) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
year presentation.
24
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) POOLINGS OF INTERESTS
From July 1, 1996 through June 30, 1997, the following companies have merged
with CIBER in business combinations accounted for as poolings of interests
("mergers"). Accordingly, the Company's financial statements have been
restated for all periods prior to the respective merger to include the
results of operations, financial position and cash flows of the merged
companies.
TECHNICAL SUPPORT GROUP, INC. - On November 27, 1996, the Company issued
370,376 shares of its common stock and assumed all of TSG's liabilities in
exchange for all of the assets of TSG. TSG, located in Chicago, Illinois,
provided consulting services similar to the CIS Division of CIBER.
TECHNOLOGY MANAGEMENT GROUP, INC. ("TMG") - On November 26, 1996, the Company
issued 242,179 shares of its common stock and granted options for 163,007
shares of the Company's common stock (at an aggregate exercise price of
$547,000) in exchange for all of the outstanding shares of common stock and
the cancellation of options of TMG. The CIBER stock options replaced
existing TMG stock options. TMG, located in Seattle, Washington, provided
consulting services similar to the CIS Division of CIBER.
SPECTRUM TECHNOLOGY GROUP, INC. - On September 3, 1996, the Company issued
853,116 shares of its common stock in exchange for all of the outstanding
common stock of Spectrum. Spectrum is located in Somerville, New Jersey.
Revenues, net income and pro forma net income of CIBER and of TSG, TMG and
Spectrum collectively, prior to their merger with CIBER, and on a combined
basis were (in thousands):
TSG,
TMG AND
CIBER SPECTRUM COMBINED
-------- -------- --------
Six months ended December 31,
1996 (unaudited)(1)
Revenues $102,467 $11,283 $113,750
Net income/(loss) 4,700 (517) 4,183
Pro forma net income 4,700 791 5,491
Year Ended June 30, 1996
Revenues $156,873 $30,780 $187,653
Net income 8,142 1,865 10,007
Pro forma net income 8,531 697 9,228
Year Ended June 30, 1995
Revenues $120,151 $23,694 $143,845
Net income 4,175 1,030 5,205
Pro forma net income 4,296 796 5,092
(1) Information for TSG, TMG and Spectrum, collectively, is through the date of
the mergers.
In fiscal 1997, the Company incurred merger costs of $1,218,000 in connection
with the mergers of TSG, TMG and Spectrum.
In May 1996, the Company issued 959,035 shares of its common stock and stock
options to purchase 72,185 shares of common stock in connection with the
merger of PBSI with CIBER. In fiscal 1995, the Company issued 2,024,796
shares of its common stock and stock options to purchase 134,268 shares of
common stock in connection with the mergers of BIT and SSSI with CIBER.
25
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) ACQUISITIONS
From July 1, 1994 through June 30, 1997, CIBER made certain asset purchases,
or "acquisitions", 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.
DAVIS, THOMAS & ASSOCIATES, INC. ("DTA") - On March 14, 1997 the Company
acquired the business operations and certain assets of DTA for $13.5 million,
consisting of $13.2 million in cash and the assumption of $339,000 of
liabilities. The Company has recorded goodwill of $13.1 million related to
this acquisition, which will be amortized over 15 years. DTA, with offices
in Minneapolis, Minnesota and Chicago, Illinois provided services similar to
CIBER. The Minneapolis office has become part of the Company's CIS Division
while the Chicago office has become part of the Company's subsidiary, CIBER
Network Services, Inc. Had the acquisition of DTA occurred at the beginning
of the respective periods, revenues for the years ended June 30, 1996 and
1997 would have been increased by approximately $12.9 million and $9.0
million, respectively. The effects on pro forma net income and pro forma
income per share would not have been material.
CIBER NETWORK SERVICES, INC. ("CNSI") - On December 2, 1996, the Company
acquired CNSI, which was majority owned by certain officers of the Company,
for consideration of $3.7 million, consisting of 68,631 shares of the
Company's common stock and $1.2 million in cash. In addition, the Company
assumed net liabilities of $772,000, resulting in a total purchase price of
$4.5 million. Additionally, the terms of purchase provide 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 will be 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 believes that the contingent
consideration for the period ended October 31, 1997 will be earned, and
therefore has recorded additional goodwill and an accrued liability of $1.2
million. The Company has recorded goodwill of $5.7 million, which is being
amortized over 15 years. Any additional contingent consideration paid will
be accounted for as additional goodwill. For income tax purposes, this
acquisition was a non-taxable transaction. Had the acquisition of CNSI
occurred at the beginning of the respective periods, revenues would have been
increased by approximately $18.3 million and $8.1 million, for the year ended
June 30, 1996 and 1997, respectively. The effects on pro forma net income
and pro forma income per share would not have been material.
BUSINESS SYSTEMS DEVELOPMENT DIVISION - 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. The aggregate purchase price was $5.0 million, of
which $4.8 million has been allocated to goodwill and $229,000 has been
allocated to other net assets. This operation is now part of Spectrum and
provides Microsoft technology based computer software consulting services.
The effects on revenues, pro forma net income and pro forma income per share
would not have been material.
OASYS, INC. - In March 1996, the Company acquired certain assets and all of
the business operations of Oasys, Inc., located near Columbus, Ohio, for
$769,000 in cash. The Company recorded goodwill of $740,000 related to this
acquisition. In addition, if the operations acquired achieve certain levels
of revenue, the Company would be required to pay through December 31, 1998,
additional cash consideration to the former owners. The Company would record
such additional consideration paid, if any, as additional goodwill. At
December 31, 1996, the Company paid additional consideration of $45,000
related to the acquisition.
MINNESOTA BRANCH - In September 1995, the Company acquired certain assets and
liabilities and all of the business operations of the Rochester, Minnesota
branch office of Broadway & Seymour, Inc. The consideration paid for this
acquisition was $956,000 in cash and the assumption of $16,000 of net
liabilities. The Company recorded goodwill of $972,000 related to this
acquisition.
26
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERFACE SYSTEMS, INC. ("ISI") - In January 1995, the Company acquired
certain assets and all of the business operations of ISI, located in Holmdel,
NJ. The consideration for the acquisition was $3.4 million. In addition, if
the operations acquired achieve certain levels of income, the Company would
be required to pay annually through December 31, 1997, additional
consideration in the form of shares of common stock to the former owners. The
Company would record such additional consideration paid, if any, as
additional goodwill.
(4) INTANGIBLE ASSETS
Intangible assets consist of the following at June 30, 1996 and 1997 (in
thousands):
1996 1997
------- -------
Goodwill $ 7,687 $31,255
Client lists 6,801 6,801
Noncompete agreements 1,360 2,144
Software license costs 255 255
------- -------
16,103 40,455
Less accumulated amortization (3,302) (6,072)
------- -------
$12,801 $34,383
------- -------
------- -------
(5) REVOLVING LINES OF CREDIT
The Company has a $20 million revolving line of credit with a bank.
Outstanding borrowings bear interest at the three month London Interbank
Offered Rate ("LIBOR") plus 2%. Borrowings are unsecured. The credit
agreement requires a commitment fee of 0.225% per annum on any unused portion
of the line of credit up to $15 million. The credit agreement expires in
December 1997. The terms and conditions of the credit agreement include
several covenants, including those whereby the Company agrees to the
maintenance of a certain tangible 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.
The Company's subsidiary, CNSI, also has a $3.0 million inventory financing
line of credit with AT&T Capital Corporation. This line of credit expires in
October 1997 and is secured by certain assets of the Company. CNSI purchases
inventory from various vendors who obtain payment directly from AT&T Capital
Corporation. CNSI then pays AT&T Capital Corporation within 30 days of
invoice. Amounts outstanding under this line of credit, which totaled
$940,000 at June 30, 1997, are included in accounts payable on the Company's
balance sheet.
27
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) LEASES
The Company has several noncancelable operating leases for office space.
Rental expense for operating leases totaled $1,911,000, $2,007,000 and
$2,834,000 for the years ended June 30, 1995, 1996 and 1997, respectively.
Future minimum lease payments as of June 30, 1997 are (in thousands):
Year ending June 30:
1998 $ 3,200
1999 3,018
2000 2,216
2001 1,622
2002 1,256
Thereafter 179
-------
Total minimum lease payments $11,491
-------
-------
(7) INCOME TAXES
Income tax expense (benefit) for the years ended June 30, 1995, 1996 and 1997
consists of the following (in thousands):
1995 1996 1997
------ ------- -------
Current:
Federal $2,555 $ 5,249 $10,413
State and local 355 921 2,023
Foreign 59 110 474
------ ------- -------
2,969 6,280 12,910
------ ------- -------
Deferred:
Federal 300 (1,030) (679)
State and local 42 (194) (132)
------ ------- -------
342 (1,224) (811)
------ ------- -------
Income tax expense $3,311 $ 5,056 $12,099
------ ------- -------
------ ------- -------
28
<PAGE>
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 (34% for the years ended June 30, 1995 and 1996
and 35% for the year ended June 30, 1997) to income before income taxes as a
result of the following (in thousands):
1995 1996 1997
------ ------ -------
Tax at federal statutory rate $2,895 $5,121 $ 9,353
Increase (decrease) in income taxes
resulting from:
State and local income taxes, net of
federal income tax benefit 258 568 1,073
Nondeductible merger costs 236 38 383
Termination of S corporation status
of merged companies, including
state income taxes, net of federal
income tax benefit 284 475 1,717
Conversion of merged company to an
S corporation - (818) -
S corporation income of merged companies (295) (380) (443)
Other (67) 52 16
------ ------ -------
Income tax expense $3,311 $5,056 $12,099
------ ------ -------
------ ------ -------
Effective tax rate 38.9% 33.6% 45.3%
------ ------ -------
------ ------ -------
TAX BENEFIT OF STOCK OPTIONS EXERCISED - For the years ended June 30, 1996
and 1997, the Company recognized $2,643,000 and $6,366,000, respectively, as
a direct increase to additional paid-in capital for the income tax benefit
resulting from the exercise of stock options by employees. At June 30, 1996
and 1997, the Company has recorded $1,043,000 and $4,929,000, respectively,
as a deferred tax asset, for the portion of the income tax benefit resulting
from the exercise of stock options in the current fiscal year that will
reduce income taxes payable in the following fiscal year.
The components of the net deferred tax asset or liability at June 30, 1996
and 1997 are as follows (in thousands):
1996 1997
------- -------
Deferred tax assets:
Intangible assets, due to differences in
amortization periods $ 458 $ 1,112
Accounts payable 186 176
Accrued expenses, not currently tax deductible 536 1,373
Future tax benefit of stock options exercised 1,043 4,929
Other - 102
------- -------
2,223 7,692
Deferred tax liabilities:
Accounts receivable (1,815) (2,420)
------- -------
Net deferred tax asset $ 408 $ 5,272
------- -------
------- -------
Balance sheet classification of net deferred tax asset (liability):
Deferred tax asset-current $ 417 $ 4,160
Deferred tax asset-long term 458 1,112
Deferred tax liability-current (467) -
------- -------
Net deferred tax asset $ 408 $ 5,272
------- -------
------- -------
Deferred taxes related to accounts payable and accounts receivable are
primarily related to certain merged companies utilizing the cash basis of
accounting for income tax purposes prior to their merger with CIBER.
29
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based on its evaluation of current and anticipated future taxable income, the
Company believes sufficient taxable income will be generated to realize the
benefit of the deferred tax assets.
(8) STOCK PURCHASE AND STOCK OPTION PLANS
The Company has five stock-based compensation plans, which are described
below.
EMPLOYEE STOCK PURCHASE PLAN - The Company has a stock purchase plan that
allows eligible employees to purchase, through payroll deductions, shares of
the Company's common stock at 85% of the fair market value at specified
dates. Up to 1,000,000 shares of common stock may be issued under the
Employee Stock Purchase Plan. During the years ended June 30, 1995, 1996 and
1997 employees purchased 16,880, 90,268 and 89,720 shares of common stock,
respectively.
1989 STOCK OPTION PLAN - The Company established a stock option plan in 1989
that was discontinued during fiscal 1994. The options are 100% vested as of
July 1, 1995 and are subject to certain restrictions. The options expire
twenty years after the date of grant through 2013.
EMPLOYEES' STOCK OPTION PLAN - The Company has a stock option plan for
employees and up to 2,000,000 shares of the Company's common stock are
authorized for issuance under this plan. The plan administrators may grant
to officers, employees and consultants, restricted stock, stock options,
performance bonuses or any combination thereof. The number and nature of
awards granted is determined by the compensation committee of the Board of
Directors. 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. No
portion of an option may vest before six months after the date of grant.
DIRECTORS' STOCK OPTION PLAN - The Company established in fiscal 1995, a
stock option plan for non-employee directors. Up to 100,000 shares of the
Company's common stock are authorized for issuance under this plan. Such
stock options are non-discretionary and granted annually at the fair market
value of the Company's 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.
DIRECTORS' STOCK COMPENSATION PLAN - The Company established in fiscal 1997,
a stock compensation plan for non-employee directors. Up to 25,000 shares of
the Company's common stock are authorized for issuance under this plan. Under
this plan, each non-employee director is issued shares for their attendance
at each meeting of the Company's Board of Directors. The number of shares
issued is based on the quoted price of the Company's common stock immediately
prior to the date of the applicable meeting. During the year ended June 30,
1997, the Company issued 832 shares of common stock under this plan.
At June 30, 1997, there were 3,531,000 shares of common stock reserved for
future issuance under the Company's stock-based compensation plans. At June
30, 1997, the Company had 700,320 shares of common stock available for future
option grants under its stock option plans.
30
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion 25 in accounting for its stock-based
compensation plans. The compensation cost that has been charged against
income for these plans for the years ended June 30, 1995, 1996 and 1997 was
$19,000, $19,000 and $62,000, respectively. Had the Company determined
compensation cost for its stock-based compensation plans based on the
fair-value at the grant date, as calculated in accordance with SFAS 123, the
Company's net income, pro forma net income, and pro forma income per share
for the years ended June 30, 1996 and 1997, would have been reduced to the
pro forma amounts indicated below (in thousands, except per share data):
1996 1997
------- -------
Net income As reported $10,007 $14,625
Pro forma 9,130 12,420
Pro forma net income As reported 9,228 15,933
Pro forma 8,351 13,728
Pro forma income per share As reported .48 .78
Pro forma .44 .68
The affect of applying SFAS 123 in this disclosure may not be indicative of
the affect on reported net income for future years. SFAS 123 does not apply
to options granted prior to July 1, 1995 and additional option grants are
anticipated in future years.
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:
1996 1997
------- -------
Expected life 5 years 5 years
Risk free interest rate 6.1% 6.3%
Expected volatility 50% 50%
Dividend yield 0% 0%
A summary of the status of the Company's stock option plans as of June 30,
1995, 1996 and 1997, and changes during the years ending on those dates is
presented below (shares in thousands):
<TABLE>
1995 1996 1997
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,340 $1.11 2,369 $1.29 2,203 $3.31
Granted 132 4.42 415 11.31 526 24.48
Exercised (85) 0.71 (580) 0.78 (626) 2.51
Canceled (18) 4.38 (1) 16.38 (100) 16.87
------ ------ ------
Outstanding at end of year 2,369 $1.29 2,203 $3.31 2,003 $8.43
------ ------ ------
------ ------ ------
Options exercisable at year end 2,018 1,552 1,108
------ ------ ------
------ ------ ------
</TABLE>
The weighted average fair value of options granted during fiscal 1996 and
1997 were $5.73 and $12.85, respectively.
31
<PAGE>
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 stock options at June 30, 1997, is as follows
(shares in thousands):
<TABLE>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ------------------------------
WEIGHTED
NUMBER WEIGHTED AVERAGE NUMBER WEIGHTED
RANGE OF OUTSTANDING AVERAGE REMAINING EXERCISABLE AVERAGE
EXERCISE PRICES JUNE 30, 1997 EXERCISE PRICE LIFE (YEARS) JUNE 30, 1997 EXERCISE PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 4.00 977 $ 0.63 12.5 904 $ 0.68
4.17 - 8.88 469 6.57 7.4 181 5.78
11.25 - 22.00 421 21.14 9.0 23 17.02
25.25 - 38.00 136 31.57 9.5 - -
- ------------------------------------------------------------------------------------------------
$ 0.01 - $38.00 2,003 $ 8.43 10.4 1,108 $ 1.85
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>
(9) RELATED PARTY TRANSACTIONS
Prior to the acquisition of CNSI on December 2, 1996 (see note 3), CNSI was
85% owned by certain officers of the Company. These officers and their
families received $1,159,000 in cash and 54,498 shares of CIBER common stock
as consideration for their ownership interests in CNSI. Additionally, the
terms of purchase provide for contingent consideration of up to $2.6 million,
of which $1.2 million has been accrued for at June 30, 1997, if CNSI achieves
certain performance objectives in each of the 12 month periods ending October
31, 1997, 1998 and 1999. Any additional consideration will be payable in
cash or CIBER common stock, The Company also repaid approximately $898,000 to
the Company's Chairman and members of his family for outstanding obligations
owed to them by CNSI.
Certain officers of the Company also guaranteed CNSI's $3.0 million inventory
financing line of credit (see note 5), which had an outstanding balance of
approximately $1.1 million at December 2, 1996. These personal guarantees
were released upon the acquisition of CNSI. In addition, CNSI had a $2.5
million bank line of credit, with an outstanding balance of $1.9 million at
December 2, 1996, that was guaranteed by the Company's Chairman. Upon the
acquisition of CNSI, the Company repaid and canceled this bank line of credit
and the personal guarantee of the Chairman was released.
During the years ended June 30, 1995 and 1996 and for the period from July 1,
1996 to December 2, 1996, CIBER purchased from CNSI several local area
networks and various computer equipment and software for approximately
$268,000, $923,000 and $558,000, respectively. In addition, from January
1994 to November 1996, the Company provided accounting and other
administrative services to CNSI at a monthly charge of $2,500.
(10) 401(k) SAVINGS PLAN AND OTHER RETIREMENT PLANS
The Company has a savings plan under Section 401(k) of the Internal Revenue
Code. Company contributions are determined based on the employee's completed
years of service, the employee's contribution and the Company's matching
contribution percentage. In addition, certain companies which have merged
with CIBER in business combinations accounted for as poolings of interests
also have had defined contribution retirement plans.
The Company recorded expense of approximately $764,000, $1,196,000 and
$1,580,000 for the years ended June 30, 1995, 1996 and 1997, respectively,
related to these plans.
32
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) BUSINESS AND CREDIT CONCENTRATIONS
The Company's clients are located principally throughout the United States. Its
revenue and accounts receivable are concentrated with large companies in
several industries. The Company's largest client accounted for 9%, 11% and 7%
of total revenues for the years ended June 30, 1995, 1996 and 1997,
respectively. In addition, the Company's five largest clients accounted for,
in the aggregate, 22%, 26% and 22% of the Company's total revenues for the
years ended June 30, 1995, 1996 and 1997, respectively. The Company has a
policy to regularly monitor the creditworthiness of its clients and generally
does not require collateral. Historically, the Company has not had the need to
provide for material uncollectible amounts. Through BIT, the Company has a
concentration of revenues related to clients purchasing software from
PeopleSoft, Inc. ("PeopleSoft"). Approximately 12%, 14% and 12% of the
Company's total revenues for the years ended June 30, 1995, 1996 and 1997,
respectively, were generated from over 100 clients implementing PeopleSoft
software.
The Company also has concentrations of credit risk in cash and cash
equivalents, which are invested in high quality financial institutions or
companies.
(12) SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
Supplemental statement of cash flow information for the years ended June 30,
1995, 1996 and 1997 is as follows (in thousands):
<TABLE>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Noncash investing and financing activities:
Cash paid for acquisitions:
Fair value of assets acquired $3,350 $1,750 $28,899
Liabilities assumed - (25) (5,965)
Common stock issued in connection with acquisitions - - (2,469)
Accrued acquisition costs payable - - (1,175)
Payment of acquisition costs payable 1,598 - -
------ ------ -------
Cash paid for acquisitions $4,948 $1,725 $19,290
------ ------ -------
------ ------ -------
Issuance of common stock in satisfaction of acquisition
costs payable $ 100 $ 100 $ 100
Decrease in liabilities due to reversal of deferred
compensation liability $ 86 - -
Cash paid for interest $ 293 $ 219 -
Cash paid for income taxes $1,948 $4,751 $ 8,738
</TABLE>
(13) SUBSEQUENT EVENTS
Subsequent to June 30, 1997, the Company completed the following two business
combinations:
(a) KCM COMPUTER CONSULTING, INC. ("KCM") - On July 18, 1997, KCM merged with
CIBER in a business combination to be accounted for as a pooling of interests.
The Company issued 430,850 shares of its common stock in exchange for all of
the outstanding common stock of KCM. KCM, located in Calverton, Maryland,
provides consulting services similar to the CIS Division of CIBER. 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.
33
<PAGE>
CIBER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) SOFTWAREXPRESS, INC. D/B/A RELIANT INTEGRATION SERVICES, INC. ("RELIANT")
- - On August 21, 1997, Reliant merged with CIBER in a business combination to
be accounted for as a pooling of interests. The Company issued 591,638
shares of its common stock and assumed all of Reliant's liabilities in
exchange for all of the assets of Reliant. Reliant, located in Menlo Park,
California, provides network integration services and equipment. The
accompanying consolidated financial statements have not been restated for the
Reliant 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 Reliant. Reliant had revenues (unaudited) of
approximately $32 million, $30 million and $36 million during the years ended
June 30, 1995, 1996 and 1997, respectively. The effects of this merger on the
Company's pro forma net income and pro forma income per share is not expected
to be material.
(14) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain statements of operations data for each
of the quarters indicated below and, in the opinion of management, contains all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation thereof. The first and second quarters of fiscal 1997 and
fourth quarter 1996 include merger costs of $622,000, $596,000 and $901,000,
respectively, related to poolings of interests (see note 2). All information
has been restated for pooling of interest business combinations through June
30, 1997.
<TABLE>
FIRST SECOND THIRD FOURTH
IN THOUSANDS, EXCEPT PER SHARE DATA QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1997
Revenues $54,030 $59,720 $69,651 $78,873 $262,274
Operating income 4,407 4,516 7,913 8,942 25,778
Net income 1,794 2,389 4,882 5,560 14,625
Pro forma net income 2,682 2,809 4,882 5,560 15,933
Pro forma income per share $ 0.14 $ 0.14 $ 0.24 $ 0.27 $ 0.78
YEAR ENDED JUNE 30, 1996
Revenues $41,943 $43,066 $48,291 $54,353 $187,653
Operating income 3,306 3,135 3,978 4,140 14,559
Net income 2,023 2,942 2,781 2,261 10,007
Pro forma net income 1,963 1,979 2,583 2,703 9,228
Pro forma income per share $ 0.11 $ 0.10 $ 0.13 $ 0.14 $ 0.48
</TABLE>
34
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
SERVED AS
OFFICER OR
DIRECTOR
NAME AGE POSITIONS SINCE CLASS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bobby G. Stevenson 55 Chairman, Chief Executive Officer, 1974 Class III
Secretary and Founder
Mac J. Slingerlend 50 President, Chief Operating Officer, 1989 Class II
Treasurer and Director
Richard A. Montoni 46 Executive Vice President, 1996 Class III
Chief Financial Officer and Director
Lawrence D. Greenwood 46 Senior Vice President; 1996 -
President/Solutions Consulting Group
William E. Storrison 38 Senior Vice President; President/CIBER 1992 -
Information Services Division
John B. Maitland, Jr. 54 Vice President; President of 1995 -
Business Information Technology, Inc.
James A. Rutherford 51 Director 1994 Class II
James C. Spira 54 Director 1994 Class I
Roy L. Burger 42 Director 1995 Class I
</TABLE>
BOBBY G. STEVENSON. Mr. Stevenson is Chairman of the Board of Directors, Chief
Executive Officer, Secretary and one of the original three founders of the
Company. Mr. Stevenson was Vice President in charge of recruiting and
management of the technical staff from 1974 until November 1977 when he became
Chief Executive Officer. He has been responsible for all operations of the
Company since 1977.
MAC J. SLINGERLEND. Mr. Slingerlend joined the Company in January 1989 as
Executive Vice President/Chief Financial Officer, became Treasurer and a
director in 1994 and President and Chief Operating Officer in 1996. Prior to
joining the Company, Mr. Slingerlend spent 15 years in the banking industry,
primarily as a commercial lender, and five years in corporate financial
positions in the cable television and hospitality industries.
RICHARD A. MONTONI. Mr. Montoni has been the Company's Executive Vice
President/Chief Financial Officer and a director since October 1996. Prior to
joining the Company, Mr. Montoni was a partner with KPMG Peat Marwick LLP,
where he worked for over 20 years with companies in the high technology,
manufacturing, merchandising and distribution industries. Mr. Montoni is a
member of the American Institute of Certified Public Accountants and the
Colorado Society of Certified Public Accountants.
35
<PAGE>
LAWRENCE D. GREENWOOD. Mr. Greenwood has been President of the Company's
Solutions Consulting Group since August 1997. Mr. Greenwood joined CIBER as
Vice President in 1996 when Spectrum Technology Group, Inc. ("Spectrum") merged
into the Company. Mr. Greenwood was a co-founder of Spectrum in 1979 and
served as its President when the merger occurred.
WILLIAM E. STORRISON. Mr. Storrison has been President of the CIBER
Information Services Division since 1996. Mr. Storrison was Senior Vice
President/Operations of the Company from 1994 to 1996 and, from 1992 to 1994,
served as the Company's Vice President/Eastern Operations. Mr. Storrison has
been with the Company since 1987 and was previously Branch Manager and Regional
Vice President of several of the Company's eastern branch offices.
JOHN B. MAITLAND, JR. Mr. Maitland joined the Company in 1995 as Vice
President and President of BIT when BIT merged with the Company. Mr. Maitland
is responsible for the strategic initiatives, organizational development,
business growth and overall profitability of BIT. From 1969 to 1981, Mr.
Maitland held several positions in management and consulting, lastly as
Consulting Manager and Director of Consulting at Integral Systems, Inc., a
human resource management systems and financial software producer and
consulting firm. In 1981, Mr. Maitland co-founded BIT and became its Executive
Vice President and Chief Operating Officer. In 1987, he was promoted to
President and Chief Executive Officer of BIT.
JAMES A. RUTHERFORD. Mr. Rutherford has been a director of the Company since
February 1994. He is currently a managing director of Wingset Investments
Ltd., a private venture capital company located in New Albany, Ohio. Prior to
forming Wingset in 1995, Mr. Rutherford was one of the founders of Goal Systems
International Inc., serving in various executive positions including Chief
Executive Officer and as a director from its incorporation in 1977 until its
sale in 1992. Mr. Rutherford is also a trustee of Case Western Reserve
University and a director of Symix Systems, Inc., Columbus, Ohio, as well as
several private corporations.
JAMES C. SPIRA. Mr. Spira has been a director of the Company since September
1994. Since 1995, he has been managing partner with Chicago, Illinois based
Diamond Technology Partners, Inc., a management consulting firm providing
program management services to design and deploy technology-enabled business
strategies. From 1991 to 1995, Mr. Spira was Group Vice President of The
Tranzonic Companies, a Cleveland-based holding company. From 1974 through
1991, Mr. Spira was founder, President and Chief Executive Officer of Cleveland
Consulting Associates, an operations and systems management consulting firm
doing business with large multi-national companies.
ROY L. BURGER. Mr. Burger has been a director of the Company since November
1995. Mr. Burger has approximately 20 years of experience in the equipment
leasing and finance industry and has arranged the financing of more than $1.5
billion of equipment. Mr. Burger currently serves as Chairman and Chief
Executive Officer of Boulder Capital Group, a company founded by him in 1986
that specializes in equipment leasing.
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference to the Company's
1997 Proxy Statement under the caption, "Executive Compensation", except the
Compensation Committee's Report on Executive Compensation which is not
incorporated herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference to the Company's
1997 Proxy Statement under the caption "Securities Ownership of Certain
Beneficial Owners and Management".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference to the Company's
1997 Proxy Statement under the caption "Certain Relationships and Related
Transactions".
36
<PAGE>
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 Balance Sheets - June 30, 1996 and 1997
Consolidated Statements of Operations - Years Ended June 30, 1995,
1996 and 1997
Consolidated Statements of Shareholders' Equity - Years Ended
June 30, 1995, 1996 and 1997
Consolidated Statements of Cash Flows - Years ended June 30, 1995,
1996 and 1997
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
None
(3) Exhibits
<TABLE>
Exhibit
Number Description of Exhibits
------- -----------------------
<S> <C>
3(i) Amended and Restated Certificate of Incorporation of the Company (1)
3(ii) Bylaws of the Company (1)
4.1 Form of Common Stock Certificate (1)
10.3 Implementation Partners Agreement dated September 1, 1993, by and
between Business Information Technology, Inc. and PeopleSoft, Inc. (1)
10.4 1989 CIBER, Inc. Employee Stock Option Plan (1)
10.5 Form of CIBER, Inc. Non-employee Directors' Stock Option Plan (1)
10.6 Form of CIBER, Inc. Equity Incentive Plan (1)
10.7 CIBER, Inc. Savings 401(k) Plan effective January 1, 1989 (1)
10.9 CIBER, Inc. Employee Stock Purchase Plan (2)
10.10 Form of Employment Agreement by and between Company and Bobby G. Stevenson (2)
10.11 Form of Employment Agreement by and between Company and Mac J. Slingerlend (2)
10.12 Form of Employment Agreement by and between Company and William Storrison (2)
10.16 Letter Agreement dated May 23, 1994, between the Company and C.P.U., Inc. (3)
10.20 Letter Agreement dated January 10, 1995, between the Company and Interface Systems, Inc. (4)
10.24 Agreement and Plan of Reorganization and Liquidation dated May 10, 1995, among the Company,
Spencer & Spencer Systems, Inc. and others (5)
10.25 Registration Rights Agreement dated May 11, 1995, by and among the Company and Linda Spencer,
Robert Spencer and David Pieroni (5)
10.30 Agreement and Plan of Reorganization and Liquidation dated June 30, 1995, by and among the
Company and Business Information Technology, Inc. (6)
10.31 Registration Rights Agreement dated June 30, 1995, by and among the Company, BIT Acquisition
Corp. and Paul Piper (6)
10.33 Employment Agreement dated June 30, 1995, by and among the Company, BIT Acquisition Corp.
and John Maitland (6)
10.37 Agreement and plan of merger by and among Practical Business Solutions, Inc., CIBER, Inc.,
William Crafton, Bruce Austin and Norman Banville, dated April 23, 1996, incorporated by
reference to the Current Report on Form 8-K dated May 7, 1996
10.38 Salary Continuation Retirement Plan for Mac J. Slingerland, incorporated by reference to the
Annual Report on Form 10-K for the year ended June 30, 1996
10.39 Employment Agreement between the Company and Richard A. Montoni (7)
10.40 CIBER, Inc. Salary Continuation Retirement Plan for Richard A. Montoni (7)
37
<PAGE>
10.41 Revolving Line of Credit Agreement dated March 25, 1997 between CIBER, Inc. and UMB Bank
Colorado, incorporated by reference to the Quarterly Report on form 10-Q for the quarter ended
March 31, 1997
21.1 Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
(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 Registration Statement on Form S-1, as amended (File No. 33-96988),
on September 15, 1995.
(3) Incorporated by reference to the Current Report on Form 8-K filed with the Commission on June 6, 1994.
(4) Incorporated by reference to the Current Report on Form 8-K filed with the Commission on January 23, 1995.
(5) Incorporated by reference to the Current Report on Form 8-K filed with the Commission on May 25, 1995.
(6) Incorporated by reference to the Current Report on Form 8-K filed with the Commission on July 14, 1995.
(7) Incorporated by reference to the Current Report on Form 8-K filed with the Commission on December 12, 1996.
</TABLE>
(b) REPORTS ON FORM 8-K DURING THE LAST QUARTER OF THE FISCAL YEAR ENDED
JUNE 30, 1997
None
38
<PAGE>
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: September 19, 1997 By /s/ Bobby G. Stevenson
------------------------------
Bobby G. Stevenson
CHIEF EXECUTIVE OFFICER 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.
<TABLE>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bobby G. Stevenson Chairman, Chief Executive Officer September 19, 1997
- ----------------------------- and Secretary
Bobby G. Stevenson
/s/ Mac J. Slingerlend President, Chief Operating Officer, September 19, 1997
- ----------------------------- Treasurer and Director
Mac J. Slingerlend
/s/ Richard A. Montoni Executive Vice President, Chief September 19, 1997
- ----------------------------- Financial Officer and Director
Richard A. Montoni (Principal Financial Officer)
/s/ Christopher L. Loffredo Vice President/Chief Accounting September 19, 1997
- ----------------------------- Officer (Principal Accounting Officer)
Christopher L. Loffredo
/s/ James A. Rutherford Director September 19, 1997
- -----------------------------
James A. Rutherford
Director
- -----------------------------
James C. Spira
/s/ Roy L. Burger Director September 19, 1997
- -----------------------------
Roy L. Burger
</TABLE>
39
<PAGE>
Exhibit 21.1
CIBER, INC.
LIST OF SUBSIDIARIES
AS OF AUGUST 31, 1997
Business Information Technology, Inc., a Delaware corporation
Spectrum Technology Group, Inc., a New Jersey corporation
CIBER Network Services, Inc., a Delaware corporation
CIBER Employee Services, Inc., a Delaware corporation
CIBER Client Services, Inc., a Delaware corporation
KCM Computer Consulting, Inc., a Maryland corporation
Technology Management Group, Inc., a Washington corporation
CIBER Associates, Inc., a Delaware corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
CIBER, Inc.:
We consent to incorporation by reference in the registration statements on
Form S-8 (Nos. 33-81320-3, 33-87978, 33-88046, 33-88048, 33-88050, 333-15091,
333-25543 and 333-25545) and Form S-4 (No. 33-02740) of CIBER, Inc. of our
report dated August 1, 1997, except as to Note 13(b), which is as of August
21, 1997, relating to the consolidated balance sheets of CIBER, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
years in the three-year period ended June 30, 1997, which report appears in
the June 30, 1997 Annual Report on Form 10-K of CIBER, Inc.
KPMG PEAT MARWICK LLP
Denver, Colorado
September 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CIBER, INC. CONSOLIDATED FINANCIAL STATEMENTS AS FILED IN THE CIBER, INC.
FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 22,997
<SECURITIES> 0
<RECEIVABLES> 51,736
<ALLOWANCES> 0
<INVENTORY> 330
<CURRENT-ASSETS> 80,838
<PP&E> 9,500
<DEPRECIATION> 4,316
<TOTAL-ASSETS> 122,718
<CURRENT-LIABILITIES> 20,082
<BONDS> 0
0
0
<COMMON> 198
<OTHER-SE> 102,338
<TOTAL-LIABILITY-AND-EQUITY> 122,718
<SALES> 0
<TOTAL-REVENUES> 262,274
<CGS> 0
<TOTAL-COSTS> 235,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,724
<INCOME-TAX> 12,099
<INCOME-CONTINUING> 14,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,625
<EPS-PRIMARY> .78<F1>
<EPS-DILUTED> 0
<FN>
<F1>COMPUTED ON THE BASIS OF PRO FORMA NET INCOME OF 15,933.
</FN>
</TABLE>
