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 MARCH 31, 1997
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: 000-26622
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 April 30, 1997 there were 13,157,754 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 March 31, 1997
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
-2-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Balance Sheets
March 31, December 31,
1997 1996
(unaudited) (restated)
Current assets:
Cash and cash equivalents $ 10,259,402 14,201,624
Accounts receivable, net 10,467,677 9,375,005
Revenue earned in excess of billings 1,807,697 1,485,205
Investments 6,346,473 4,895,482
Other receivables 125,167 81,516
Notes receivable 428,052 465,250
Other current assets 40,847 136,381
------------ -------------
Total current assets 29,475,315 30,640,463
------------ -------------
Property and equipment:
Land 2,332,000 2,107,000
Buildings and improvements 4,233,671 3,309,151
Computers and software 2,854,947 2,656,423
Office furniture and equipment 1,652,031 1,435,101
Vehicles 331,435 331,435
------------ -------------
11,404,084 9,839,110
Less accumulated depreciation 2,451,058 2,248,972
------------ -------------
Net property and equipment 8,953,026 7,590,138
Other assets:
Intangible assets, net of accumulated
amortization of $461,389 and $310,280 3,927,367 2,628,664
Land held for investment, at cost 424,065 424,065
Investments 5,545,766 5,542,369
Notes receivable, less current portion 1,125,092 1,135,092
Other 418,452 409,699
------------ -------------
Total other assets 11,440,742 10,139,889
------------ -------------
Total assets $ 49,869,083 48,370,490
============ =============
(continued)
-3-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Balance Sheets, continued
March 31, December 31,
1997 1996
(unaudited) (restated)
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable 100 864,411
Accounts payable 168,549 282,275
Accrued expenses 2,613,930 2,824,711
Unearned revenue 358,794 330,291
Income taxes payable 1,139,026 312,249
Deferred income taxes 94,211 -
------------ ------------
Total current liabilities 4,374,610 4,613,937
------------ -------------
Long-term liabilities:
Notes payable 45,146 114,814
Deferred income taxes 301,710 385,774
------------ -------------
Total long term liabilities 346,856 500,588
------------ -------------
Shareholders' equity:
Common stock, $.01 par value;
20,000,000 shares authorized,
12,998,451 and 12,997,101 shares
issued and outstanding in 1997 and 1996 129,985 129,971
Preferred stock, $.01 par value; 5,000,000
shares authorized, no shares issued and
outstanding in 1997 and 1996 - -
Paid-in capital 30,298,784 30,290,455
Retained earnings 14,707,600 12,785,285
Unrealized gain on investments, net of
income tax 11,248 50,254
------------ -------------
Total shareholders' equity 45,147,617 43,255,965
------------ -------------
Total liabilities and
shareholders' equity $ 49,869,083 48,370,490
============ =============
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Statements of Operations
(Unaudited)
For the Three Month
Period Ended March 31,
1997 1996
(restated)
Revenue $ 16,229,154 13,073,010
Direct costs 10,047,799 7,952,943
------------- -------------
Gross profit 6,181,355 5,120,067
Selling, general and administrative
expenses 3,410,912 3,185,201
------------- -------------
Income from operations 2,770,443 1,934,866
Other income (expense):
Investment and other income 346,685 383,124
Interest expense (7,813) (31,818)
------------- -------------
338,872 351,306
------------- -------------
Income before income taxes 3,109,315 2,286,172
Provision for income taxes 1,187,000 820,000
------------- -------------
Net income $ 1,922,315 1,466,172
============= =============
Pro forma information (note 2):
Net income as reported $ 1,922,315 1,466,172
Pro forma charge in lieu of income taxes - 98,153
------------- -------------
Pro forma net income $ 1,922,315 1,368,019
============= =============
Pro forma net income per share $ .13 .09
============= =============
Weighted average number of common
and common equivalent shares
outstanding 15,131,161 14,891,072
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months
Ended March 31,
1997 1996
---- ----
(restated)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 1,922,315 1,466,172
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 353,193 123,292
Net gain on disposition of property
and equipment - (600)
Deferred income taxes 49,247 207
Pooling adjustment to conform fiscal
year-ends - 41,227
Change in assets and liabilities:
Increase in accounts and other receivables (1,421,859) (2,433,681)
Decrease in other current assets 81,222 5,199
Decrease in other assets 1,247 6,540
Decrease (increase) in accounts payable
and accrued expense (324,507) 346,712
Increase (decrease) in unearned revenue 28,503 (214,096)
Increase in income taxes payable 826,777 460,049
------------- -------------
Net cash provided by (used in)
operating activities 1,516,138 (198,979)
------------- -------------
Cash flow from investing activities:
Purchases of property and equipment (1,564,784) (439,378)
Proceeds from the sale of property and
equipment - 600
Purchase of investments, net (1,518,182) (4,877,541)
Increase in intangible assets (1,450,000) (185,000)
Decrease (increase) in notes receivable 242 (275,000)
------------- -------------
Net cash used in investing activities (4,532,724) (5,776,319)
------------- -------------
Cash flow from financing activities:
Repayment of notes payable (933,979) (145,806)
Proceeds from issuance of common stock 8,343 -
------------- -------------
Net cash used in financing activities (925,636) (145,806)
------------- -------------
Net decrease in cash and cash equivalents (3,942,222) (6,121,104)
Cash and cash equivalents at beginning of period 14,201,624 30,081,665
------------- -------------
Cash and cash equivalents at end of period $ 10,259,402 23,960,561
============= =============
See accompanying notes to consolidated financial statements.
</TABLE>
-6-
<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 31, 1997. 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 Combinations
On January 17, 1997, the Company issued 584,080 shares of its common
stock in exchange for all of the outstanding common stock of Miaco
Corporation (Miaco), a computer consulting firm, based in Denver,
Colorado, specializing in relational database and client/server
technologies. Miaco also has an office in Washington, D.C. This business
combination was accounted for as a pooling-of-interests combination and,
accordingly, the Company's historical consolidated financial statements
have been restated to include the accounts and results of operations of
Miaco. Prior to its acquisition by the Company, Miaco's fiscal year ended
on March 31. Miaco's fiscal year end was conformed with the Company's
December 31 year end during 1996. Miaco will continue to operate as a
wholly-owned subsidiary of the Company.
On April 30, 1996, the Company issued approximately 945,907 shares
(adjusted for subsequent stock splits) 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 all periods
presented 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 in lieu of income has been included, in the accompanying
consolidated statements of operations, for the periods preceding the
termination of S Corporation status.
-7-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Notes to Consolidated Financial Statements, continued
(3) Newly Issued Accounting Pronouncement
During February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, (SFAS 128) "Earnings
Per Share". SFAS 128 governs the computation, presentation and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock. SFAS 128 was issued to simplify the computation of EPS and
replaces the Primary and Fully diluted EPS calculations currently in use
with calculations of Basic and Diluted EPS. SFAS 128 is effective for
both interim and annual financial statements ending after December 15,
1997, and earlier application is not permitted. The Company will begin to
calculate EPS in compliance with SFAS 128 for the fourth quarter and year
ended December 31, 1997. After adoption, all prior period EPS data
presented will be restated to conform to SFAS 128. The Company does not
believe that the adoption of SFAS 128 will materially impact historical
or future EPS.
-8-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
This Report on Form 10-Q may contain certain information and trend
statements that constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act, which involve risks and
uncertainties. Actual results may differ materially from the results described
in the forward-looking statements. When used in this document, the words
"anticipate", "believe", "estimate", "expect", "intend", "project", "target" and
other similar expressions, as they relate to the Company, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions that include, but are not limited to, growth
through business combinations and internal expansion, the Company's ability to
attract and retain qualified consultants, dependence on significant
relationships and the absence of long-term contracts, project risk, the
Company's ability to effectively manage a large and rapidly changing business,
pricing and margin pressures, and competition. Please refer to discussions of
these and other factors in this Report and other Company forms on file with the
Securities and Exchange Commission. The Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise.
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, the consolidated financial statements,
including the notes thereto, and the Company's 1996 Annual Report on Form 10-K
on file with the Securities Exchange Commission. Historical events are not
necessarily indicative of trends in operating results for any future period.
Reference is also made to the above paragraph, with regard to the risks and
uncertainties associated with forward-looking statements.
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
March 31,
1997 1996
Revenue 100.0% 100.0%
Direct Costs 61.9% 60.8%
Gross Profit 38.1% 39.2%
Selling, general, and administrative
expenses 21.0% 24.4%
Income from operations 17.1% 14.8%
Other income, net 2.1% 2.7%
Income before income taxes 19.2% 17.5%
Provision for income taxes 7.3% 6.3%
Net income 11.8% 11.2%
Pro forma net income 11.8% 10.5%
-9-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Management's Discussion and Analysis of Financial Condition and
Results of Operations, continued
Revenue:
Revenue for the first quarter ended March 31, 1997 was $16,229,154, a
24.1% increase over revenue of $13,073,010 recorded in the first quarter
of 1996. 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 452 in the first quarter of
1996 to 553 for the current period, a 22.3% increase. Also contributing
to the increase in revenue was a slight change in the mix of services
delivered by the Company. During the later part of 1996 and continuing
into 1997, the number of strategic IT solution consulting and
outsourcing/fixed bid projects undertaken by the Company has steadily
increased and positively impacted average hourly billing rates. The
success of the Company's System Outsourcing Centers have contributed to
the change in mix of services. However, revenue was adversely impacted by
approximately $450 thousand as result of two less billing days in the
first quarter 1997 versus 1996 due to the timing of holidays. The Company
will recoup one lost day during each of the second and fourth quarters of
1997.
Gross Profits:
The 1997 first quarter gross profit of $6,181,355 was a $1,061,288
improvement over the first quarter of 1996. Expressed as a percentage of
revenue, however, gross profit was 38.1% in 1997 versus 39.2% in 1996.
The increased dollar amount is attributable to the increase in revenue.
The decline in the gross margin percentage is due to the two less billing
days as discussed above. On a comparable basis (i.e. assuming the same
number of billing days quarter to quarter), the gross margin percentage
would have been 40.9% in 1997. This is primarily due to the change in mix
of services delivered, as discussed above, which resulted in an increase
in average hourly billing rates of approximately 5% during the current
quarter.
S,G&A Expenses:
Selling, general and administrative expenses totaled $3,410,912 for the
first quarter of 1997, an increase of $225,711 over the first quarter of
1996. Expressed as a percentage of revenue, however, S,G&A expenses
decreased from 24.4% in the first quarter 1996 to 21.0% for the first
quarter 1997. The improved percentage resulted from increased volume and
cost containment of marketing and other fixed expenses. Management
believes that this percentage will continue to improve as the Company
enters the third and fourth quarter of 1997 and the January 1997 pooling
with Miaco is fully assimilated.
Net Income and Pro Forma Net Income:
Net income increased $554,296 to $1,922,315 for the first quarter of
1997, compared to pro forma net income of $1,368,019 for the first
quarter of 1996. This improved performance was a result of increased
revenue and cost containment of S,G&A expenses. For the first quarter of
1997, the effective tax rate was 38.2% versus 35.9% for the comparable
1996 period. 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 in lieu of income taxes has been
included for the periods preceding the termination of S Corporation
status. On a comparable basis, pro forma net income expressed as a
percentage of revenue was 11.8% for the quarter ended March 31, 1997
versus 10.5% for the same period in 1996.
-10-
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Liquidity and Capital Resources
During the three months ended March 31, 1997, cash decreased $3,942,222
and working capital dropped $925,821. While a number of factors
contributed to the change, the main components were increases in
investments, accounts receivable, and property and equipment, as
discussed below.
As of December 31, 1996, $12.8 million was invested in funds with
original maturity of ninety days or less and were classified as cash
equivalents, versus $8.9 million at March 31, 1997. In an effort to
increase the return on investments, the Company acquired investments with
maturities extending beyond ninety during the current quarter. By the end
of the first quarter, $6,346,473 was invested in current securities and
$5,545,766 was invested in various corporate and governmental bonds with
maturities exceeding one year.
Accounts receivable increased $1,092,672 during the first three months of
1997. The number days of sales outstanding decreased 1 day since the end
of 1996 to 59 days of sales outstanding. Therefore, the increase in
accounts receivable is a reflection of increased sales volume experienced
during the period.
During the three months, the Company spent approximately $1.6 million for
capital expenditures. Of the capital expenditures, $1.1 million was spent
for property, buildings and improvements to house the Greenville SOC, and
$0.4 million was spent for computer equipment, software and furniture for
the Tallahassee and Greenville SOCs.
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 $9.6 million as of March 31, 1997).
The credit facility has been inactive during 1997. The Company assumed
certain debt obligations totaling $931,020 in connection with its January
1997 merger with Miaco, which were paid off during the quarter.
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.
-11-
<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 three months
ended March 31, 1997, pursuant to Article 5 of Regulation S-X.
(b) Reports:
The Company filed a Form 8-K report on January 31, 1997,
Commission File No. 000-26622.
-12-
<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: May 14, 1997 /s/ Anthony Colaluca
--------------------
Anthony Colaluca
Vice President and
Chief Financial Officer
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<PAGE>
<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 THREE MONTH PERIOD ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,259,402
<SECURITIES> 6,346,473
<RECEIVABLES> 10,467,677
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,475,315
<PP&E> 11,404,084
<DEPRECIATION> 2,451,058
<TOTAL-ASSETS> 49,869,083
<CURRENT-LIABILITIES> 4,374,610
<BONDS> 0
0
0
<COMMON> 129,985
<OTHER-SE> 45,017,632
<TOTAL-LIABILITY-AND-EQUITY> 49,869,083
<SALES> 16,229,154
<TOTAL-REVENUES> 16,229,154
<CGS> 10,047,799
<TOTAL-COSTS> 10,047,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,813
<INCOME-PRETAX> 3,109,315
<INCOME-TAX> 1,187,000
<INCOME-CONTINUING> 1,922,315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,922,315
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
