Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

or

o         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 001-13103

CIBER, INC.

(Exact name of Registrant as specified in its charter)

(303) 220-0100

(Registrant’s telephone number, including area code)

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.  x Yes    o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  o Yes    x No

There were 60,090,229 shares of the registrant’s Common Stock outstanding as of September 30, 2008.

Table of Contents

CIBER, Inc.

Form 10-Q

Table of Contents

2

Table of Contents

CIBER, Inc. and Subsidiaries

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents

CIBER, Inc. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except per share data)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents

CIBER, Inc. and Subsidiaries

Consolidated Statement of Shareholders’ Equity

(In thousands)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents

CIBER, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

CIBER, Inc. and Subsidiaries

Notes to Unaudited Consolidated Financial Statements

(1)  Basis of Presentation

The accompanying unaudited interim consolidated financial statements of CIBER, Inc. and subsidiaries (together, “CIBER,” “the Company,” “we,” “our,” or “us”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements.  These consolidated financial statements should therefore be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 31, 2007, included in our Annual Report on Form 10-K filed with the SEC.  The accompanying unaudited interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include all adjustments of a normal, recurring nature that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the interim periods presented.  The results of operations for an interim period are not necessarily indicative of the results of operations for a full fiscal year.  Certain prior period amounts have been reclassified to conform to the current period presentation.

On January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” for our financial assets and liabilities.  There was no material impact to our consolidated financial position or results of operations upon adoption.

Recently Issued Accounting Pronouncements — In May 2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“the FSP”).  The FSP requires that the proceeds from the issuance of certain convertible debt instruments be allocated between a liability component (issued at a discount) and an equity component.  The resulting debt discount would be amortized over the period the convertible debt is expected to be outstanding as additional non-cash interest expense.  The FSP is effective for fiscal years beginning after December 15, 2008, will not permit early application and will require retrospective application to all periods presented.  This FSP changes the accounting treatment for our Convertible Senior Subordinated Debentures (“Debentures”).  Although we anticipate that most or all of our remaining Debentures will be required to be repurchased prior to the adoption of this FSP on January 1, 2009, our financial statements covering past periods (including the current fiscal year) will be impacted as a result of the required retrospective application.  Financial statements for future periods may also be impacted to the extent that any of the Debentures remain outstanding on January 1, 2009.  We are currently evaluating the impact of the FSP on our consolidated financial statements.

Other Income (Expense), Net — Other income (expense), net consisted of the following:

7

Table of Contents

(2) Earnings Per Share

Our computation of earnings per share — basic and diluted is as follows:

Dilutive securities are excluded from the computation in periods in which they have an anti-dilutive effect.  The approximate average number of anti-dilutive stock options (options whose exercise price is greater than the average CIBER stock price during the period) omitted from the computation of diluted weighted average shares outstanding was 3,534,000 and 3,409,000 for the three months ended September 30, 2007 and 2008, respectively, and 3,783,000 and 5,542,000 for the nine months ended September 30, 2007 and 2008, respectively.

(3) Acquisitions

On April 15, 2008, our Europe division acquired a Norwegian SAP consultancy for a total purchase price of approximately $6.5 million.  The results of the acquired operation have been included in our consolidated financial statements since the date of acquisition.  Approximately $4.8 million was paid during the current year and approximately $1.7 million is expected to be paid in the future.  In connection with the acquisition, we recorded goodwill of approximately $5.5 million and acquired other net assets of $1.0 million.

Additionally, during the nine months ended September 30, 2008, we purchased a minority shareholders’ interest in one of our European subsidiaries for a purchase price of approximately $2.8 million.

(4) Goodwill

The changes in the carrying amount of goodwill are as follows:

8

Table of Contents

(5) Borrowings

Revolving Credit Facility — On February 11, 2008, we entered into a $200 million senior secured reducing revolving credit facility, with several financial institutions as lenders and Wells Fargo as administrative agent (the “Revolving Credit Facility”).  The Revolving Credit Facility replaced our previous $60 million bank line of credit and refinanced all amounts outstanding thereunder.  The Revolving Credit Facility is secured by substantially all of our assets.  Beginning on March 31, 2009, and continuing through December 31, 2010, the aggregate commitments under the Revolving Credit Facility will be reduced by $7.5 million each quarter end.  The Revolving Credit Facility matures on February 11, 2011, at which time the remaining $140 million of maximum credit available will terminate and all outstanding balances must be repaid in full.

At our election, our borrowings under the Revolving Credit Facility bear interest at rates calculated in reference to either the Wells Fargo prime lending rate (“prime”) plus a margin that ranges from 0.00% to 0.25%, or a London interbank offered market rate (“LIBOR”) for one to six month maturities, plus a margin that ranges from 0.75% to 1.75%.  At September 30, 2008, our weighted average interest rate on our outstanding borrowings was 4.42%.  We are also required to pay a fee on the unused portion of the Revolving Credit Facility that ranges from 0.20% to 0.50%.  For so long as our Debentures remain outstanding, we will also incur a facility fee of 0.15% on the entire amount of the commitment.

The Revolving Credit Facility contains certain financial covenants, including a maximum consolidated total leverage ratio, a maximum senior leverage ratio, a minimum interest coverage ratio and a minimum liquidity percentage.  We were in compliance with these financial covenants as of September 30, 2008.  The terms of the Revolving Credit Facility include, among other provisions, specific limitations on the incurrence of additional indebtedness and liens, stock repurchases, investments, guarantees, mergers, dispositions and acquisitions, and a prohibition on the payment of any dividends.

The Revolving Credit Facility provides for the issuance of letters of credit and any outstanding letters of credit reduce the maximum available borrowings under the Revolving Credit Facility.  At September 30, 2008, we had approximately $1.0 million of outstanding letters of credit and borrowings of $96.8 million, leaving approximately $102.2 million of remaining borrowing availability under the Revolving Credit Facility.

Convertible Senior Subordinated Debentures — In a private placement on December 2, 2003, we issued $175.0 million of 2.875% Debentures due to mature in December 2023.  The Debentures are general unsecured obligations and are subordinated in right of payment to all of our indebtedness and other liabilities.  Interest is payable semi-annually in arrears on June 15 and December 15 of each year.  As of September 30, 2008, we had repurchased and retired $94.0 million of our Debentures, leaving $81.0 million outstanding at September 30, 2008.  We paid $68.8 million for repurchases completed during the nine months ended September 30, 2008, resulting in a gain, net of accelerated debt issuance costs, of $1.9 million.  Additionally, during October 2008 we repurchased and retired an additional $28.2 million of our Debentures, leaving $52.8 million outstanding.

The Debentures are convertible at the option of the holder into shares of our common stock at an initial conversion rate of 73.3138 shares per $1,000 principal amount of Debentures, which is equivalent to an initial conversion price of approximately $13.64 per share, subject to adjustments, prior to the close of business on the final maturity date only under the following circumstances: (1) during any fiscal quarter if the closing sale price of our common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding fiscal quarter; (2) during the five business days after any ten consecutive trading day period in which the trading price per $1,000 principal amount of Debentures for each day of such period was less than 98% of the product of the closing sale price of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the Debentures; (3) if the Debentures have been called for redemption; or (4) upon the occurrence of certain specified corporate transactions.  The conversion price is subject to adjustment in certain circumstances.  In 2005, we made an irrevocable election to settle in cash and not in shares 100% of the principal amount of the Debentures surrendered for conversion.  As a result, upon conversion we will deliver cash in lieu of our common stock.

Debenture holders may also require us to repurchase their Debentures on December 15, 2008, 2010, 2013 and 2018, or at any time prior to their maturity in the case of certain events, at a repurchase price of 100% of their principal amount plus accrued interest.  From December 20, 2008, to but not including December 15, 2010, we may redeem any of the Debentures if the closing price of our common stock exceeds 130% of the conversion price for at least 20

9

Table of Contents

trading days in any 30 consecutive trading day period.  Beginning December 15, 2010, we may, by providing at least 30-days’ notice to the holders, redeem any of the Debentures at a redemption price of 100% of their principal amount, plus accrued interest.  Given our current stock price and market interest rates, we expect that we will be required to repurchase most or all of the remaining Debentures on December 15, 2008.  As such, the Debentures would generally be considered to be a current liability instead of a long-term liability.  However, we have the intent and ability to use borrowings under our Revolving Credit Facility that matures on February 11, 2011, for any Debenture repurchases as they occur up to and including December 15, 2008.  Since the Revolving Credit Facility is long-term, we have continued to classify our Debentures as a long-term liability on our Consolidated Balance Sheets.

(6) Shareholder’s Equity

Repurchase Program — CIBER has had a common stock share repurchase program since 1999 that has been amended from time to time by our Board of Directors to increase the authorized shares available for repurchase.  Under the most recent authorization in February 2008, the Board approved an additional $10.0 million dollars for future repurchases of our common stock.  During the nine months ended September 30, 2008, we repurchased approximately 1.4 million shares of common stock at an approximate cost of $7.5 million.  At September 30, 2008, there was approximately $6.1 million remaining for future repurchases under this program.

Comprehensive Income (Loss) — The components of comprehensive income (loss) were as follows:

10

Table of Contents

(7) Segment Information

Our reportable segments are our five operating divisions, which are organized internally primarily by the nature of their services, client base and geography.  They consist of our Europe division, which includes Eastern Asia, Australia and New Zealand, and our four domestic divisions, which consist of Commercial, State & Local Government, Federal Government and Enterprise Solutions.  Our India-based operations are considered part of our Commercial division.

The following presents financial information about our reporting segments:

11

Table of Contents

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Unaudited Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and our Audited Consolidated Financial Statements and related Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007, and with the information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2007.  References to “we,” “our,” “us” or “CIBER” in this Quarterly Report on Form 10-Q refer to CIBER, Inc. and its subsidiaries.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our operations, results of operations and other matters that are based on our current expectations, estimates, forecasts and projections.  Words, such as “anticipate,” “believe,” “could,” “expect,” “estimate,” “intend,” “may,” “opportunity,” “plan,” “potential,” “project,” “should,” and “will” and similar expressions are intended to identify forward-looking statements.  These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict.  Actual outcomes and results may differ materially from such forward-looking statements due to a number of factors, including without limitation, the factors set forth in our Annual Report on Form 10-K under the caption “Item 1A. Risk Factors.”  Forward-looking statements are not guarantees of performance and speak only as of the date they are made, and we undertake no obligation to publicly update any forward-looking statements in light of new information or future events.  Undue reliance should not be placed on such forward-looking statements.

Business Overview

CIBER provides information technology (“IT”) system integration consulting and other IT services primarily to governmental agencies and Fortune 1000 and middle market companies across most major industries.  From offices located throughout the United States and Europe, as well as Eastern Asia, Australia and New Zealand, we provide our clients with a broad range of IT services, including custom and package software development, maintenance, implementation and integration.  To a lesser extent, we also resell certain IT hardware and software products.

Our reportable segments are our five operating divisions, which are organized internally primarily by the nature of their services, client base and geography.  They consist of our Europe division, which includes Eastern Asia, Australia and New Zealand, and our four domestic divisions, which consist of Commercial, State & Local Government, Federal Government and Enterprise Solutions.  Our India-based operations are considered part of our Commercial division.  Our Europe division provides a broad range of IT consulting services, including package software implementation, application development, systems integration and support services.  Our Commercial, State & Local Government and Federal Government divisions comprise our U.S. geographically-based operations that provide IT services and products in custom-developed software environments.  These offices report to a division based on their primary client focus category (Commercial, State & Local Government or Federal Government); however, they also may have clients that fall into another category.  For example, a Commercial office may also provide services to a government client.  Our Enterprise Solutions division primarily provides enterprise software implementation services, including enterprise resource planning (“ERP”) and supply chain management software from software vendors such as Oracle, SAP and Lawson for U.S. customers.

12

Table of Contents

Comparison of the Three Months Ended September 30, 2007 and 2008 - Consolidated

The following table sets forth certain Consolidated Statement of Operations data in dollars and expressed as a percentage of revenue:

Revenue.  Total revenue increased 13% for the three months ended September 30, 2008, compared to the three months ended September 30, 2007, which was due to continued growth in our Europe and Commercial divisions.  Additionally, as a global company, our revenue is denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations.  Although the U.S. dollar strengthened during the current quarter as compared to earlier quarters of 2008, the U.S. dollar was still weaker against many currencies during the third quarter of 2008 as compared to the same period of the prior year, resulting in favorable currency translation and greater reported U.S. dollar revenues in the current period.  Foreign currency rate changes resulted in approximately $6.6 million, or over 2%, of additional reported revenue in 2008 over 2007.  Additionally, small acquisitions completed in both our Enterprise Solutions and Europe divisions in the last 12 months contributed incremental revenue of approximately $4.5 million, or less than 2%, to the current period results.

Revenue by segment/division was as follows:

n/m = not meaningful

·      Commercial revenue increased 9% compared to the same period of the prior year mainly due to several sizable contract wins earlier in 2008, additional work on other existing contracts and improved productivity.

·      Europe’s results were in part due to approximately $6.6 million related to favorable foreign currency fluctuations, as well as approximately $2.0 million of incremental revenue from several small acquisitions.  Excluding these items, our Europe division grew approximately 27% resulting from continued strong sales of SAP implementation services in almost all of our major operating territories, as well as many of our smaller territories.  The U.S. dollar began to strengthen against the Euro and the British Pound during the current quarter and, as a result, we have seen the high level of growth in this division slow down somewhat

13

Table of Contents

compared to the previous quarter of the current year.  If the strengthening of the U.S. dollar continues, we expect this division to be adversely affected by the U.S. dollar translation impact.

·      State & Local Government revenue increased primarily due to increased volume with one of our largest clients, but this growth was partially offset by a loss of revenue related to the completion of the Pennsylvania Turnpike project, some of which should be offset in the future by a recently awarded maintenance agreement for the Pennsylvania Turnpike Commission.

·      As compared to the same quarter of the prior year, Federal Government revenue declined mainly due to the expiration of one of our larger, long-term contracts that was subsequently awarded to a qualified small business.  CIBER has similarly lost several contracts in recent years because we do not qualify as a small business; therefore, we have been precluded from bidding on the renewal business.  We initially obtained these contracts through acquisitions of qualified small businesses that were originally awarded these contracts.  Additionally, although we have submitted proposals on a number of projects, the current environment is permeated with a slow down or absence of decisions regarding projects starts, most likely related to the upcoming election, and thus, we have been unsuccessful in replacing our expired contracts.  The division remains focused on obtaining appropriate government certifications that allow us to bid on large projects as a prime contractor.  This process, which started in mid-2007, ultimately will entail the approval of twelve different business systems.  Thus far in 2008, we have received certification related to two of our twelve business systems.  We believe these certifications will increase our growth opportunities as we will be able to compete for additional large government contracts.

·      Revenue in our Enterprise Solutions division was down 3% between the comparative quarters, related to a loss of revenue on two large, completed SAP projects, which was partially offset by improved revenues from Oracle and Lawson projects, as well as an increase in our Technology Solutions group, which receives commissions on the sale of IBM products.  Additionally, the division’s revenue reflects approximately $2.5 million of incremental revenue from an acquisition completed in September 2007.

Gross profit.  Gross profit margin on services revenue decreased 20 basis points despite healthy service margin increases in our State & Local Government, Commercial and Federal Government divisions.  The decrease was primarily due to our underperforming Enterprise Solutions division, which had overruns on a fixed-price SAP project, as well as two large, completed SAP projects that we have not yet successfully replaced, therefore negatively affecting the divisions’ consultant utilization.  Additionally, our Europe division incurred a sizable decrease in its gross profit margin on services revenue due to increased direct salary costs that have not been fully recovered through increased billing rates, as well as a decrease in consultant utilization.  Gross profit margin on other revenue improved to 41.5% for the three months ended September 30, 2008, from 38.5% for the three months ended September 30, 2007, as a result of increased product commissions in our Technology Solutions group, which is part of our Enterprise Solutions division.  Overall, the above resulted in no change to our total gross profit margin between the comparative quarters.

Selling, general and administrative expenses.  Close to 60% of our overall selling, general and administrative (“SG&A”) expenses are typically for personnel costs for our branch office personnel, which includes our branch management, consulting staff management, sales and recruiting personnel and administrative staff, as well as our corporate office support staff and management personnel.  Although these costs are not immediately affected by changes in revenue, there is often a relatively short-term correlation between these SG&A salary expenses and revenue.  Additionally, as we bid on larger and longer projects, the sales cycle and related sales costs have been increasing.  Finally, our European SG&A costs, like their revenues, are also subject to changes in currency exchange-rates.  As a result of the above, we analyze changes in our SG&A expenses in terms of the relationship between these costs and revenue (expressed as a percentage of revenue) rather than total dollars or percentage change in the total dollars.

As a percentage of revenue, SG&A expenses increased 90 basis points to 22.5% for the three months ended September 30, 2008, compared to 21.6% for the three months ended September 30, 2007.  Increased costs in the Enterprise Solutions, State & Local Government, and Federal Government divisions were primarily responsible, as well as an increase in corporate costs.  As a percentage of revenue, the Enterprise Solutions division’s SG&A costs increased considerably due to infrastructure costs from the September 2007 acquisition, increased SAP sales costs on a much lower level of revenue, as well as an increased bad debt provision resulting from a client bankruptcy.  The State & Local Government and Federal Government divisions’ SG&A costs increased due to infrastructure investments made to establish a new practice in an existing office and costs incurred to further our ability to bid on

14

Table of Contents

large projects as a prime contractor, respectively.  Corporate expenses were approximately $1.0 million higher in the current quarter due to increased 401(k) and share-based compensation expenses.  All of the above were partially offset by Europe’s ability to keep their SG&A expenses well below levels incurred in the third quarter of 2007, despite experiencing significant revenue growth and increased bad debt costs during the current quarter, and by a reduction in the Commercial division’s SG&A costs as a percentage of revenue.

Operating income.  Operating income margin decreased 80 basis points to 4.4% for the three months ended September 30, 2008, compared to 5.2% for the three months ended September 30, 2007.  This was mainly due to increased SG&A costs as a percentage of revenue, mentioned previously.

Operating income by segment/division was as follows:

*Divisions calculated as a % of division revenue, all other calculated as a % of total revenue.

·      The Commercial division’s operating income percentage increased 220 basis points mainly due to an improvement in gross profit margin on services revenue related to pursuing higher margin business, as well as a modest reduction in SG&A expenses as a percentage of revenue.

·      Europe’s operating income improved 30 basis points primarily due to a reduction in SG&A expenses as a percentage of revenue that was achieved by keeping SG&A costs down in a time of significant revenue growth.  The improvement in SG&A expenses as a percentage of revenue was partially offset by the gross profit margin decrease on services revenue mentioned above.

·      The State & Local Government division’s operating income percentage improved 130 basis points as a substantial improvement in consulting services gross margin related to negotiating higher margin business was partially offset by increased SG&A expenses due to investments in infrastructure.

·      Our Federal Government division’s operating income was flat between the comparative quarters as an improvement in gross profit margin on services revenue was offset by costs incurred to enhance operations infrastructure related to obtaining certifications for prime contractor bidding status.

·      Enterprise Solution’s operating loss in the current quarter was created by several large, completed SAP projects that have not yet been successfully replaced, therefore negatively impacting consultant utilization, as well as overruns on a fixed-price SAP project, coupled with increased SG&A costs.

·      As a percentage of revenue corporate expenses increased 10 basis points, or approximately $1.0 million, between the periods, as a result of increases in various employee-related costs.

Interest expense.  Interest expense increased almost $600,000 during the three months ended September 30, 2008, compared to the three months ended September 30, 2007, primarily resulting from higher-cost borrowings under our senior secured reducing revolving credit facility (“Revolving Credit Facility”) that have been utilized to fund repurchases of our lower-cost convertible senior subordinated debentures (“Debentures”).

15

Table of Contents

Other income (expense), net.  Other income, net was $227,000 for the three months ended September 30, 2008, compared to other expense, net of $494,000 for the similar period in 2007.  The improvement was primarily due to foreign exchange gains during the current quarter as compared to foreign exchange losses during the same period of 2007.

Income taxes.  Our effective tax rate decreased to 30.3% for the three months ended September 30, 2008, compared to 36.2% for the three months ended September 30, 2007, primarily due to a higher proportion of income being generated in lower tax jurisdictions.  Our Europe division tends to have a lower effective tax rate than our domestic operations, and in addition, in 2008 benefitted from lower statutory rates in several countries.  Europe contributed more than half of our total income before taxes, as compared to only 29% during the same period of the prior year.  Although we expect the lower European tax rate to continue throughout 2008, actual results could vary if the mix of profit shifts between countries.  Additionally, as we typically complete our tax returns for the prior year during the second half of the current year, our third and fourth quarter tax provisions usually reflect adjustments to true-up prior period estimates.  Such adjustments may be favorable or unfavorable.  Our 2008 and 2007 domestic effective tax rates were favorably affected by such adjustments; however, the 2008 adjustments made were not as favorable as last year.  In addition, certain other tax items are also recorded in the period in which they occur and thus impact our effective tax rate from period to period.

Comparison of the Nine Months Ended September 30, 2007 and 2008 - Consolidated

The following table sets forth certain Consolidated Statement of Operations data in dollars and expressed as a percentage of revenue: