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, 1998
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, 1998 there were 14,586,808 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, 1998
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
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations 8-9
Liquidity and Capital Resources 10
PART II - OTHER INFORMATION
Items 1-6 Other Information 11
Signatures 12
2
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Balance Sheets
March 31, December 31,
1998 1997
(unaudited)
Current assets:
Cash and cash equivalents $ 19,893,336 14,550,323
Accounts receivable, net 14,154,385 11,720,377
Revenue earned in excess of billings 3,401,728 2,461,228
Investments 1,682,355 2,805,072
Refundable income taxes 1,997,394 4,358,250
Other receivables 411,877 251,407
Notes receivable 116,477 619,328
Other current assets 102,393 127,289
------------- ------------
Total current assets 41,759,945 36,893,274
------------- ------------
Property and equipment:
Land 2,562,000 2,562,000
Buildings and improvements 9,667,197 9,100,902
Computers and software 4,321,820 3,934,806
Office furniture and equipment 2,941,774 2,586,417
Vehicles 392,833 391,750
------------- ------------
19,885,624 18,575,875
Less accumulated depreciation 3,430,592 3,077,243
------------- ------------
Net property and equipment 16,455,032 15,498,632
------------- ------------
Other assets:
Intangible assets, net of accumulated
amortization of $988,557 and $872,230 4,100,206 3,516,531
Land held for investment, at cost 424,065 424,065
Investments 7,500,380 8,137,146
Notes receivable, less current portion 829,792 829,792
Other 715,767 823,830
------------- ------------
Total other assets 13,570,211 13,731,364
------------- ------------
Total assets $ 71,785,188 66,123,270
============= ============
(continued)
3
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Consolidated Balance Sheets, continued
March 31, December 31,
1998 1997
(unaudited)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 2,294 106,320
Accrued expenses 6,202,541 4,341,936
Unearned revenue 397,066 376,556
Deferred income taxes 128,035 50,623
----------- ----------
Total current liabilities 6,729,936 4,875,435
----------- ----------
Long-term liabilities:
Deferred income taxes 227,450 249,553
Other 32,937 35,594
----------- ----------
Total long term liabilities 260,387 285,147
----------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued and outstanding
in 1998 and 1997 - -
Common stock, $.01 par value; 40,000,000
shares authorized, 14,582,353 and 14,455,337
shares issued and outstanding in 1998 and 1997 145,825 144,554
Paid-in capital 39,506,968 38,605,137
Retained earnings 24,958,856 22,054,155
Accumulated comprehensive income, net of
income tax 183,216 158,842
----------- ----------
Total shareholders' equity 64,794,865 60,962,688
----------- ----------
Total liabilities and shareholders' equity $ 71,785,188 66,123,270
=========== ==========
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,
1998 1997
Revenue $ 20,801,361 16,229,154
Direct costs 12,521,769 10,047,799
------------- ------------
Gross profit 8,279,592 6,181,355
Selling, general and administrative
expenses 3,955,164 3,410,912
------------- ------------
Income from operations 4,324,428 2,770,443
Other income (expense):
Investment and other income 316,044 346,685
Interest expense (771) (7,813)
------------- ------------
315,273 338,872
------------- ------------
Income before income taxes 4,639,701 3,109,315
Provision for income taxes 1,735,000 1,187,000
------------- ------------
Net income $ 2,904,701 1,922,315
============= ============
Net income per share - basic $ 0.20 0.15
============= ============
Weighted average number of common
shares outstanding - basic 14,560,631 12,998,361
Net income per share - diluted $ 0.19 0.13
============= ============
Weighted average number of common and
common equivalent shares outstanding
- diluted 15,296,333 15,134,501
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,
1998 1997
<S> <C> <C>
Cash flow from operating activities:
Net income $ 2,904,701 1,922,315
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 469,674 353,193
Net gain on disposition of property and equipment (2,812) -
Deferred income tax 43,504 49,247
Change in assets and liabilities:
Increase in accounts and other receivables (3,534,978) (1,421,859)
Decrease in other current assets 24,896 81,222
Decrease in other assets 108,062 1,247
Increase (decrease) in accounts payable and accrued expense 1,756,579 (324,507)
Increase in unearned revenue 20,510 28,503
Decrease in refundable income taxes 3,073,837 826,777
------------- -------------
Net cash provided by operating activities 4,863,973 1,516,138
------------- -------------
Cash flow from investing activities:
Purchases of property and equipment (1,309,749) (1,564,784)
Proceeds from the sale of property and equipment 2,812 -
Sale (purchase) of investments, net 1,795,662 (1,518,182)
Increase in intangible assets (700,000) (1,450,000)
Decrease in notes receivable 502,851 242
------------- -------------
Net cash provided by (used in) investing activities 291,576 (4,532,724)
------------- -------------
Cash flow from financing activities:
Repayment of notes payable (2,657) (933,979)
Proceeds from issuance of common stock 190,121 8,343
------------- -------------
Net cash provided by (used in) financing activities 187,464 (925,636)
------------- -------------
Net increase (decrease) in cash and cash equivalents 5,343,013 (3,942,222)
Cash and cash equivalents at beginning of period 14,550,323 14,201,624
------------- -------------
Cash and cash equivalents at end of period $ 19,893,336 10,259,402
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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 30, 1998. 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) Newly Issued Accounting Pronouncement
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income", effective January 1,
1998. This Statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income for the
three months ended March 31, 1998 and 1997 was $2,929,075 and $1,883,309,
respectively. This amount differs from net income due to changes in the
net unrealized gains on marketable securities available for sale.
7
<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 and 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
revenue for the period indicated:
Percentage of Total Revenue
Three Months Ended
March 31,
1998 1997
Revenue 100.0% 100.0%
Direct Costs 60.2% 61.9%
Gross Profit 39.8% 38.1%
Selling, general, and administrative
expenses 19.0% 21.0%
Income from operations 20.8% 17.1%
Other income, net 1.5% 2.1%
Income before income taxes 22.3% 19.2%
Provision for income taxes 8.3% 7.3%
Net income 14.0% 11.8%
8
<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, 1998 was $20.8 million, a
28.2% increase over revenue of $16.2 million recorded in the first quarter
of 1997. Consulting service revenue, which represents 99% of total revenue
for the first quarter, increased 30.1% over the first quarter of 1997. The
increase in revenue during the current quarter was primarily attributable to
an increase in volume of services which was sustained by the growth in the
average billable consultant headcount from 553 in the first quarter of 1997
to 670 for the current period, a 21.2% increase. Also contributing to the
increase in revenue was an increase in the number and value of IT solution
fixed bid projects undertaken by the Company, which positively impacted
average billing rates and enhanced the Company's ability to leverage its
Systems Outsourcing Center (SOC) model. The Company's ability to execute,
manage and leverage fixed bid projects via its SOC network translates to
"virtual" headcount growth (i.e. increased revenue per consultant). As a
percentage of revenue, fixed bid projects increased to 13.6% of total
revenue for the first quarter of 1998 compared to 5.4% in the first quarter
of 1997.
Gross Profit:
Gross profit for the first quarter of 1998 was $8.3 million, representing a
$2.1 million, or 33.9%, improvement over gross profit for the first quarter
of 1997. Expressed as a percentage of revenue, gross profit was 39.8% in the
first quarter of 1998 versus 38.1% in the 1997 first quarter. This
improvement is attributable to the increase in IT solution fixed bid
projects, which generally results in the realization of stronger margins
when compared to technology support time and materials engagements. As
mentioned above, the success and leverage of the SOCs has contributed to an
increase in outsourced and fixed bid projects, which improved the gross
profit percentage. This has also resulted in an increase of approximately 8%
in average hourly billing rates for the first quarter over the average
hourly billing rates for the 1997 first quarter.
S,G&A Expenses:
Selling, general and administrative expenses totaled $4.0 million for the
first quarter of 1998, an increase of $544 thousand, or 16.0%, over the
first quarter of 1997. Expressed as a percentage of revenue, however, S,G&A
expenses decreased from 21.0% in the first quarter of 1997 to 19.0% for the
first quarter of 1998. The improved percentage resulted from increased
volume and cost containment of marketing and other fixed expenses. Partially
offsetting this percentage improvement was a $335 thousand expense incurred
in the first quarter of 1998 for the Resource Development Program, an
internal technical training program, which was a new initiative during the
second half of 1997. Management believes that certain infrastructure
investments in 1997 should allow this percentage to be maintained throughout
1998.
Net Income:
Net income increased 51.1% to $2.9 million for the first quarter of 1998,
compared to net income of $1.9 million for the first quarter of 1997. This
translates into first quarter 1998 diluted earnings per share of $0.19
versus $0.13 in the first quarter of 1997, a 49.5% increase. This improved
performance for the first quarter was a result of increased revenue,
improved billing rates and cost containment of S,G&A expenses, as discussed
above. Also contributing to the increase was an improvement in the effective
income tax rate, which declined from 38.2% of income before income taxes in
the first quarter of 1997 to 37.4% in the first quarter of 1998. The
improved effective tax rate is a result of state and local tax planning
strategies that were implemented in the fourth quarter of 1997. Net income
expressed as a percentage of revenue was 14.0% for the first quarter ended
March 31, 1998 versus 11.8% for the same period in 1997.
9
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Liquidity and Capital Resources
During the three months ended March 31, 1998, cash increased $5.3 million
and working capital increased $3.0 million. While a number of factors
contributed to the increase in cash, the main components were income tax
refunds, maturity of short-term bonds and reinvestment of funds in cash
equivalents, as well as an increase in accrued liabilities. Partially
offsetting these sources of cash were increases in accounts receivable,
intangible assets and property and equipment, as discussed below. The
increase in working capital is primarily due to increases in accounts
receivable and revenue earned in excess of billings, which have increased
due to increases in revenue.
As of December 31, 1997, $9.8 million was invested in funds with original
maturity of ninety days or less and were classified as cash equivalents,
versus $15.5 million at March 31, 1998. The timing of maturities of
governmental bonds as well as the reinvestment of short-term investments
in commercial paper with maturities of ninety days or less have resulted
in an increase in cash equivalents with corresponding decreases in short
and long-term investments. By the end of the first quarter, $1.7 million
was invested in current securities and $7.5 million was invested in
various corporate and governmental bonds with maturities exceeding one
year.
Accounts receivable increased $2.4 million during the first three months
of 1998. The number days of sales outstanding as of March 31, 1998 and
December 31, 1997 were approximately 61 days. Therefore, the increase in
accounts receivable is primarily a reflection of increased sales volume
experienced during the period.
During the current three month period, the Company spent approximately
$1.3 million for capital expenditures. Of these capital expenditures,
$570 thousand was spent for building improvement to the Denver SOC as
well as renovations to the new Jacksonville SOC, and $740 thousand was
spent for computer equipment, software and furniture for the Denver SOC
and corporate purposes. The Company also paid $700 thousand in connection
with the second contingent consideration payment due under the
acquisition agreement to purchase Pathways Consulting, Inc., dated July
31, 1996.
The Company maintains a $4 million line of credit with a commercial bank.
The line of credit is unsecured, but is contingent on meeting certain
financial covenants measured on a quarterly basis. The Company is
currently in compliance with such covenants and management expects that
the Company will continue to meet such covenants in future periods. The
credit facility has been inactive during 1998.
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.
10
<PAGE>
COMPUTER MANAGEMENT SCIENCES, INC.
Part II - Other Information
Item 1 - Legal Proceedings - None
Item 2 - Changes in Securities and Use of Proceeds:
(a) Changes in Securities - None
(b) Use of Proceeds - In accordance with the provision of Rule 463 (17 CFR
230.463), the following is a report of the use of proceeds from the
Company's initial public offering on September 29, 1995:
(1) The effective date of the Securities Act registration
statement on Form S-1 was September 27, 1995, Commission file
number 33-95544.
(2) The offering commenced on September 29, 1995.
(3) Not applicable.
(4) (i) Not applicable.
(ii) The managing underwriters for the offering were The
Robinson-Humphrey Company, Inc.and Raymond James & Associates,
Inc.
(iii) The class of stock registered by the Company was
Common Stock, par value $0.01 per share.
(iv) The Company registered and sold 2,185,000 shares of
Common Stock at an aggregate offering price of $30,590,000.
(v) The actual direct or indirect payments to others in
connection with the issuance and distribution for the
securities registered were as follows:
Underwriters discounts and commissions - $2,141,300
Other expenses - 457,626
----------
Total expenses - $2,598,926
==========
(vi) The net offering proceeds to the Company after
deducting the total expenses in (4)(v) above was $27,991,074.
(vii) From the effective date of the registration
statement through March 31, 1998, the Company used the net
proceeds from the offering for (all of which were direct
payments to others):
Construction of plant, building and facilities $2,698,945
Purchase and installation of machinery
and equipment 4,444,388
Purchases of real estate 8,406,650
Acquisition of other businesses 5,439,192
Repayment of indebtedness 1,033,124
Short term investment securities 5,968,775
------------
$ 27,991,074
============
(viii) Not applicable.
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, 1998, pursuant to Article 5 of
Regulation S-X.
Exhibit 27.1 - Restated Financial Data Schedule as of and for
the three months ended March 31, 1997, pursuant to
Article 5 of Regulation S-X.
(b) Reports: None
11
<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 15, 1998 /s/ Anthony Colaluca
------------------------------------------
Anthony Colaluca
Vice President and Chief Financial Officer
12
<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 MONTHS ENDED MARCH 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,893,336
<SECURITIES> 1,682,355
<RECEIVABLES> 14,154,385
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 41,759,945
<PP&E> 19,885,624
<DEPRECIATION> 3,430,592
<TOTAL-ASSETS> 71,785,188
<CURRENT-LIABILITIES> 6,729,936
<BONDS> 0
0
0
<COMMON> 145,825
<OTHER-SE> 64,649,040
<TOTAL-LIABILITY-AND-EQUITY> 71,785,188
<SALES> 20,801,361
<TOTAL-REVENUES> 20,801,361
<CGS> 12,521,769
<TOTAL-COSTS> 12,521,769
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 771
<INCOME-PRETAX> 4,639,701
<INCOME-TAX> 1,735,000
<INCOME-CONTINUING> 2,904,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,904,701
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.19
</TABLE>
<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 MONTHS 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> 0.15
<EPS-DILUTED> 0.13
</TABLE>
