UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File Number: 0-26622
COMPUTER MANAGEMENT SCIENCES, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2264633
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8133 Baymeadows Way, Jacksonville, Florida 32256
(Address of principal executive offices) (zip code)
(904) 737-8955
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
___________________________________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934, during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ____
As of October 24, 1996 there were 8,270,902 shares of the Registrant's common
stock, $0.01 par value, outstanding.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Index to Form 10-Q
For the Quarter Ended September 30, 1996
Page
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets 3-4
Consolidated Statements of Operations 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 9-10
Liquidity and Capital Resources 11
PART II - OTHER INFORMATION
Items 1-6 Other Information 12
Signatures 13
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Balance Sheets
September 30, December 31,
1996 1995
(unaudited) (restated)
Current assets:
Cash and cash equivalents $ 12,163,225 30,068,844
Accounts receivable, net 9,156,663 5,602,778
Investments 1,721,009 -
Other receivables 518,424 80,902
Due from officers 346,750 21,750
Other current assets 69,939 46,539
Total current assets 23,976,010 35,820,813
Property and equipment:
Land 2,072,000 168,000
Buildings and improvements 3,049,898 1,516,356
Computers and software 1,616,103 1,044,050
Office furniture and equipment 872,651 811,400
Vehicles 268,087 169,883
Investment in leased property - 5,116
7,878,739 3,714,805
Less accumulated depreciation 1,434,620 1,126,707
Net property and equipment 6,444,119 2,588,098
Other assets:
Intangible assets, net of accumulated
amortization of $206,895 and $88,551 2,647,990 312,823
Land held for investment, at cost 428,465 428,465
Investments 10,016,868 646,536
Other 915,893 282,565
Total other assets 14,009,216 1,670,389
Total assets $ 44,429,345 40,079,300
(continued)
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Balance Sheets, continued
September 30, December 31,
1996 1995
(unaudited) (restated)
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 100 232,396
Accounts payable 107,200 236,278
Accrued expenses 2,049,963 1,720,825
Unearned revenue 135,925 531,913
Income taxes payable 300,970 181,760
Deferred taxes payable 52,184 75,425
Total current liabilities 2,646,342 2,978,597
Long-term liabilities:
Notes payable - 44,439
Deferred income taxes 201,720 57,666
Total long term liabilities 201,720 102,105
Shareholders' equity:
Common stock, $.01 par value;
20,000,000 shares authorized,
8,270,902 and 5,511,858 shares
issued and outstanding in 1996 and 1995 82,709 55,119
Preferred stock, $.01 par value;
5,000,000 shares authorized,
no shares issued and outstanding in 1996 and 1995 - -
Paid-in capital 30,116,942 29,337,650
Retained earnings 11,346,684 7,565,688
Unrealized gain on investments, net of income tax 34,948 40,141
Total shareholders' equity 41,581,283 36,998,598
Total liabilities and shareholders' equity $ 44,429,345 40,079,300
See accompanying notes to consolidated financial statements.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Statements of Operations
(Unaudited)
For the Three Month For the Nine Month
Period Ended Period Ended
September 30, September 30,
1996 1995 1996 1995
(restated) (restated)
Revenue $ 11,782,533 7,774,405 33,435,709 23,067,161
Direct costs 7,353,439 5,034,321 20,643,450 14,560,477
Gross profit 4,429,094 2,740,084 12,792,259 8,506,684
Selling, general and
administrative expenses 2,140,401 1,691,425 6,414,474 5,260,430
Income from operations 2,288,693 1,048,659 6,377,785 3,246,254
Other income (expense):
Investment and other income 328,919 48,474 1,110,767 112,153
Interest expense (145) (3,208) (4,987) (8,052)
328,774 45,266 1,105,780 104,101
Income before income taxes 2,617,467 1,093,925 7,483,565 3,350,355
Provision for income taxes 1,227,000 456,471 3,006,000 1,260,820
Net income $ 1,390,467 637,454 4,477,565 2,089,535
Pro forma information (note 2):
Net income as reported $ 1,390,467 637,454 4,477,565 2,089,535
Pro forma charge(credit)in
lieu of income taxes - (9,927) 132,669 38,088
Pro forma credit for a
non-recurring charge related
to the change in tax status (246,876) - 246,876) -
Pro forma net income $ 1,637,343 647,381 4,591,772 2,051,447
Pro forma net income per share $ .17 .10 .48 .33
Weighted average number of
common and common equivalent
shares outstanding $ 9,636,560 6,221,603 9,599,508 6,199,103
See accompanying notes to consolidated financial statements.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
For The Nine Months
Ended September 30,
1996 1995
(restated)
Cash flow from operating activities:
Net income $ 4,477,565 2,089,535
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 450,486 288,222
Net gain on disposition of property and equipment (2,850) (490)
Deferred income taxes 124,108 (36,857)
Change in assets and liabilities:
Increase in accounts and other receivables (3,991,407) (948,572)
Decrease in refundable taxes - 23,726
Increase in other current assets (23,400) (46,699)
Increase in other assets (633,328) (328,407)
Increase in accounts payable and accrued expense 200,060 395,952
Decrease in unearned revenue (395,988) (148,933)
Increase in income taxes payable 119,210 150,728
Net cash provided by operating activities 324,456 1,438,205
Cash flow from investing activities:
Purchases of property and equipment (4,184,412) (717,067)
Proceeds from the sale of property and equipment 2,850 490
Purchase of investments, net (11,099,829) (229,790)
Increase in intangible assets (2,457,262) (80,550)
Increase in due from officers (325,000) -
Net cash used in investing activities (18,063,653) (1,026,917)
Cash flow from financing activities:
Repayment of notes payable (276,735) (144,096)
Dividends paid to shareholders of pooled entity - (2,000)
Proceeds from issuance of common stock 110,313 651
Net cash used in financing activities (166,422) (145,445)
Net(decrease)increase in cash
and cash equivalents (17,905,619) 265,843
Cash and cash equivalents at beginning of period 30,068,844 1,137,657
Cash and cash equivalents at end of period $ 12,163,225 1,403,500
See accompanying notes to consolidated financial statements.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Notes to Consolidated Financial Statements
(1) Organization and Basis of Presentation
Computer Management Sciences, Inc. (the Company), provides computer
systems and information technology consulting, project management,
systems analysis and design, and programming services to a broad range
of industries and software/hardware platforms. The Company's services are
generally an outside resource supplementing a client's internal
information technology (IT) capabilities, and include various technical
services, such as technology support services, IT solutions services and
strategic IT consulting.
The interim financial information included herein is unaudited. Certain
information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC), although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. These financial statements should
be read in conjunction with the financial statements and related notes
contained in the Company's annual report on Form 10-K filed with the SEC
on March 29, 1996. Other than as indicated herein, there have been no
significant changes from the financial data published in that report.
In the opinion of management, such unaudited information reflects all
adjustments, consisting of normal recurring accruals and other
adjustments necessary for a fair presentation of the unaudited
information.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
(2) Business Combination
On April 30, 1996, the Company issued 630,608 (adjusted for stock split,
see note 3) shares of its common stock in exchange for all of the
outstanding common stock of Summit Computer Services, Inc. (SCS), a
Charlotte, North Carolina based computer consulting firm with
concentrated expertise in client/server technology. This business
combination has been accounted for as a pooling-of-interests and,
accordingly, the consolidated financial statements for periods prior to
the combination have been restated to include the accounts and results
of operations of SCS. Prior to its acquisition by the Company, SCS had
elected S Corporation status for federal and state income tax purposes.
As an S Corporation, SCS's tax liability was the responsibility of its
stockholders. To reflect the earnings of SCS on an after tax basis, a
pro forma charge (credit) in lieu of income taxes has been included for
the periods preceding the termination of S Corporation status. A pro
forma credit for the impact of a non-cash, non-recurring net charge for
deferred income taxes resulting from the termination of the S
Corporation status has also been included pursuant to the provisions of
SFAS No. 109.
On July 31,1996, the Company acquired substantially all of the assets of
Pathways Consulting, Inc. (Pathways), an Atlanta-based information
technology firm specializing in providing systems integration consulting
services to the public utility industry. The purchase price of the
acquisition was $4.4 million in cash of which $2.3 million was paid at
closing and $2.1 million is payable in equal installments over an
approximate three year period contingent on meeting certain revenue
goals. The Pathways acquisition was accounted for under the purchase
accounting method.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Notes to Consolidated Financial Statements, continued
(3) Stock Split
On June 7, 1996, the Company's Board of Directors declared a 3-for-2
stock split, which was effected as a fifty percent stock dividend, of
the Company's common stock. The common stock dividend was distributed
on July 5, 1996 to shareholders of record on June 21, 1996. Retroactive
recognition has been given in the calculation of earnings per share to
the shares issued in the SCS business combintion (note 2) and stock
split.
(4) Subsequent Event
On October 17, 1996, the Company's Board of Directors declared a 3-for-2
stock split, to be effected as a fifty percent stock dividend, of the
Company's common stock. The common stock dividend will be distributed
on November 20, 1996 to shareholders of record on November 4, 1996.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The information in the following table is presented as a percentage of
net sales for the period indicated:
Percentage of Total Revenue
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenue 100.0% 100.0% 100.0% 100.0%
Direct Costs 62.4% 64.8% 61.7% 63.1%
Gross Profit 37.6% 35.2% 38.3% 36.9%
Selling, general, and
administrative expenses 18.2% 21.7% 19.2% 22.8%
Income from operations 19.4% 13.5% 19.1% 14.1%
Other income, net 2.8% 0.6% 3.3% 0.4%
Income before income taxes 22.2% 14.1% 22.4% 14.5%
Provision for income taxes 10.4% 5.9% 9.0% 5.4%
Net income 11.8% 8.2% 13.4% 9.1%
Pro forma net income 13.9% 8.3% 13.7% 8.9%
Revenue:
Revenue for the third quarter ended September 30, 1996 was
$11,782,533, a 51.6% increase over revenue of $7,774,405 recorded in
the third quarter of 1995. Revenue for the current nine month period
of $33,435,709 was a 44.9% increase over the comparable 1995 period.
The increase in revenue was primarily attributable to an increase in
volume of services which was sustained by the growth in the average
billable consultant headcount from 309 in the third quarter of 1995 to
441 for the current period, a 42.7% increase. Also contributing to the
increase in revenue was a slight change in the mix of services
delivered by the Company. During the first nine months of 1995, the
Company's engagements consisted primarily of traditional IT consulting
projects billed on a time and material basis. Over the course of the
first nine months of 1996, however, the number of strategic IT
solution consulting and outsourcing/fixed bid projects undertaken by
the Company has steadily increased resulting in an increase in the
average hourly billing rate from $52 in the third quarter 1995 to $54
for the third quarter 1996. The change in mix of services is primarily
due to the success of the System Outsourcing Centers (SOCs) in
Jacksonville and Greenville, which came online in October 1995 and
January 1996, respectively. The branch offices which significantly
contributed to the above increases were: Atlanta (including the
Pathways acquisition, see note 2); Charlotte (SCS); Cleveland;
Greenville; Jacksonville; and Tallahassee (MIS Software Development,
Inc.,"MSD"), which posted revenue increases year-to-date 1996 of
38.4%; 80.7%; 99.7%; 148.8%; 51.0%; and 60.0%, respectively, over the
comparable 1995 period.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Gross Profits:
The 1996 third quarter gross profit of $4,429,094 was a $1,689,010
improvement over the third quarter of 1995. For the nine month period,
gross profit increased 50.4% to $12,792,259 or 38.3% of revenue versus
36.9% of revenue in 1995. This increase is attributable to the delivery
of more strategic IT solution consulting, a larger percentage of fixed
bid business, and increased software revenue. As mentioned above, the
success of the SOCs has contributed to an increase in outsourced and
fixed bid projects which generally demand higher billing rates than
traditional IT consulting services. The average billing rate increased
to $54.48 per hour in the third quarter of 1996 from $52.07 an hour in
1995, a 4.6% increase.
S,G&A Expenses:
Selling, general and administrative expenses totaled $2,140,401 for the
third quarter of 1996, an increase of $448,976 over the third quarter of
1995. Expressed as a percentage of revenue, however, S,G&A expenses
decreased from 21.8% in the third quarter 1995 to 18.2% for the third
quarter 1996. For the current nine month period, S,G&A expenses
decreased as a percentage of revenue to 19.2% from 22.8% for the
comparable 1995 period. The improved percentage for both periods
resulted from increased volume and cost containment of marketing and
other fixed expenses.
Net Income and Pro Forma Net Income:
Net income increased $753,013 to $1,390,467 for the third quarter of
1996. For the current nine month period, net income was $4,477,565, an
increase of $2,388,030. This improved performance for both the third
quarter and the nine month period was a result of increased revenue,
stronger gross margins, cost containment of S,G&A expenses and
investment income earned on funds received from the Company's initial
public offering which closed on October 4, 1995. For the third quarter
and nine month period of 1996, the effective tax rate was 46.9% and
40.2% versus 41.7% and 37.6% for the comparable 1995 periods,
respectively. The significant increase in the effective tax rate is due
to the business combination with SCS, an S Corporation acquired by the
Company on April 30, 1996. The acquisition of SCS was accounted for as
a pooling-of-interests. As an S Corporation, SCS's tax liability was the
responsibility of its stockholders. To reflect the earnings of SCS on
an after tax basis, a pro forma charge (credit) in lieu of income taxes
has been included for the periods preceding the termination of S
Corporation status. A pro forma credit for the impact of a non-cash,
non-recurring net charge for deferred income taxes resulting from the
termination of the S Corporation status has also been included pursuant
to the provisions of SFAS No. 109. On a comparable basis, pro forma net
income expressed as a percentage of revenue was 13.7% for the nine
months ended September 30, 1996 versus 8.9% for the same period in 1995.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Liquidity and Capital Resources
During the nine months ended September 30, 1996, cash decreased
$17,905,619 and working capital dropped $11,512,548. While a number of
factors contributed to the change, the main components were increases in
long-term investments, accounts receivables, and property and equipment,
as discussed below.
As of December 31, 1995, $28,515,745 was invested in funds with original
maturity of ninety days or less and were classified as cash
equivalents. The drop in interest rates experienced during 1996
required the Company to look for investments with maturities extending
beyond ninety days to increase its yield. By the end of the third
quarter, $1,721,009 was invested in trading securities and $10,016,868
was invested in various corporate and governmental bonds with maturities
exceeding one year.
Accounts receivable increased $3,991,407 during the first nine months of
1996. The number days of sales outstanding increased 11 days since the
end of 1995 to 75 days of sales outstanding. Therefore, the increase in
accounts receivable is a reflection of increased sales volume and an
increase in days of sales outstanding experienced during the period.
The amount of fixed bid business rose during the period by approximately
$2.4 million. Most of this business requires payment after completion
of particular phases of a project or upon completion of the entire
project. The amounts of revenue earned in excess of billings increased
approximately $715,000 since the end of 1995.
During the nine months, the Company spent approximately $4.2 million for
capital expenditures and approximately $2.5 million for acquisitions.
Of the capital expenditures, $3.4 million was spent for property and
buildings to house the Atlanta and Tallahassee SOCs, $0.6 million was
spent for computer equipment, software and furniture for the Greenville
SOC and other branch offices and $0.2 million was spent for various
other fixed assets. Of the acquisitions, $2.3 million was spent on the
July 31, 1996 acquisition of Pathways Consulting, Inc. and $0.2 million
was spent on the January 30, 1996 acquisition of Weldon Systems, Inc.
The Company maintains a $750,000 revolving credit facility with a
commercial bank, permitting advances equal to the lesser of $750,000 or
75% of "qualified accounts" (defined as trade accounts receivables less
than 90 days old which approximated $8.4 million as of September 30,
1996). The credit facility has been inactive during 1996. The Company
assumed certain mortgage obligations totaling $55,321 in connection with
its December 28, 1995 merger with MSD, and $221,414 in notes payable in
connection with its April 30, 1996 merger with SCS. The mortgages and
notes were paid off during the first half of 1996.
The Company currently anticipates that its existing cash and operating
cash flow are sufficient to meet both the Company's short and long-term
working capital requirements and to fund its expansion through the
establishment of additional branch offices, SOC locations, and possible
acquisitions.
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Part II - Other Information
Item 1 - Legal Proceedings - None
Item 2 - Changes in Securities - None
Item 3 - Defaults Upon Senior Securities - None
Item 4 - Submission of Matter to a Vote of Security Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit 27 - Financial Data Schedule as of and for the nine months
ended September 30, 1996, pursuant to Article 5 of Regulation S-X.
(b) Reports: None
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Signatures
Pursuant to the requirements 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.
COMPUTER MANAGEMENT SCIENCES, INC.
(Registrant)
Date: November 8, 1996 /s/ ANTHONY V. WEIGHT
Anthony V. Weight
Senior Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPUTER
MANAGEMENT SCIENCES, INC. CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT
OF OPERATIONS AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 12,163,225
<SECURITIES> 1,721,009
<RECEIVABLES> 9,156,663
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,976,010
<PP&E> 7,878,739
<DEPRECIATION> 1,434,620
<TOTAL-ASSETS> 44,429,345
<CURRENT-LIABILITIES> 2,646,342
<BONDS> 0
0
0
<COMMON> 82,709
<OTHER-SE> 41,498,574
<TOTAL-LIABILITY-AND-EQUITY> 44,429,345
<SALES> 33,435,709
<TOTAL-REVENUES> 33,438,709
<CGS> 20,643,450
<TOTAL-COSTS> 20,643,450
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,987
<INCOME-PRETAX> 7,483,565
<INCOME-TAX> 2,891,793
<INCOME-CONTINUING> 4,591,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,591,772
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
