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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

#### **FORM 10-K**

 

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

 

**For the fiscal year ended December 31, 2009**

 

**Commission File Number: 001-13103**

 

**CIBER,INC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                                                 | ** ** | **38-2046833**                       |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization)                               |       | (I.R.S. Employer Identification No.) |
|                                                                                         |       |                                 |
| **6363 South Fiddler’s Green Circle,  Suite 1400,****Greenwood Village, Colorado** | ** ** | **80111**                            |
| (Address of Principal Executive Offices)                                                     |       | (Zip Code)                           |

 

Registrant’s telephone number, including area code: **(303)220-0100**

 

Securities registered pursuant to Section 12(b) of the Act:

 

| **Title of  class**           | ** ** | **Name of  exchange on which registered** |
|-------------------------------|------------|-------------------------------------------|
| Common Stock, $0.01 par value |       | New York Stock Exchange                   |

 

Securities registered pursuant to Section 12(g) of the Act**: None**

 

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Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. o Yes   x No

 

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. o Yes   x No

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. x Yes   o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  o Yes   o No

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and willnot be contained, to the best of registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. o

 

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

 

| Large accelerated filer o                                              |   | Accelerated filer x         |
|------------------------------------------------------------------------|--------|-----------------------------|
|                                                                   |   |                        |
| Non-accelerated filer o (Do not  check if a smaller reporting company) |   | Smaller reporting company o |

 

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

 

The aggregate market value of the outstanding votingstock held by non-affiliates of the registrant as of June 30, 2009, was $196,374,361,based on the closing price of the registrant’s Common Stock of $3.10****per share reported on the New York Stock Exchange on suchdate.

 

As of February 26, 2010, there were 69,282,212shares of the registrant’s Common Stock outstanding.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Portionsof the Proxy Statement for the Registrant’s 2010 Annual Meeting of Shareholdersto be held on May 11, 2010, are incorporated by reference into Part IIIof this Report.

 

 

 

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**CIBER, Inc.**

**Form 10-K**

 

**Table of Contents**

 
| ** **             | ** **                                                                                                          | **Page** |
|------------------------|---------------------------------------------------------------------------------------------------------------------|----------|
| **Part I**        |                                                                                                                |     |
| Item 1.                | Business                                                                                                            | 3        |
| Item 1A.               | Risk Factors                                                                                                        | 8        |
| Item 1B.               | Unresolved Staff  Comments                                                                                          | 15       |
| Item  2.               | Properties                                                                                                          | 15       |
| Item 3.                | Legal Proceedings                                                                                                   | 15       |
| Item  4.               | Reserved                                                                                                            | 15       |
|                   |                                                                                                                |     |
| **Part II**       |                                                                                                                |     |
| Item 5.                | Market for  Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases  of Equity Securities | 16       |
| Item 6.                | Selected Financial  Data                                                                                            | 18       |
| Item 7.                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                         | 19       |
| Item 7A.               | Quantitative  and Qualitative Disclosures About Market Risk                                                         | 34       |
| Item 8.                | Financial  Statements and Supplementary Data                                                                        | 34       |
| Item 9.                | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                               | 57       |
| Item 9A.               | Controls and  Procedures                                                                                            | 57       |
| Item 9B.               | Other Information                                                                                                   | 59       |
|                   |                                                                                                                |     |
| **Part III**      |                                                                                                                |     |
| Item 10.               | Directors,  Executive Officers and Corporate Governance                                                             | 59       |
| Item 11.               | Executive  Compensation                                                                                             | 59       |
| Item 12.               | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                    | 59       |
| Item 13.               | Certain  Relationships and Related Transactions, and Director Independence                                          | 60       |
| Item 14.               | Principal  Accountant Fees and Services                                                                             | 60       |
|                   |                                                                                                                |     |
| **Part IV**       |                                                                                                                |     |
| Item 15.               | Exhibits and  Financial Statement Schedules                                                                         | 60       |
|                   |                                                                                                                |     |
| **Signatures**         |                                                                                                                | 61       |
| **Exhibit Index** |                                                                                                                | 62       |

 

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**Part I**

 

**DisclosureRegarding Forward-Looking Statements**

 

*ThisAnnual Report on Form 10-K contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995 relating to ouroperations, results of operations and other matters that are based on ourcurrent 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, areintended to identify forward-looking statements.  For example, we make certain forward-lookingstatements regarding our current estimates for revenue and profitability forcertain of our business units for 2010. These statements are not guarantees and involve risks, uncertainties andassumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward-lookingstatements due to a number of factors, including without limitation, thefactors set forth in this Annual Report on Form 10-K under the caption “Item1A. Risk Factors.”  Forward-lookingstatements are not guarantees of performance and speak only as of the date theyare made, and we undertake no obligation to publicly update any forward-lookingstatements in light of new information or future events.  Undue reliance should not be placed on suchforward-looking statements.*

 

Inthis Annual Report on Form 10-K, we use the terms “CIBER,” “we,” “theCompany,” “our” and “us” to refer to CIBER, Inc. and itssubsidiaries.  All references to years,unless otherwise noted, refer to our fiscal year, which ends on December 31.

 

**Item 1.  Business**

 

## ***Overview***

 

CIBERis a diversified, system integration and information technology (“IT”) servicesconsulting firm, with approximately 8,000 employees and consultants and totalrevenue of approximately $1.0 billion in 2009. We operate our business model from over 70 offices in 18 countries.  CIBER helps clients achieve their businessgoals by building, integrating and supporting mission-critical applications andsystems for optimized quality, increased business value, faster time-to-marketand reduced total cost of operations. Our clients consist primarily of governmental agencies and Fortune 1000and middle market companies across most major industries.

 

**Servicesand Operations**

 

Weorganize our operations by the nature of their services, client base andgeography.  We have five reportablesegments, which are our primary operating divisions, and for the year ended December 31,2009, our percentage of total revenue by division was as follows:

 
| ** **       | ** ** | **2009**       | ** ** |
|------------------|------------|----------------|------------|
| ** **       | ** ** | **Revenue  %** | ** ** |
| Custom Solutions |       | 36             | %          |
| International    |       | 34             | %          |
| IT Outsourcing   |       | 7              | %          |
| Federal          |       | 11             | %          |
| U.S. ERP         |       | 12             | %          |

 

*CustomSolutions*

 

CIBER’sCustom Solutions division focuses on providing custom development, integrationand support to U.S.-based commercial, state and local government clients.  We provide the full range of applicationportfolio management support, including analysis, design, development, testing,implementation and maintenance of business applications.  Our delivery capabilities spanservice-oriented architectures, including J2EE and .NET, as well as traditionalclient/server and mainframe development. We also offer portal development, wireless and mobility applications andcontent delivery.

 

TheCustom Solutions division has developed expertise in a variety of commercialverticals, including the automotive, manufacturing, services, retail, financialand telecommunications industries, as well as its expanded strategic consultingpractices, which include IT Strategy, Architecture, Business Intelligence/DataWarehousing (“BI/DW”), Collaborative Solutions and Supply Chain.  The Custom Solutions division also hasexpertise in the following government verticals: Health and Human Services andPublic Health, Transportation, Administration and Law and Justice.

 

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Ourdelivery model employs the use of local branch offices, which allow us toprovide local, on-site services to both commercial and state and localgovernment clients, as well as Global Solution Centers, which are our domesticand offshore solution centers.  OurGlobal Solution Centers are strategically located in both the U.S. and India,and they are focused on providing application development and management and IToperations support on either an individual or comprehensive integratedbasis.  Our Global Solution Centers aredesigned to provide a high value, lower-cost alternative for our clients.  Our five domestic delivery centers arelocated in Tampa and Orlando, Florida, Pittsburgh and Harrisburg, Pennsylvania,and Detroit, Michigan.  We were able tosignificantly grow our Global Solutions Center in Bangalore, India through our January 2009acquisition of Iteamic Pvt. Ltd.  OurIndian operations have led the way in integrating global delivery into everypart of CIBER’s business.

 

*International*

 

OurCIBER International division (formerly CIBER Europe), headquartered in theNetherlands, delivers a mix of enterprise and custom solutions.  CIBER International is a full-line serviceprovider, able to offer a range of services covering the full IT solutionlifecycle to clients in both commercial enterprises and public sectororganizations.  Key geographies for ourInternational division include the Netherlands, the United Kingdom, Germany andthe Scandinavian region consisting of Norway, Sweden, Denmark and Finland.

 

Ourenterprise solutions focus primarily on providing services related toEnterprise Resource Planning (“ERP”) and Customer Relationship Management (“CRM”)software products.  Our partnerrelationships in Europe and Asia/Pacific include SAP and Microsoft, withSAP-related solutions and services accounting for approximately 60% to 65% ofthe International division’s total revenue in 2009.  We have Special Expertise status in SAPIndustry Solutions such as Retail, Automotive and Chemicals, and we are avalue-added reseller of SAP software in some geographies.  We also work closely with Microsoft todeliver ERP and CRM solutions in selected geographies.

 

Webuild custom solutions based on leading technologies such as Microsoft andOracle to develop web services applications, implement workflow solutions,integrate legacy systems as part of an extended enterprise and buildsophisticated information infrastructures through the use of BI/DWtechnologies.

 

*ITOutsourcing*

 

Our IT Outsourcingdivision is a global and expanding business with domestic headquarters inEdison, New Jersey and international presence throughout Europe, offering arobust set of solutions that span the entire spectrum of IT infrastructure andIT operations services.  Our solutionsrange from help desks and hosting, to software rollouts and securitymonitoring, to server virtualization and more, in data centers in the U.S., theUnited Kingdom, the Netherlands and Spain, and global support centers in theU.S., the United Kingdom and India.  In 2009, weaggressively expanded both our direct-selling model and our offshore deliveryfootprint.  We were able to significantlygrow our service desk/help desk business, leverage our data center footprint,expand our India-based delivery operations, enhance our global managed servicesplatforms and increase our international business in Europe.  Additionally, we are certified by SAP as bothGlobal Hosting and Global Application Management Partners.

 

# ***Federal***

 

OurFederal division provides a range of custom IT services and support for U.S.federal government projects, including specialized strategic staffing, securityassessments, legacy modernization services, data warehousing solutions and helpdesk support.  We provide these servicesto defense and civilian agencies, both domestic and abroad, including allbranches of the U.S. military.  In the aggregate,the various agencies of the U.S. federal government represent our largestclient and accounted for approximately 11% of our total revenue in 2009.

 

Ourprocesses, infrastructure and tools meet stringent contracting requirementsessential to success in the federal government prime contract market.  Our Federal division has continued to buildand enhance our capabilities to meet these federal requirements.  In 2009, our Federal Government PropertyManagement Plan was approved and our government-compliant Procurement andEarned Value Management Systems were implemented.

 

TheFederal division is aligned along a customer focus to allow each practice toprovide a full set of capabilities to customers with common missions, goals andrequirements, and to create synergies within the groups.  The alignment also allows us to establish strongclient relationships and fit within each client’s culture.  These customer-focused practices consist ofDefense Technology Systems, Defense and Intelligence and Civilian TechnologySolutions.  The Defense TechnologySystems Practice focuses on the U.S. Army and Navy and provides specializedexpertise in telephony, network operations and call 

 

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centersupport across the federal business base. The Defense and Intelligence Practice focuses on supporting the JointMilitary Commands, the intelligence community and the Air Force, where weoccupy a special niche by providing mission operations support and highly-skilledstaff to meet specialized requirements in ensuring our Nation’s security.  The Civilian Technology Solutions Practiceprovides an array of services ranging from enterprise architecture developmentto financial management for its clients, which include the following agencies:Homeland Security, U.S. Courts, Education, Transportation, Commerce,Agriculture, Energy, Interior, the Center for Medicare and Medicaid Services,and the Centers for Disease Control. Within the Civilian Technology Solutions Practice is our EnterpriseSecurity Solutions group, which provides engineering and system integrationsolutions for federally-funded, enterprise level security and risk managementprograms protecting ports, the shipping industry and other critical infrastructureenvironments.

 

## *U.S. ERP*

 

OurU.S. ERP division (formerly known as our Enterprise Solutions division)provides consulting services to support multi-package ERP solutions forcustomers in the U.S. from vendors including SAP, Oracle (including E-BusinessSuite, PeopleSoft and JD Edwards) and Lawson, as well as several educationmanagement products.  We are highlyfocused on industry solutions for vertical markets such as the public sector,higher education, K-12, healthcare, retail, grower management, food andbeverage and manufacturing.  Our U.S. ERPdivision frequently works with our Custom Solutions division, leveraging thelocal relationships of that division to cross-sell opportunities in ERPsolutions along with Custom Solutions division services.  Our ability to offer cost-effective solutionsfrom leading software vendors to the public sector, in partnership with ourother divisions, positions CIBER as a valued partner to our clients.

 

Inaddition to being an SAP gold channel partner, we are also an SAP-certified global provider of application managementservices.  Our comprehensive SAPsolutions support our customers throughout the life cycle and includeimplementations and upgrades, extensions, integrations and customizations.  Wehave organized our SAP Practice to serve multiple vertical markets.  In our SAP Commercial Practice wefocus on customers in retail, apparel and footwear, mining, metals,manufacturing, financial services and aerospace and defense industries.  The SAP Public Sector Practice focuses ondelivering solutions to state and local governments.

 

Weare an Oracle Platinum Partner, which is the highest level of partnership inthe Oracle Partner Network Specialized Program and a strategic partner toOracle in several key industries such as the public sector, higher educationand food and beverage.  Our Oracle,PeopleSoft and JD Edwards solutions involve building, integrating andsupporting mission critical systems for real-time enterprises.

 

Weare a Certified Lawson Consulting Partner, providing full scale businesstransformation projects in Lawson’s target vertical markets through businessprocess, change management and functional and technical services around Lawsontechnology.  These target markets arehealthcare, public sector, food and beverage and general manufacturing, forwhich we offer budgeting, financial processing and analysis, human capitalmanagement, sales order processing and manufacturing systems solutions.

 

OurTechnology Solutions Group Practice focuses on providing customers with thebest infrastructure products and architecture. Offerings include enterprise servers, storage, middleware, integrationservices, assessments and related products required to support criticalbusiness applications.  Strategicrelationships with IBM, NetApp, Dell, HP and other leading manufacturers allowus to architect and deploy the right solutions for our customers’ environments.

 

**FinancialInformation about Segments and Geographic Areas**

 

Theinformation required by these items is incorporated herein by reference to “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andNote 13 of the Notes to our Consolidated Financial Statements included under “FinancialStatements and Supplementary Data” of this Annual Report.

 

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# **Clients**

 

Ourclients consist primarily of Fortune 1000 and middle market companies acrossmost major industries, as well as governmental agencies in the U.S. andabroad.  These organizations typicallyhave significant IT budgets and frequently depend on outside consultants tohelp achieve their business and IT objectives. In 2009, we estimate our approximate percentage of total revenue byclient industry was:

 
| Government                |   | 29 | % |
|---------------------------|--------|----|---|
| Manufacturing/high tech   |   | 17 | % |
| Financial                 |   | 13 | % |
| Healthcare/pharmaceutical |   | 8  | % |
| Retail                    |   | 7  | % |
| Automotive                |   | 6  | % |
| Telecommunications        |   | 4  | % |
| Services and other        |   | 16 | % |

 

Certainclients account for a significant portion of our revenue.  Our largest client, the various agencies ofthe U.S. federal government, collectively accounted for approximately 12%, 11%and 11% of total revenue in 2007, 2008 and 2009, respectively.  No other client accounted for more than 5% ofour total revenue in 2009.  Most of ourdivisions had revenue from a single client that equaled or exceeded 10% oftheir division’s total revenue.  Theseclients accounted for the following percentages of each division’s 2009 total revenues:Custom Solutions - 12%; IT Outsourcing - 20%; Federal - 100%; and U.S. ERP -10%.

 

Clientretention and turnover is highly dependent upon the type of solution we areproviding.  Many of our clientrelationships in which we are providing a custom solution have continued formany years.  Each year, most of theservices revenue in our Custom Solutions, IT Outsourcing and Federal divisionscomes from clients for whom we have previously provided services.  Both our IT Outsourcing and Federal divisionstypically contract with their clients for periods ranging from three to fiveyears.  With services related to packagesoftware solutions, which includes our U.S. ERP division, as well as a largepart of our International division, client engagements most typically involve alarge enterprise software implementation over a period of six to eighteenmonths.  Typically, once package softwareimplementations are completed, future consulting services revenues from thatclient are minimal and, as a result, client turnover is high.

 

Typically,both our commercial and government clients may cancel their contracts or reducetheir use of our services on short notice. If any significant client terminates its relationship with us orsubstantially decreases its use of our services, it could have a materialadverse affect on our financial condition and results of operations.

 

**Acquisitions/BusinessCombinations**

 

Sincethe late-1980s, CIBER has executed a strategy of growth and diversificationthat included expanding our range of IT-related services, developing aprofessional sales force and selectively acquiring established complementarycompanies.  Since our initial publicoffering in March of 1994, we have completed over 60 businesscombinations.  In the past several years,our acquisition strategy has centered upon our need to further augment businesssegments with additional vertical areas of expertise, consultants or geographicreach.  Our acquisition strategy has beencentral to our ability to expand our business model in the following areas:

 

·              *Increased project-based capabilities****-*******We have expanded ourproject-based delivery capabilities by adding expertise around SAP, Oracle(which now includes PeopleSoft and JD Edwards) and other ERP packages.  In addition to acquiring project-based ERPcapabilities, we have developed internal project level expertise in delivery ofcustom software applications, application maintenance and technologyoutsourcing services.  This combinationof acquired and organically-developed project delivery capabilities hasresulted in a shift in our mix of business to project-based work from staffsupplementation services.

 

·               *Established significant public sector presence**-*** Our acquisitions haveenabled us to become an established firm in the public sector, providingservices to most of the 50 states, as well as hundreds of city, county, school,transit and public utility organizations in 2009.  Our public sector clients, including those inEurope, accounted for approximately 29% of our total revenue in 2009.

 

·               *Expanded geographic presence**-*** Acquisitions have also allowed us to expand ourgeographic footprint to include a significant European presence.  Beginning with our first foreign acquisitionin the Netherlands in 1999, and most 

 

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recently our 2009 acquisition of an Indian company specializing inapplication development for offshore projects, we have expanded our foreignoperations to include offices located throughout Europe and Asia/Pacific.

 

###### **Competition**

 

TheIT services industry is extremely competitive and characterized by continuouschanges in customer requirements and improvements in technologies.  Our competition varies significantly fromcity to city, as well as by the type of service provided.  Our principal competitors include Accentureplc, Atos Origin SA, BearingPoint, Inc, CACI International Inc, Cap Gemini SA,CGI Group Inc., Cognizant Technology Solutions, Logica PLC, Maximus, Inc.and Tieto Corporation.  We also competewith privately-held local and regional IT consulting firms, as well as theservice divisions of various software developers.  In addition, we must frequently compete witha client’s own internal IT staff.

 

Ourindustry is being impacted by the growing use of lower-cost offshore deliverycapabilities.  There can be no assurancethat we will be able to continue to compete successfully with existing orfuture competitors, or that competition will not have a material adverse effecton our results of operations and financial condition.

 

**Our Competitive Strengths**

 

Webelieve that our corporate strengths, identified below, position us to respondto the long-term trends, changing demands and competition within our principalmarkets.

 

·*              **Long-term Client Relationships**-*** We have been in businesssince 1974 and a prominent first-year client, Ford Motor Company, remains oneof our top five clients today in terms of annual revenue.  This relationship exemplifies the kind oflong-term commitment that we have toward our clients and speaks to the qualityand breadth of the services that we provide.

 

·*              **CompetitivePricing Model*- Our pricing structure is very competitive relativeto the level of our service offerings. Because of the efficient overhead structure of our branch officeoperations and the high utilization of our billable consulting staff, we areable to offer our clients a pricing model that is very competitive.  We believe that, on average, our hourlybilling rates are significantly lower than the rates of our nationalcompetitors for similar services.

 

·*              **Scale of Operations**-*** The competitivelandscape for the delivery of IT services is highly fragmented.  In almost every major market we compete withlarger national and international publicly-held firms, as well as a host ofsmaller regional and local privately-held firms.  For the past several years, large clientshave attempted to consolidate the purchasing of IT services and work with fewerfirms.  Because of the relatively largescale of our operations, we have been able to compete effectively to remain avendor to these large clients.  Oursuccess has come at the expense of local and regional competitors thatcurrently lack the scale to compete successfully for this work.

 

·*              **Balanced Business Model****-*** We have developed a business model thatallows us to provide superior, leading-edge services that are routinely updatedto meet the current needs of our clients. We have developed a reputation for thought leadership in industryverticals within each of our divisions.

 

·*              **Breadthof Service Offering* -  We offer abroad range of services to our clients in both the private and public sectors,including staff supplementation services, custom application developmentservices, implementation of ERP packages, application maintenance outsourcingservices, resale of certain hardware and software products, managed hosting andcall center support.  We believe thathaving this broad delivery capacity is often a competitive advantage,particularly when competing against smaller local and regional firms.

 

·*              **Optimized Delivery Methodology****-*** Our proprietary Optimized Delivery Model® (“ODM”) is designed to determine the right mixof client and CIBER resources and the appropriate work site for an engagement,as well as balance the cost of the resources and the complexity of managing adiverse and distributed team.  Ourapproach minimizes resource costs and maximizes delivery effectiveness for thebenefit of the client.  The approach consistsof a series of steps to profile the customer’s business drivers and capabilities,create alternative resource scenarios and formalize governance arounddelivering the work.  The output of theseefforts is a recommended delivery model that is optimized to balance the client’sresource costs with the risks and constraints of distributed deliveryteams.  The overall ODM process has beeneffective in our pursuit of project engagements and use of the methodology hasbecome a distinct competitive advantage.

 

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# **Employees**

 

# **As of December 31, 2009, wehad approximately 8,000 employees and contractor consultants.  We routinely supplement our employeeconsulting staff with the use of contractors. At December 31, 2009, we had approximately 7,100 billableconsultants, including approximately 900 contractors of which most are fromother services firms.  None of ouremployees are subject to a collective bargaining arrangement.  We have employment agreements with ourexecutive officers and certain other employees. We believe our relations with our employees are good.**

# ** **

**Seasonality**

 

Weexperience a moderate amount of seasonality. Typically, our billable hours, which directly affect our revenue andprofitability, decrease in the second half of the year, especially during thefourth quarter, due to the large number of holidays and vacation time taken byour billable consultants.  As a result,our operating income as a percentage of total revenue is generally the lowestin the fourth quarter of each calendar year.

 

**AvailableInformation**

 

TheInternet address of our website is http://www.ciber.com.  On the Investor Relations section of ourwebsite, we make available free of charge our Annual Reports on Form 10-K,Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and anyamendments to those reports, as soon as reasonably practical after the reportsare electronically filed with or furnished to the Securities and ExchangeCommission (the “SEC”) pursuant to Section 13(a) or 15(d) of theExchange Act.

 

**Item 1A.  Risk Factors**

 

Weoperate in a dynamic and rapidly changing economic and technologicalenvironment that involves numerous risks and uncertainties, many of which aredriven by factors that we cannot control or predict.  The following section describes some, but notall, of the factors that could have a material adverse affect on our business,financial condition, results of operations and the market price of our commonstock.

 

**Ourresults of operations can be adversely affected by economic conditions and theimpacts of these conditions on our clients’ operations and technology spending.**

 

Ourresults of operations are affected by the level of business activity of ourclients, which in turn is affected by the regional and global economicconditions in which they operate.  Theglobal economic recession has reduced, and may continue to reduce, demand forour services.  These circumstances havecaused some of our clients to delay, cancel or scale back their IT projects orIT spending, to seek lower pricing or extended payment terms, to delay paymentsdue to us and, as occurred with several clients, to enter into bankruptcy orliquidation.  Reduced demand for ITservices has also resulted in reductions in the growth of new business, led toincreased price competition for our services and increased the possibility thatwe will enter into contracts that produce lower profit margins.  In the event our clients continue to be negativelyaffected by these economic events, our revenues, results of operations andfinancial condition may be materially adversely affected.

 

**The IT services industry is highly competitive, and we may not be ableto compete effectively.**

 

Weoperate in a highly competitive industry that includes a large number ofparticipants.  We currently competeprincipally with other IT professional services firms and technology vendors,including a variety of large multinational providers and large off-shoreservice providers that offer some or all of the services that we offer, as wellas many niche solution or service providers that compete with us in a specificgeographic market, industry segment or service area.  In addition, a client may choose to use itsown resources rather than to engage an outside firm for the type of servicesthat we provide.  Many of the companiesthat provide services in our industry have significantly greater financial,technical and marketing resources than we do. Additionally, some of our competitors, particularly those located inregions with lower costs of doing business, may be able to provide services andsolutions to clients at lower costs or on more attractive terms.  Increased competition has, and may continueto, put downward pressure on the prices we can charge for our services.

 

Ourmarketplace is experiencing rapid changes in its competitive landscape.  Some of our competitors have sought access topublic and private capital and others have merged or consolidated.  A possible consequence of the consolidationactivity among hardware manufacturers, software developers and vendors and ITservice providers may be greater convergence of products and services that wereonce offered separately by independent vendors. This possible integration of products and services could adverselyaffect our competitive position.

 

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Wemay be unable to compete successfully with current or future competitors, andour revenue and profitability may be adversely affected.

 

**If weare not able to anticipate and keep pace with rapid changes in technology, ourbusiness will be negatively affected.**

 

Oursuccess depends on our ability to develop and implement technology services andsolutions that anticipate and keep pace with rapid and continuing changes intechnology, industry standards and client preferences.  We may not be successful in anticipating orresponding to these developments on a timely basis, and our offerings may notbe successful in the marketplace.  Inaddition, services, solutions and technologies developed by current or futurecompetitors may make our service or solution offerings uncompetitive orobsolete.  Any one of these circumstancescould have a material adverse effect on our ability to obtain and successfullycomplete client engagements.

 

**Terminationof a contract by a significant client and/or cancellation with short noticecould adversely affect our results of operations.**

 

Ourfive largest clients accounted for approximately 23% of our total revenue in2009.  The various agencies of the U.S.federal government represent our largest client, accounting for approximately11% of our total revenue in 2009, while no other client accounted for more than5% of our total revenue in 2009.  Ourclients typically retain us on a non-exclusive, engagement-by-engagementbasis.  Most individual clientassignments are from three to twelve months; however, many of our clientrelationships have continued for many years. Although they may be subject to penalty provisions, clients maygenerally cancel a contract at any time with short notice.  Under many contracts, clients may reduce ordelay their use of our services without penalty.  These terminations, reductions or delayscould result from factors unrelated to our work product or the progress of theproject, but could be related to business or financial conditions of theclient, changes in client strategies or the economy generally.  When contracts are terminated, for whateverreason, we lose the associated revenues, and we may not be able to eliminateassociated costs in a timely manner. There is a risk, especially given the global economic recession, that wecould experience a significant number of contract terminations.  Consequently, our revenue and profit marginsmay be adversely affected.

 

**Our current level of indebtedness placesrestrictions upon our business, and we face the risk of breaching the financialcovenants in our Senior Credit Facility.**

 

We have a senior credit agreementwith several financial institutions as lenders and Bank of America, N.A. asadministrative agent (the “Senior Credit Facility”) that matures on August 20,2012.  We had borrowed a total of$97.5 million under the Senior Credit Facility at December 31, 2009.  As amended on February 18, 2010, theSenior Credit Facility provides for: 1) an $85 million revolving line of creditand 2) a term loan with a balance of $47.5 million.  The termloan portion of the Senior Credit Facility requires quarterly principalreductions of $2.5 million.

 

CIBER’s obligations under the Senior Credit Facility are secured by allof our present and future domestic tangible and intangible assets, as well as apledge of 66% of the capital stock of our direct foreign subsidiaries.  The terms of the Senior Credit Facility, asamended, include among other provisions, specific limitations on the incurrenceof additional indebtedness and liens, stock repurchases, investments,guarantees, mergers, dispositions and acquisitions, and a prohibition on thepayment of any dividends.  Additionally,the Senior Credit Facility also requires us to maintain certain financialcovenants, including a maximum consolidated total leverage ratio, a minimumconsolidated fixed charge coverage ratio, a minimum EBITDA and an assetcoverage test.  On occasion, we haveexperienced instances of covenant non-compliance under previous bank borrowingsthat were waived by our lenders.  Thefailure to comply with any of these debt covenants in the future would cause adefault under the Senior Credit Facility. A default, if not waived, could cause our debt to become immediately dueand payable.  In such a situation, we maynot be able to repay our debt or borrow sufficient funds to refinance it, andeven if new financing is available, it may not contain terms acceptable tous.  Additionally, if we needed to obtaina waiver under, or an amendment to, the Senior Credit Facility in the future,or if we seek other financing, if available, our cost of borrowing couldsignificantly increase and we could face more restrictive covenants.  This could materially adversely affect ourresults of operations and financial condition. Given the current global economic recession, there is an increased riskregarding our ability to maintain compliance with these debt covenants.

 

Inthe past, we have been successful in generating sufficient cash flow fromoperations to reduce our indebtedness; however, that does not mean that we willbe successful in doing so in the future. If we are unable to repay outstanding balances that exceed our maximumcredit available as the aggregate commitments under the Senior Credit Facilityare reduced, we will be in default unless we can obtain a waiver or amendment.

 

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**Wecould incur losses due to impairment in the carrying value of our goodwill.**

 

Wehave recorded a significant amount of goodwill on our consolidated balancesheet as a result of numerous acquisitions. At December 31, 2009, the carrying value of our goodwill was $450.7million.  The carrying value of goodwillrepresents the fair value of an acquired business in excess of identifiableassets and liabilities as of the acquisition date.  We are required to test goodwill forimpairment annually and do so during the second quarter of each year, as wellas on an interim basis to the extent that factors or indicators become apparentthat could reduce the fair value of any of our business units below its bookvalue.  These determinations are based inpart on several factors, including our judgments regarding the cash flowpotential of each of our business units and involve projections that areinherently subject to change based on future events.  A significant downward revision in the fairvalue of one or more of our business units that causes the carrying value toexceed the fair value, as determined based on discounted future cash flows ofthe related business, will cause goodwill to be considered impaired, and wouldresult in a non-cash impairment charge in our consolidated statement ofoperations.

 

InJune 2009, we performed our annual test for goodwill impairment.  This goodwill impairment analysis did notresult in an impairment charge for any of our business units.  The forecasts utilized in the discounted cashflow analysis as part of our impairment test assume future growth in each ofour reporting units during the next five years and beyond.  Our Federal and U.S. ERP business units haddecreases in their operating income or losses during 2008.  If our business units can’t obtain, or wedetermine at a later date that we no longer expect them to obtain the projectedlevels of profitability, future impairment tests may result in an impairmentcharge.  There can be no assurances thatthese business units will be able to achieve our estimated levels ofprofitability.  We currently havegoodwill of $74.3 million and $54.3 million recorded for our Federal and U.S.ERP business units, respectively, and there was not significant excess fairvalue during the June 2009 annual impairment test.  The downturn in our financial results in thesecond half of 2009, particularly in our Custom Solutions and Federal businessunits, increases our risk of a future goodwill impairment charge if we cannotstart to grow revenue and profits in these business units in 2010.

 

Given the deteriorated global economic conditions affecting ourindustry and impacting our customers and their use of our services, we cannotbe certain that goodwill impairment will not be required during futureperiods.  Additionally, if a goodwillimpairment charge related to any one of our business units were required, itwould likely trigger a violation of the financial covenants under our SeniorCredit Facility.

 

**Financialand operational risks of our international operations could result in a declinein revenue and profitability.**

 

Wehave continued to expand our international operations and estimate that ourforeign offices currently represent approximately 35% of our total revenue.  We operate in 17 foreign countries.  Due to our international operations, we aresubject to a number of financial and operational risks that may adverselyaffect our revenue and profitability, including:

 

·                  the costs and difficulties relating tomanaging geographically diverse operations;

 

·                  foreign currency exchange rate fluctuations(discussed in more detail below);

 

·                  differences in, and uncertainties arisingfrom, changes in foreign business culture and practices;

 

·                  restrictions on the movement of cash and therepatriation of earnings;

 

·                  multiple and possibly overlapping orconflicting tax laws;

 

·                  the costs of complying with a wide variety ofnational and local laws;

 

·                  operating losses incurred in certaincountries and the non-deductibility of those losses for tax purposes; and

 

·                  differences in, and uncertainties arisingfrom, changes in legal, labor, political and economic conditions, as well asinternational trade regulations and restrictions, and tariffs.

 

Therevenues and expenses of our international operations generally are denominatedin local currencies.  Accordingly, we aresubject to exchange rate fluctuations between such local currencies and theU.S. dollar.  These exchange ratefluctuations subject us to currency translation risk with respect to thereported results of our international operations and the cost of potentialacquisitions.  There can be no assurancethat we will not experience fluctuations in financial results from our operationsoutside of the U.S., and there can be no assurance that we will be able,contractually or otherwise, to reduce the currency risks associated with ourinternational operations.  We manage ourexposure to changes in foreign currency exchange rates through our normaloperating and financing activities and, when deemed appropriate, withderivative financial instruments.  Thereis no assurance that we will continue to use such financial instruments in thefuture or that any such use will be successful in managing or controllingforeign currency risks.

 

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Foreignexchange rate fluctuations negatively impacted our 2009 results of operationsand such adverse effects may continue.  Over one-third of our 2009consolidated revenue was generated in foreign currencies.  Significant strengthening of the U.S. dollaragainst currencies like the Great Britain Pound and the Euro negativelyimpacted revenue and profits in the last quarter of 2008 and throughout much of2009.  Overall, revenue for fiscal 2009decreased by approximately 4% as compared to the same period of 2008 due toforeign exchange rates.  In addition, we have transactions with clients,as well as inter-company transactions between our subsidiaries, that crosscurrencies and expose us to foreign currency gains and losses.  Thesetypes of events are difficult to predict and may be expected to recur. Accordingly, we could experience material losses in revenues and earnings dueto fluctuations in foreign currency rates, and in addition these may causematerial fluctuations in our revenues and earnings from period to period.

 

**Wedepend on contracts with various federal, state and local government agenciesfor a significant portion of our revenue and, if the spending policies orbudget priorities of these agencies change, we could lose revenue.**

 

In2009, approximately 29% of our total revenue was from public sector clients,including federal, state, local and foreign governments and agencies.  The market for our services depends largelyon federal and state legislative programs and the budgetary capability tosupport programs, including the continuance of existing programs.  These programs can be modified or amended atany time by acts of such governments. The various agencies of the U.S. federal government collectivelyrepresent our largest customer accounting for 11% of our total revenue in2009.  In addition, changes in federalinitiatives or in the level of federal spending due to budgetary or deficitconsiderations may have a significant impact on our future financialperformance, as may curtailment of the federal government’s use of consultingand technology services firms, the adoption of new laws or regulations thataffect companies providing services to the federal government and potentialdelays in the government appropriation process.

 

Additionally,government contracts contain provisions and are subject to laws and regulationsthat provide government clients with rights and remedies not typically found incommercial contracts.  Among otherthings, governments may terminate contracts with short notice for convenience,as well as for default, and may cancel multi-year contracts if funds becomeunavailable.

 

**Ourrevenues, operating results and profitability will vary from quarter toquarter, which may result in increased volatility in the price of oursecurities.**

 

Ourquarterly revenues, operating results and profitability have varied in the pastand, in the future are likely to vary significantly from quarter to quarter,making them difficult to predict.  Thismay lead to volatility in the price of our securities.  Some of the factors that are likely to causethese variations are:

 

·                  the business decisions of our clientsregarding the use of our services;

 

·                  the stage of completion of existing projectsand/or their termination;

 

·                  client satisfaction with our services;

 

·                  our clients’ financial ability to pay for ourservices;

 

·                  our ability to properly manage and executeclient projects, especially those under fixed-price arrangements;

 

·                  our ability to properly price fixed-pricecontracts to provide for adequate profits;

 

·                  our ability to maintain our profit marginsand manage costs, including those for personnel and support services;

 

·                  acquisition and integration costs related topossible acquisitions of other businesses;

 

·                  changes in, or the application of changes in,accounting principles or pronouncements under U.S. generally acceptedaccounting principles;

 

·                  changes in significant accounting estimates;

 

·                  changes in interest rates on our debts;

 

·                  currency exchange rate fluctuations;

 

·                  changes in estimates, accruals or payments ofvariable compensation to our employees; and

 

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·                  global, regional and local economic andpolitical conditions and related risks.

 

Ourprofit margin, and therefore our profitability, is largely a function of therates we charge for our services and the utilization rate, or chargeability, ofour consultants.  Accordingly, if we arenot able to maintain the rates we charge for our services or an appropriateutilization rate for our consultants, we will not be able to sustain our profitmargin and our profitability will suffer. A number of factors affect the rates we charge for our services,including:

 

·                  our clients’ perception of our ability to addvalue through our services;

 

·                  changes in our pricing policies or those ofour competitors;

 

·                  the introduction of new products or servicesby us or our competitors;

 

·                  the use of globally-sourced, lower-costservice delivery capabilities by our competitors and our clients; and

 

·                  economic conditions in the U.S. and abroad.

 

Additionally,a number of factors affect our utilization rates, such as:

 

·                  seasonality, including number of workdays andholiday and summer vacations;

 

·                  our ability to transition consultants quicklyfrom completed projects to new engagements;

 

·                  our ability to forecast demand for ourservices and thereby maintain an appropriately balanced and sized workforce;and

 

·                  our ability to manage employee turnover.

 

Asa services business, our largest expense is salaries and payroll-relatedexpenses.  However, it is our skilledemployees that generate our revenues. Balancing our workforce levels against the demands for our services isextremely difficult in troubled economic times. Delays or cutbacks in projects or delays in finding new projectsincrease the non-productive time of our consultants which decrease ourutilization levels and our margins.  Wegenerally cannot reduce our labor costs as quickly as negative changes inrevenue can occur.  In addition, in anumber of the foreign countries in which we operate, the local laborregulations make it very expensive to involuntarily terminate employees.  As a result, our foreign operations will oftenretain underutilized employees for longer periods than our domestic operations.

 

**Ourbusiness could be adversely affected if our clients are not satisfied with ourservices, and we could face damage to our professional reputation and/or legalliability.**

 

Asa professional services firm, we depend largely on our relationships with ourclients and our reputation for high-quality professional services and integrityto attract and retain clients. Additionally, many of our engagements involve projects that are criticalto the operations of our clients’ businesses. If a client is not satisfied with the quality of work performed by us ora subcontractor, or with the type of services or solutions delivered, we couldincur additional costs to address the situation, the profitability of that workmight be impaired, and the client’s dissatisfaction with our services coulddamage our ability to obtain additional work from that client.  Clients that are not satisfied may also seekto terminate our contracts.  In addition,negative publicity related to our client relationships, regardless of itsaccuracy, may further damage our business by affecting our ability to competefor new contracts with current and prospective clients.

 

Ifwe do not meet our contractual obligations to a client, it could subject us tolegal liability.  Our contracts typicallyinclude provisions to limit our exposure to legal claims relating to ourservices and the applications we develop; however, these provisions may notprotect us, or may not be enforceable under some circumstances or under thelaws of some jurisdictions.  We may enterinto non-standard agreements because we perceive an important economicopportunity or because our personnel did not adequately adhere to ourguidelines.  We may find ourselvescommitted to providing services that we are unable to deliver or whose deliverywill cause us financial loss.  If wecannot or do not fulfill our obligations, we could face legal liability.  Although we maintain professional liabilityinsurance, the policy limits may not be adequate to provide protection againstall potential liabilities.  In addition,if we were to fail to properly deliver on a project, we may not be able tocollect any related accounts receivable or could even be required to refundamounts paid by the client.

 

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**We mayexperience declines in revenue and profitability if we do not accuratelyestimate the cost of a large engagement conducted on a fixed-price basis.**

 

Althoughthe percentage may vary from year to year, we estimate that approximately20-25% of our total services revenue in 2009 was from engagements performed inaccordance with fixed-price contracts. When making a proposal or managing a fixed-price engagement, we rely onour estimates of costs and timing for delivering our services, which might bebased on limited data and could turn out to be inaccurate.  These estimates reflect our best judgmentregarding the efficiencies of our methodologies and consultants as we plan toapply them to the engagement.  If we donot accurately estimate our costs and timing for completion of projects, ourcontract could prove unprofitable or yield a profit margin that is lower thanexpected.

 

Somefixed-price engagements are long-term contracts of three to five years andestimating future year costs on such engagements is extremely difficult andsubject to additional risks.  Often ourcost estimates and pricing from outsourcing projects anticipates long-term costsavings from transformational and other initiatives that we expect to benefitfrom over the term of the outsourcing contract. There is a risk that we will fail to accurately estimate the costs ofperforming our services, and that we will under price our contracts having anadverse effect on our profits.

 

Losses,if any, on fixed-price contracts are recognized when the loss isdetermined.  Any increased or unexpectedcosts or unanticipated delays in connection with the performance of fixed-pricecontracts, including delays caused by factors outside of our control, couldmake these contracts less profitable or unprofitable and may affect the amountof revenue reported in any period.  In addition,these risks may be heightened by the current difficult economic conditions.

 

**Aprivacy breach could adversely affect our business.**

 

Theprotection of client, employee and company data is critical to theCompany.  The regulatory environmentsurrounding information security and privacy is increasingly demanding, withthe frequent imposition of new and constantly changing requirements.  In addition, our clients have a highexpectation that we will adequately protect their confidentialinformation.  We are required at times to manage, utilize and storesensitive or confidential client or employee data.  As a result, we are subject to numerousU.S. and foreign jurisdiction laws and regulations designed to protectthis information, such as the European Union Directive on Data Protection andvarious U.S. federal and state laws governing the protection of health orother individually identifiable information. If any person, including any of our employees, negligently disregards orintentionally breaches our established controls with respect to such data orotherwise mismanages or misappropriates that data, we could be subject tomonetary damages, fines and/or criminal prosecution.  Unauthorized disclosure of sensitive orconfidential client or employee data, whether through systems failure, employeenegligence, fraud or misappropriation, could damage our reputation and cause usto lose clients.  Similarly, unauthorizedaccess to or through our information systems or those we develop for ourclients, whether by our employees or third parties, could result in negativepublicity, legal liability and damage to our reputation.

 

**If weare unable to collect our receivables, our results of operations and cash flowscould be adversely affected.**

 

Ourbusiness depends on our ability to successfully obtain payment from our clientsfor the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill andcollect on relatively short cycles.  Wemaintain allowances against receivables, but actual losses on client balancescould differ from those that we currently anticipate and as a result, we mightneed to adjust our allowances.  There isno guarantee that we will accurately assess the creditworthiness of ourclients.  In addition, timely collectionof client balances depends on our ability to complete our contractualcommitments and bill and collect our contracted revenues.  Deteriorating global economic conditions in2008 and 2009 resulted in financial difficulties for a number of our clientsand, consequentially, we experienced a greater amount of bad debt expense fromclients filing for bankruptcy.

 

Ifwe are unable to meet our contractual requirements, we might experience delaysin the collection of, and/or be unable to collect, our client balance and, ifthis occurs, our results of operations and cash flows could be adverselyaffected.

 

**Unfavorablegovernment audits could require us to adjust previously reported operatingresults, to forego anticipated revenue and subject us to penalties andsanctions.**

 

Thegovernment agencies we contract with generally have the authority to audit andreview our contracts with them.  As partof that process, the government agency reviews our performance on the contract,our pricing practices, our cost structure and our compliance with applicablelaws, regulations and standards.  Anaudit of our work, including an audit of work performed by companies we haveacquired or may acquire, could result in a substantial adjustment to ourpreviously reported operating 

 

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results.  For example, any costs that were originallyreimbursed could be subsequently disallowed. In this case, cash we have already collected may have to be refunded andoperating margins may be reduced.

 

Ifa government audit uncovers improper or illegal activities by us, or weotherwise determine that these activities have occurred, we may be subject tocivil and criminal penalties and administrative sanctions, includingtermination of contracts, forfeiture of profits, suspension of payments, finesand suspension or disqualification from doing business with the government.  Any unfavorable determination could adverselyaffect our ability to bid for new work with one or more jurisdictions.

 

**Ourfuture success depends on our ability to continue to retain and attractqualified employees.**

 

Ourbusiness involves the delivery of professional services and is highly laborintensive.  Our future success dependsupon our ability to continue to attract, train, effectively motivate and retainhighly-skilled technical, managerial, sales and marketing personnel.  Although we invest significant resources inrecruiting and retaining employees, there is often considerable competition forcertain personnel in the IT services industry and as a result, employeeturnover is generally high.  From time totime, we have trouble locating enough highly-qualified candidates that are inour desired geographic locations, with the required specific expertise or atthe desired compensation levels.  Theinability to attract and retain qualified employees in sufficient numbers couldhave a serious negative effect on us, including our ability to obtain andsuccessfully complete important client engagements and thus, maintain orincrease our revenues.  Such conditionscould also force us to resort to the use of higher-priced subcontractors, whichwould adversely affect the profitability of the related engagement.

 

Inaddition, we believe that there are certain key employees within theorganization, primarily in the senior management team, who are important for usto meet our objectives.  Due to thecompetitive employment nature of our industry, there is a risk that we will notbe able to retain these key employees. The loss of one or more key employees could adversely affect ourcontinued growth.  In addition,uncertainty created by turnover of key employees could result in reduced confidencein our financial performance, which could cause fluctuations in the price ofour securities and result in further turnover of our employees.

 

**Our services or solutions could infringe upon theintellectual property rights of others, or we might lose our ability to utilizethe intellectual property of others.**

 

We cannot be sure thatour services and solutions, or the solutions of others that we offer to ourclients, do not infringe on the intellectual property rights of third parties,and we could have infringement claims asserted against us or against ourclients. These claims could harm our reputation, cost us money and prevent usfrom offering some services or solutions. In a number of our contracts, we agree to indemnify our clients forexpenses or liabilities resulting from claimed infringements of theintellectual property rights of third parties. In some instances, the amount of these indemnities could be greater thanthe revenues we receive from the client. Any claims or litigation in this area, whether we ultimately win orlose, could be time-consuming and costly, injure our reputation or require usto enter into royalty or licensing arrangements.  We might not be able to enter into theseroyalty or licensing arrangements on acceptable terms.  If a claim of infringement were successfulagainst us or our clients, an injunction might be ordered against our clientsor our own services or operations, causing further damages.  We could lose our ability to utilize theintellectual property of others. Third-party suppliers of software, hardware or other intellectual assetscould be acquired or sued, and this could disrupt use of their products orservices by us and our clients.  If ourability to provide services and solutions to our clients is impaired, ouroperating results could be adversely affected.

 

**We haveadopted anti-takeover defenses that could make it difficult for another companyto acquire control of CIBER or limit the price investors might be willing topay for our stock, thus affecting the market price of our securities.**

 

Wehave adopted a Rights Agreement, commonly known as a “poison pill,” under whicheach stockholder of the Company holds one share purchase right, which we referto as a Right, for each share of Company common stock held.  The Rights become exercisable upon theoccurrence of certain events and may make the acquisition of our Company moredifficult and expensive.  In addition,our certificate of incorporation and bylaws each contain provisions that maymake the acquisition of our Company more difficult without the approval of ourboard of directors, including a provision that gives our board of directors theability to issue preferred stock and determine the rights and designations ofthe preferred stock at any time without stockholder approval.  The rights of the holders of our common stockwill be subject to, and may be adversely affected by, the rights of the holdersof any preferred stock that may be issued in the future.  The issuance of preferred stock by our boardof directors pursuant to our certificate of incorporation could have the effectof making it more difficult for a third party to acquire, or of discouraging athird party from acquiring, a majority of the outstanding voting stock ofCIBER.  

 

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Inaddition, the staggered terms of our board of directors could have the effectof delaying or deferring a change in control. These provisions could limit the price that investors might be willingto pay in the future for our securities and as a result, the price of oursecurities could decline.

 

Theabove factors and certain provisions of the Delaware General Corporation Lawmay have the effect of deterring hostile takeovers or otherwise delaying orpreventing changes in the control or management of CIBER; this could adverselyaffect transactions in which our stockholders might otherwise receive a premiumover the then-current market price for their CIBER securities.

 

**Item 1B.  Unresolved StaffComments**

 

None.

 

# **Item 2.  Properties**

 

Our corporate office is located at 6363 South Fiddler’s Green Circle, Suite 1400,Greenwood Village, Colorado 80111, where we, along with our Denver areaoperations, occupy approximately 77,000 square feet under a lease that expiresin December 2018.  Generally, weprovide our services at client locations and therefore, our office locationsare primarily used for sales and other administrative functions.  At December 31, 2009, we had leaseobligations for approximately 700,000 square feet of office space inapproximately 100 locations.

 

We believe our facilities are adequate for our current level ofoperations.

 

**Item 3.  Legal Proceedings**

 

TheCompany is involved in legal proceedings, audits, claims and litigation arisingin the ordinary course of business. Although the outcome of such matters is not predictable with assurance,we do not expect that the ultimate outcome of any of these matters,individually or in the aggregate, will have a material adverse effect on ourfinancial condition, results of operations or cash flows.

 

**Item 4.  Reserved**

 

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**Part II**

 

**Item 5.  Market for Registrant’s Common Equity,Related Shareholder Matters and Issuer Purchases of Equity Securities**

 

***Market Information, Holders andDividends***

 

Ourcommon stock is listed on the New York Stock Exchange under the symbol “CBR.”  The table below sets forth, for the periodsindicated, the low and high sales price per share of our common stock.

 
| ** **     | ** ** | **Year  Ended**             | ** ** | **Year  Ended**             | ** ** |
|----------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **     | ** ** | **December 31,  2008** | ** ** | **December 31,  2009** | ** ** |
| ** **     | ** ** | **Low**                     | ** ** | **High**                    | ** ** | **Low** | ** ** | **High** | ** ** |
| First Quarter  |       | $                           | 4.20       |                        | $          | 6.20 |   | $ | 2.03 |   | $ | 5.66 |   |
| Second Quarter |       | 4.60                        |       | 7.50                        |       | 2.64 |   | 3.69 |   |
| Third Quarter  |       | 5.57                        |       | 8.97                        |       | 2.99 |   | 4.50 |   |
| Fourth Quarter |       | 2.95                        |       | 7.10                        |       | 2.88 |   | 4.08 |   |
|                |            |                             |            |                             |            |  |  |  |  |  |  |  |  |

 

Theclosing price of our common stock on February 19, 2010, was $3.82.  As of February 19, 2010, there were2,753 registered holders of record of our common stock.  We estimate there are approximately 11,200****beneficial owners of our common stock.

 

Ourpolicy is to retain our earnings to support the growth of our business.  Accordingly, we have never paid cashdividends on our common stock and have no present plans to do so.  In addition, pursuant to the terms of our SeniorCredit Facility, we are prohibited from paying dividends on our stock.

 

***Securities Authorized for Issuance under Equity Compensation Plans***

 

Information regarding securities authorized forissuance under our equity compensation plans can be found under “SecurityOwnership of Certain Beneficial Owners and Management and Related StockholderMatters.”

 

***Recent Sales ofUnregistered Securities and Use of Proceeds from Registered Securities***

 

None.

 

***Purchases of EquitySecurities by the Issuer***

 

The following table setsforth the information required regarding repurchases of our equity securitiesmade during the three months ended December 31, 2009.

 
| **Period (1)**     | ** ** | **Total  Number of  Shares (or Units)  Purchased** | ** ** | **Average  Price Paid  per Share (or Unit)** | ** ** | **Total  Number of  Shares (or Units)  Purchased as Part of  Publicly Announced  Programs** | ** ** | **Maximum  Number  (or Approximate  Dollar Value) of  Shares (or Units) that  can be Purchased  Under the  Program (2)(3)** | ** ** |
|--------------------|------------|----------------------------------------------------|------------|----------------------------------------------|------------|--------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| * *           | * *   | * *                                           | * *   | * *                                     | * *   | * *                                                                                         | * *   | * *                                                                                                                         | * *   |
| October 2009  |       | 210,392                                            |       | $                                            | 3.70       |                                                                                             | 210,392    |                                                                                                                             | $          | 5,867,252 |   |
| November 2009 |       | 85,000                                             |       | $                                            | 3.27       |                                                                                             | 85,000     |                                                                                                                             | $          | 5,589,393 |   |
| December 2009 |       | 20,000                                             |       | $                                            | 3.21       |                                                                                             | 20,000     |                                                                                                                             | $          | 5,525,230 |   |
| Total              |       | 315,392                                            |       | $                                            | 3.55       |                                                                                             | 315,392    |                                                                                                                             |       |   |

 

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(1) Calendar month

 

(2) As of end of month indicated

 

(3) CIBER has had a common stock sharerepurchase program since 1999, under which we have repurchased approximately23.8 million shares for a total cost of $196.2 million, and that has beenamended from time to time by our Board of Directors. Following the most recentauthorization in October 2009, approximately $5.5 million remainedavailable at December 31, 2009 (see above table).

 

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***Performance Graph***

 

Thefollowing graph compares the cumulative 5 year total return provided toshareholders on CIBER, Inc.’s common stock relative to the cumulativetotal returns of the S&P 500 index, the RDG MicroCap Technology index, andtwo customized peer groups of companies that includes an old peer group of fivecompanies, which are: Accenture plc, BearingPoint, Inc, CACI International Inc,CGI Group Inc. and Maximus, Inc.; and another new peer group of tencompanies which are: Accenture plc, Atos Origin SA, BearingPoint, Inc, CACIInternational Inc, Cap Gemini SA, CGI Group Inc., Cognizant TechnologySolutions, Logica PLC,  Maximus, Inc.and Tieto Corporation.  The Companyutilizes self-constructed peer groups to better align itself with industrycompetition.  An investment of $100 (withreinvestment of all dividends) is assumed to have been made in our commonstock, in each of the peer groups, and in the indices on December 31,2004, and its relative performance is tracked through December 31, 2009. 

 

**COMPARISON OF 5 YEAR CUMULATIVE TOTALRETURN***

Among CIBER, Inc., The S&P 500 Index, The RDGMicroCap Technology Index

An Old Peer Group And A New Peer Group

 

 

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*$100invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscalyear ending December 31.

 

Copyright©2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.

 

Correspondingindex value and common stock price values are given below:

 
| ** **                           | ** ** | **Cumulative  Total Return** | ** ** |
|--------------------------------------|------------|------------------------------|------------|
| ** **                           | ** ** | **12/04**                    | ** ** | **12/05** | ** ** | **12/06** | ** ** | **12/07** | ** ** | **12/08** | ** ** | **12/09** | ** ** |
| ** **                           | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| CIBER, Inc.                     |       | 100.00                       |       | 68.46 |   | 70.33 |   | 63.38 |   | 49.90 |   | 35.79 |   |
| S & P 500                   |       | 100.00                       |       | 104.91 |   | 121.48 |   | 128.16 |   | 80.74 |   | 102.11 |   |
| RDG MicroCap Technology              |       | 100.00                       |       | 78.95 |   | 78.44 |   | 60.68 |   | 21.93 |   | 28.99 |   |
| Old Peer Group                       |       | 100.00                       |       | 107.19 |   | 126.42 |   | 125.84 |   | 110.44 |   | 145.99 |   |
| New Peer Group                       |       | 100.00                       |       | 109.31 |   | 135.59 |   | 125.76 |   | 89.25 |   | 136.82 |   |
| CIBER, Inc. Closing Stock Price |       | $                            | 9.64       |   | $ | 6.60 |   | $ | 6.78 |   | $ | 6.11 |   | $ | 4.81 |   | $ | 3.45 |   |
|                                      |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**Item 6.  Selected Financial Data**

 

We have derived the selected consolidated financial data presentedbelow from our Consolidated Financial Statements and the related Notes.  This information should be read inconjunction with “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” and our Consolidated Financial Statements andrelated Notes, included under “Financial Statements and Supplementary Data” ofthis Annual Report.

 
| ** **                                         | ** ** | **As of  and for the Year Ended December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                         | ** ** | **(In  thousands, except per share data)**          | ** ** |
| **Statement of Operations Data:**                  | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                            |       | $                                                   | 956,009    |   | $ | 995,837 |   | $ | 1,081,975 |   | $ | 1,191,567 |   | $ | 1,037,700 |   |
| Gross profit                                       |       | 257,177                                             |       | 266,079 |   | 292,459 |   | 324,480 |   | 259,293 |   |
| Selling, general and administrative expenses       |       | 204,563                                             |       | 215,109 |   | 232,119 |   | 264,268 |   | 225,643 |   |
| Operating income                                   |       | 46,656                                              |       | 45,040 |   | 54,520 |   | 53,938 |   | 27,759 |   |
| Net income — CIBER, Inc.                 |       | 24,707                                              |       | 24,735 |   | 23,951 |   | 26,884 |   | 14,958 |   |
| **Net Income Per Share —  CIBER, Inc.:** | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                              |       | $                                                   | 0.40       |   | $ | 0.40 |   | $ | 0.39 |   | $ | 0.45 |   | $ | 0.22 |   |
| Diluted                                            |       | 0.38                                                |       | 0.40 |   | 0.39 |   | 0.45 |   | 0.22 |   |
| **Weighted Average Shares  Outstanding:**          | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic                                              |       | 62,536                                              |       | 61,925 |   | 61,207 |   | 60,092 |   | 67,996 |   |
| Diluted                                            |       | 68,296                                              |       | 62,357 |   | 61,924 |   | 60,389 |   | 68,107 |   |
| ** **                                         | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Balance Sheet Data:**                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Working capital                                    |       | $                                                   | 147,382    |   | $ | 140,757 |   | $ | 173,924 |   | $ | 165,233 |   | $ | 136,854 |   |
| Total assets                                       |       | 744,567                                             |       | 779,679 |   | 848,931 |   | 797,520 |   | 803,256 |   |
| Long-term debt, current portion                    |       | 2,000                                               |       | 3,602 |   | 9,108 |   | 2,002 |   | 10,697 |   |
| Long-term debt, non-current portion                |       | 217,638                                             |       | 192,092 |   | 193,978 |   | 165,710 |   | 87,500 |   |
| Total shareholders’ equity                    |       | 376,607                                             |       | 416,122 |   | 459,939 |   | 453,324 |   | 506,246 |   |
|                                               |       |                                                |       |   |   |   |   |   |   |   |   |
| Shares outstanding, net of treasury                |       | 62,047                                              |       | 61,753 |   | 60,747 |   | 60,085 |   | 69,482 |   |

 

----

Note: On January 1,2009, we were required to retrospectively apply new accounting guidance relatedto convertible debt and noncontrolling interests to our previously reportedresults for 2007 and 2008.  As a result,the amounts shown in the table above for 2007 and 2008 are the adjusted amountsfollowing these retrospective accounting adjustments.  Our results for 2005 and 2006 have not beenadjusted for this retrospective application. Please see Note 1 to the Consolidated Financial Statements includedherein for additional discussion.

 

Additionally, please refer to Note 12 to the Consolidated FinancialStatements included herein for a discussion of our February 2009 offeringof common shares and the use of the net proceeds from that offering to pay downa portion of our long-term debt.

 

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**Item 7.  Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

*Thefollowing discussion and analysis should be read in conjunction with ourConsolidated Financial Statements and related Notes included elsewhere in thisAnnual Report on Form 10-K.  Thissection also contains forward-looking statements and should be read inconjunction with the section of this report titled “Disclosure RegardingForward-Looking Statements.”*

 

**Businessand Industry Overview**

 

CIBERprovides IT system integration consulting and other IT services primarily togovernmental agencies and Fortune 1000 and middle market companies across mostmajor industries.  From offices locatedthroughout the United States and Europe, as well as Eastern Asia, Australia andNew Zealand, we provide our clients with a broad range of IT services,including custom and package software development, maintenance, implementationand integration.  To a lesser extent, wealso resell certain IT hardware and software products.

 

Ourreportable segments are our operating divisions, which are organized internallyprimarily by the nature of their services, client base and geography.  In 2009, we made several changes to ourdivisions in order to better align our operations, reduce overhead costs and toseparate our growing IT Outsourcing practice into its own division.  All prior year segment data has been adjustedto conform to the 2009 presentation.  Ourdivisions now consist of our International division (formerly Europe), whichincludes Europe, Eastern Asia, Australia and New Zealand, and our CustomSolutions, IT Outsourcing, Federal and U.S. ERP (formerly Enterprise Solutions)divisions.  Our International divisionprovides a broad range of IT consulting services, including package softwareimplementation, application development, systems integration and supportservices, with SAP-related solutions and services accounting for 60% to 65% of itstotal revenue in 2009.  Our CustomSolutions and Federal divisions provide IT services and products incustom-developed software environments. Our India-based operations are considered part of our Custom Solutionsdivision.  Our IT Outsourcing division offers a set ofsolutions that span the entire spectrum of IT infrastructure and IT operationsservices.  Our U.S. ERP divisionprimarily provides enterprise software implementation services, including ERPsoftware from software vendors such as Oracle, SAP and Lawson for U.S. customers.

 

We recognize the majority of our services revenue undertime-and-material contracts as hours and costs are incurred.  Under fixed-price contracts, which currentlymake up approximately 20-25% of our services revenue, our revenue is fixedunder the contract, while our costs to complete our obligations under thecontract are variable.  As a result, ourprofitability on fixed-price contracts can vary significantly and occasionallycan even be a loss.  Changes in ourservices revenue are primarily a function of hours worked on revenue-generatingactivities and, to a lesser extent, changes in our average rate per hour andchanges in contract mix.  Hours worked onrevenue-producing activities vary with the number of consultants employed andtheir utilization level.  Utilizationrepresents the percentage of time worked on revenue-producing engagementsdivided by the standard hours available (i.e., 40 hours per week).  Our average utilization rates are higher inour Custom Solutions and Federal divisions (typically around 85% to 90%) ascompared to our International and U.S. ERP divisions (typically around 75% to80%).  With time-and-materials contracts,higher consultant utilization results in increased revenue; however, withfixed-price contracts, it may result in higher costs and lower gross profitmargins because our revenue is fixed.  Weactively manage both our number of consultants and our overall utilizationlevels.  If we determine we have excessavailable resources that we cannot place on billable assignments in the nearfuture, we consider reducing those resources. As a result, during the last three years, most of our consultantturnover has been from involuntary termination of employment.

 

The hourly rate we charge for our services varies based on the level ofthe consultant involved, the particular expertise of the consultant and thegeographic area.  Our typicaltime-and-materials hourly rates range from $50 to $200 per hour and, onaverage, are generally highest in our U.S. ERP division and lowest in ourFederal division.  We also havefixed-price projects, as well as engagements whose pricing is based oncost-plus or level-of-effort.  For suchprojects, where our revenue is not directly based on hours incurred, ourrealized rate per hour will vary significantly depending on success or overageson such projects.

 

Selling, general and administrative (“SG&A”) costs as a percentageof revenue vary by business segment. Close to 60% of our overall SG&A expenses are typically forpersonnel costs for our branch office personnel, which includes our branchmanagement, consulting staff management, sales and recruiting personnel andadministrative staff, as well as our corporate office support staff andmanagement personnel.  Although thesecosts are not immediately affected by changes in revenue, there is often arelatively short-term correlation between these SG&A salary expenses andrevenue.  Additionally, as we bid onlarger and longer projects, the sales cycle and related sales costs have beenincreasing.  As a result of the above, weanalyze changes in our SG&A expenses in terms of the relationship betweenthese costs and revenue (expressed as a percentage of revenue) rather thantotal dollars or percentage change in the total dollars.

 

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Other revenue includes resale of third-party IThardware and software products, sales of proprietary software and commissionson sales of IT products.  Our sales of IThardware and software generally involve IT network infrastructure.  The gross profit margin on consolidated otherrevenues is typically in the range of 30% to 50%.  This is a blend of low-margin hardware sales(typically a 5% to 10% gross margin), mid-margin software sales (typically a20% to 40% gross margin) and higher-margin product commissions and proprietarysoftware sales.  Depending on the mix ofthese business activities, gross profit margin on other revenue will fluctuate.

 

The market demand for CIBER’s services is heavilydependent on IT spending by major corporations, organizations and governmententities in the markets and regions that we serve.  The pace of technological advancement andchanges in business requirements and practices of our clients all have asignificant impact on the demand for the services that we provide.

 

OurInternational division comprised over one-third of our total revenues in both2008 and 2009, up from 29% of consolidated revenues in 2007.  Our International division operates primarilyin Western Europe, but also has offices in China, Russia, Australia and NewZealand.  As such, these operationstransact business in local currencies of the countries in which theyoperate.  Generally in recent years,approximately 50% to 55% of our International division’s revenue has beendenominated in Euro’s, approximately 15% to 20% has been denominated in GreatBritain Pounds (“GBP”) and the balance has come from a number of othercurrencies.  Changes in the exchangerates between these foreign currencies and the U.S. dollar affect the reportedamounts of our assets, liabilities, revenues and expenses.  For financial reporting purposes, the assetsand liabilities of our foreign operations are translated into U.S. dollars atcurrent exchange rates at period end and revenues and expenses are translatedat average exchange rates for the period.

 

**Retroactive Accounting Pronouncement Adjustments**

 

InMay 2008, the Financial Accounting Standards Board (“FASB”) issued newaccounting guidance on convertible debt instruments that may be settled in cashupon conversion.  This guidance requiresthat the proceeds from the issuance of certain convertible debt instruments beallocated between a liability component (issued at a discount) and the embeddedconversion option (i.e., the equity component) in a manner that reflects theentity’s nonconvertible debt borrowing rate. The difference between the principal amount of the debt and the amountof the proceeds allocated to the liability component must be reported as a debtdiscount and subsequently amortized to earnings as additional non-cash interestexpense over the convertible debt’s expected life using the effective interestmethod.  We adopted this guidance, whichrequires retrospective application for all periods presented, on January 1,2009.  The adoption changed thehistorical accounting treatment for our Convertible Senior SubordinatedDebentures (“Debentures”) even though all of our Debentures were repurchased andretired prior to December 31, 2008.

 

InDecember 2007, the FASB issued accounting guidance contained within ASC810, “Consolidation,” regarding noncontrolling interests.  This guidance requires that thenoncontrolling interests in the equity of a subsidiary be accounted for andreported as equity, provides revised guidance on the treatment of net incomeand losses attributable to the noncontrolling interests and changes inownership interests in a subsidiary and requires additional disclosures thatidentify and distinguish between the interest of the controlling andnoncontrolling owners.  We prospectively adopted these requirements on January 1,2009, except for the presentation and disclosure requirements, which have beenapplied retrospectively to all periods presented.

 

Therequired retrospective applications of the above guidance had the followingimpact on our net income, diluted earnings per share and presentation of theconsolidated statement of operations for the 2007 and 2008 annual periods:

 
| ** **                                                  | ** ** | **2007** | ** ** | **2008** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                        |       |     |       |     |       |
| Net  income — CIBER, Inc., as previously reported |       | $        | 29,026     |     | $          | 29,956 |   |
| Impact  of convertible debenture adjustment                 |       | (5,075   | )          | (3,072   | )          |
| Net  income — CIBER, Inc., as adjusted            |       | 23,951   |       | 26,884   |       |
| Net  income — noncontrolling interests                 |       | 1,566    |       | 929      |       |
| Consolidated  net income                                    |       | $        | 25,517     |     | $          | 27,813 |   |
|                                                        |       |     |       |     |       |
| Earnings per share — basic and diluted:                |       |     |       |     |       |
| Net income — CIBER, Inc., as previously  reported |       | $        | 0.47       |     | $          | 0.50 |   |
| Impact of convertible debenture adjustment                  |       | (0.08    | )          | (0.05    | )          |
| Net income — CIBER, Inc., as adjusted             |       | $        | 0.39       |     | $          | 0.45 |   |

 

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**Comparisonof the Years Ended December 31, 2009 and 2008 - Consolidated**

 

Wetranslate the results of our foreign operations into U.S. dollars from therelevant local currencies.  In periodswhen the U.S. dollar is weaker, this results in a proportionately larger numberof U.S. dollars, and thus helps our results. In U.S. dollar terms, currency rates were favorable for CIBER during thefirst 3 quarters of 2008.  During thefourth quarter of 2008, we saw significant declines in foreign exchange ratesas compared to the U.S. dollar.  Thestrength of the U.S. dollar remained fairly consistent throughout the firsthalf of 2009, only to weaken against foreign currencies during the second halfof the year, making for a more favorable currency environment for CIBER onceagain by the end of 2009 as compared to the end of 2008.  The foreign exchange rates used fortranslating the balance sheet of our foreign operations at December 31,2009, increased by 4% for the Euro and 11% for the GBP as compared to December 31,2008.  The negative impact on ourfinancial results related to the strength of the U.S. dollar during the firsthalf of 2009 was partially offset by a weaker U.S. dollar in the second half ofthe year, resulting in an overall decrease in revenue of approximately $41million in 2009.

 

Thefollowing table sets forth certain Consolidated Statement of Operations data indollars and expressed as a percentage of revenue:

 
| ** **                              | ** ** | **Year  Ended December 31,**                | ** ** |
|-----------------------------------------|------------|--------------------------------------------------|------------|
| ** **                              | ** ** | **2008**                                         | ** ** | **2009** | ** ** |
| ** **                              | ** ** | **(Dollars  in thousands, except billing rate)** | ** ** |
| Consulting services                     |       | $                                                | 1,133,233  |   | 95.1 | % | $ | 992,779 |   | 95.7 | % |
| Other revenue                           |       | 58,334                                           |       | 4.9 |   | 44,921 |   | 4.3 |   |
| Total revenue                           |       | 1,191,567                                        |       | 100.0 |   | 1,037,700 |   | 100.0 |   |
|                                    |       |                                             |       |   |   |   |   |   |   |
| Gross profit — consulting services |       | 303,427                                          |       | 26.8 |   | 242,615 |   | 24.4 |   |
| Gross profit — other revenue       |       | 21,053                                           |       | 36.1 |   | 16,678 |   | 37.1 |   |
| Gross profit — total               |       | 324,480                                          |       | 27.2 |   | 259,293 |   | 25.0 |   |
|                                    |       |                                             |       |   |   |   |   |   |   |
| SG&A expenses                       |       | 264,268                                          |       | 22.2 |   | 225,643 |   | 21.7 |   |
|                                    |       |                                             |       |   |   |   |   |   |   |
| Operating income                        |       | 53,938                                           |       | 4.5 |   | 27,759 |   | 2.7 |   |
|                                    |       |                                             |       |   |   |   |   |   |   |
| Net income — CIBER, Inc.      |       | 26,884                                           |       | 2.3 |   | 14,958 |   | 1.4 |   |
|                                    |       |                                             |       |   |   |   |   |   |   |
| Consultant utilization                  |       | 87                                               | %          |   |   | 86 | % |   |   |
| Average billable headcount              |       | 7,395                                            |       |   |   | 7,130 |   |   |   |

 

*Revenue.*  Total revenue decreased $153.9 million, or13%, for 2009 compared to 2008.  Pooreconomic conditions and the strength of the U.S. dollar against many currenciesbetween the comparable periods are primarily responsible for the decline.  Foreign currency rate changes resulted in areduction in 2009 reported revenue of approximately $41 million, or 4%,compared with 2008.  Excluding theunfavorable currency translation effects, our total revenue decreased 9% for2009 compared to 2008.  The globaleconomic downturn, which began late in 2008, has led to lower overall demandfor IT services and products.  Over muchof the period from late 2008 and throughout most of 2009, many of our clientsand prospects have been focused on initiatives to deliver near- and medium-termcost savings, and while they continue to exercise caution in launching new ITprojects, especially larger ones, we are engaging in more conversations withour clients and prospects about possible projects relating to their futuregrowth.  Many clients and prospects havereduced, delayed or cancelled IT spending over this same time period.  We have also experienced pricing pressuresfrom existing clients and prospects that have been working hard to manage theircosts, but we have recently seen a slowing in the frequency of pricing pressurefrom existing customers.  The pricingenvironment for new work, however, continues to be very competitive.

 

Revenueby segment/division was as follows:

 
| ** **              | ** ** | **Year  Ended December 31,** | ** ** | ** ** | ** ** |
|-------------------------|------------|-----------------------------------|------------|------------|------------|
| ** **              | ** ** | **2008**                          | ** ** | **2009**   | ** ** | **% change** | ** ** |
| ** **              | ** ** | **(In  thousands)**               | ** ** | ** ** | ** ** |
| Custom Solutions        |       | $                                 | 466,208    |       | $          | 372,168 |   | (20.2 | )% |
| International           |       | 406,071                           |       | 349,834    |       | (13.9 | ) |
| IT Outsourcing          |       | 72,453                            |       | 76,341     |       | 5.4 |   |
| Federal                 |       | 127,391                           |       | 117,613    |       | (7.7 | ) |
| U.S. ERP                |       | 122,163                           |       | 126,443    |       | 3.5 |   |
| Corporate/Inter-segment |       | (2,719                            | )          | (4,699     | )          | n/m |   |
| Total revenue           |       | $                                 | 1,191,567  |       | $          | 1,037,700 |   | (12.9 | )% |

 

----

n/m= not meaningful

 

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·                  Custom Solutions’ revenue decreased primarily due to the successful completionof the very large Pennsylvania Turnpike Commission (“PTC”) project in mid-2008,plus the normal completion of other projects, as well as a number of cancelledor delayed projects and staffing reductions on other projects resulting fromcurrent economic conditions.  Mostsignificantly, some large clients cut back on the use of our services in 2009due to strategy decisions.  We have beenunable to close sufficient new contracts, especially larger ones, to offsetthese reductions.

 

·                  Unfavorable foreign currency fluctuations accounted for a 10% declinein our International division’s current year results.  Excluding the impact of unfavorable foreigncurrency translation, our International division revenue decreased byapproximately 4%.  Completed projects anddelays in customer decisions on new projects slowed revenue contributions in2009.  Client bankruptcy and financialconstraints also caused cancellation of, or reductions in some client contractswhich negatively impacted this division’s 2009 results.

 

·                  IT Outsourcing revenue increased in 2009 due to account growth atexisting customers, plus the addition of several new clients in late 2008 andin 2009, all of which combined more than offset a client bankruptcy, cancelledproject and reduced scope and spending at several other clients.

 

·                  Federal division revenue was down in 2009 as compared to 2008 relatedto expired contracts that have yet to be replaced.  Federal had a large contract that expired atthe end of 2008 and was then awarded to a qualified small business.  The Federal division was successful in 2009at winning a number of its expiring contracts where we were eligible torecompete, but delays in new contract awards have continued to push outimprovements in our Federal division’s revenue. Recently, the Federal division obtained a number of Multiple AwardContract vehicles that allow us to compete for new business.  The Federal division is working on winningtask order awards under these indefinite delivery/indefinite quantity contractsthat we expect will lead to additional revenue in future periods.

 

·                  U.S. ERP division revenues improved over 3% in 2009 compared with2008.  Several large contract wins inlate 2008 and early 2009 in our Oracle and SAP practices were primarilyresponsible for the increase.  Partiallyoffsetting these contributions was the successful completion of theimplementation phase of the very large PTC project (mentioned above) inmid-2008.  We continue to provide supportservices to the PTC, but at considerably less revenue than during theimplementation phase.  Additionally, ourTechnology Solutions group incurred a $1.7 million reduction in current yearrevenue due to slower hardware sales related to the weak economy.

 

*Gross Profit. *In total,our gross profit margin decreased 220 basis points to 25.0% for 2009, comparedwith 27.2% for 2008.  Gross profit marginon consulting services revenue accounted for all of the decrease, with sizableconsulting services margin decreases in all but our U.S. ERP division, whichhad a significant improvement over 2008 due to the turnaround in our SAPpractice from its poor performance in 2008. The significant declines in consulting services gross margins wereprimarily due to pricing pressures, which has reduced pricing on our existingwork, as well as lowered pricing for new competitive awards.  As customers have reduced, delayed orcancelled projects, it has been difficult to maintain our normal levels ofconsultant utilization, which has also contributed to the reduction in our grossmargin.  Our International division alsoincurred an approximate 2.5% employee wage increase at the beginning of 2009that we were not able to recover through increased billing rates due to thepricing pressures mentioned above.

 

*Selling, general and administrative. *We began a number of cost reduction initiatives in thefall of 2008 in response to the deteriorating economic conditions.  As a result, our SG&A costs for 2009declined by $38.6 million, or 15%, compared with 2008.  As a percentage of revenue, SG&A expenseswere down 50 basis points between the comparable annual periods.  Significant cost reductions resulted from thecombination of our former Commercial and State & Local Governmentdivisions in 2009; however, reductions were made in all divisions other than ITOutsourcing, which experienced increases in SG&A costs primarily related toadditional infrastructure to support revenue growth within that division.  Overall, salary reductions represented approximatelyhalf of the annual SG&A costs savings, and the remainder was achievedprimarily through reductions in a number of other categories such asrecruiting, training and meeting expenses and travel costs, in addition to a$4.7 million decrease in bad debt expense, primarily from fewer client bankruptciesin 2009 compared to the prior year.

 

*Operating income.*  The 220 basispoint reduction in our gross profit margin, partially offset by a 50 basispoint savings in our SG&A costs, resulted in a decrease in our operatingincome margin to 2.7% for 2009, compared to 4.5% for 2008.

 

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Operating income by segment/division was as follows:

 
| ** **                  | ** ** | **Year  Ended  December 31,** | ** ** | **%**      | ** ** | **2008********% of** | ** ** | **2009********% of** | ** ** |
|-----------------------------|------------|------------------------------------|------------|------------|------------|----------------------|------------|----------------------|------------|
| ** **                  | ** ** | **2008**                           | ** ** | **2009**   | ** ** | **change**           | ** ** | **revenue***         | ** ** | **revenue*** | ** ** |
| ** **                  | ** ** | **(In  thousands)**                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** |
| Custom Solutions            |       | $                                  | 45,170     |       | $          | 24,125               |       | (46.6                | )%         | 9.7 | % | 6.5 | % |
| International               |       | 30,795                             |       | 20,107     |       | (34.7                | )          | 7.6                  |       | 5.8 |   |
| IT Outsourcing              |       | (244                               | )          | (1,823     | )          | (647.1               | )          | (0.3                 | )          | (2.4 | ) |
| Federal                     |       | 8,682                              |       | 5,994      |       | (31.0                | )          | 6.8                  |       | 5.1 |   |
| U.S. ERP                    |       | 1,196                              |       | 9,764      |       | 716.4                |       | 1.0                  |       | 7.7 |   |
| Corporate expenses          |       | (25,387                            | )          | (24,517    | )          | 3.4                  |       | (2.1                 | )          | (2.4 | ) |
| Total                       |       | 60,212                             |       | 33,650     |       | (44.1                | )%         | 5.0                  |       | 3.2 |   |
| Amortization of intangibles |       | (6,274                             | )          | (5,891     | )          |                 |       | (0.5                 | )          | (0.5 | ) |
| Operating income            |       | $                                  | 53,938     |       | $          | 27,759               |       |                 |       | 4.5 | % | 2.7 | % |

 

----

*Divisionscalculated as a % of division revenue, all other calculated as a % of totalrevenue

 

·                  Custom Solutions’ operating income decreased due to a substantialreduction in consulting services gross margin resulting primarily fromhigher-margin projects that ended or were cancelled and downward pricingpressure from both existing customers and new clients.  In addition, some lower-margin, fixed-priceprojects also contributed to the margin decrease.  Additionally, although SG&A expensesdecreased $14.0 million in this division between the comparable years as wesuccessfully reduced direct and overhead labor costs, we could not adjust thesecosts as quickly as our revenue was adjusting downward.  Therefore, SG&A expenses as a percentageof revenue increased between the comparable periods, in part due to labor costsnot reducing quickly enough, as well as increased costs for bad debt expenseand higher rent expense in India.

 

·                  Operating income for our International division declined due to thesignificant reduction in services gross profit margins stemming from lowerconsultant utilization and increased consultant wages, as well as somecustomer-induced pricing pressures.  Aconsiderable reduction in SG&A expenses due to lower overhead personnelcost, plus lower recruiting and travel expenses, as well as reduced bad debtexpense helped to partially offset the gross margin decline.

 

·                  IT Outsourcing operating loss increased due to both a reduction inconsulting services gross profit margin, as well as an increase in SG&Aexpenses as a percentage of revenue. This division had some fixed-cost utilization issues following a late2008, large customer bankruptcy that prevented it from reducing its costs whenthe related revenue was lost.  Additionalinfrastructure costs to accommodate future revenue growth caused most of theincrease in SG&A costs.

 

·                  Federal’s operating income was down due to the erosion of gross profitmargin as revenues and consultant utilization have decreased and new andre-compete projects are priced at lower margins than the projects they arereplacing due to competitive market conditions. Additionally, the division has not been able to fully offset itsdecreased revenue with reductions in costs as it continues to build theinfrastructure required to compete for major prime contracts.

 

·                  The U.S. ERP division had significantly improved operating income in2009 over 2008 related to improvements in both consulting services gross profitmargin and reduced SG&A expenses in total dollars and as a percentage ofrevenue.  The gross profit marginincrease was led by a significant turnaround in our SAP practice related toimproved consultant utilization, cost reductions and completion of a large,low-margin fixed-price contract.

 

·                  Corporate expenses decreased 3% as primarily salary-related cost-cuttingmeasures were partially offset by significantly increased expenses related tothe $2.2 million paid in the third quarter to settle a lawsuit, includingattorney fees, as well as increased share-based compensation expenses andincreased costs related to our new corporate headquarters.

 

*Interestexpense.*  Interestexpense decreased $7.7 million during 2009, compared to 2008; $4.3 million ofwhich related to the 2008 restatement of interest expense due to our January 1,2009 adoption of FASB’s new accounting guidance for our convertible debt, whichwas retired by December 31, 2008. The remaining decrease was primarily due to lower average borrowingsduring 2009 and, to a lesser extent, due to lower average interest rates.

 

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*Other income (expense), net.* Other income, net was $0.3 million in 2009, compared to other expense,net of $1.4 million in 2008.  Our foreignexchange transaction gains/losses accounted for a $2.8 million improvementbetween the comparable periods. Offsetting the improvement from foreign exchange results was a $1.3million gain on the retirement of our Debentures during 2008 with no similar gainin 2009.

 

*Incometaxes.*  Our effective tax rateincreased to 34.0% for 2009, compared to 30.3% for 2008, primarily due toadditional U.S. taxes of approximately $1 million on a one-time repatriation ofcash to the U.S.  The U.S. FederalResearch and Experimentation tax credit expired on December 31, 2009, andunless it is extended, it will negatively impact our tax rate in future years.

 

**Comparisonof the Years Ended December 31, 2008 and 2007 — Consolidated**

 

InU.S. dollar terms, currency rates were favorable for CIBER during the first 3quarters of 2008.  During the fourthquarter of 2008, we saw significant declines in foreign exchange rates ascompared to the U.S. dollar.  The balancesheet rates at December 31, 2008, declined by 5% for the Euro and 27% forthe GBP as compared to 2007.  This had asignificant impact on our reported balance sheet year over year.  Despite the significant decline in exchangerates vs. the U.S. dollar in the fourth quarter, our weighted average exchangerates for the 2008 year increased by approximately 6% over 2007, resulting inapproximately $19 million of additional revenue in 2008.

 

Thefollowing table sets forth certain Consolidated Statement of Operations data indollars and expressed as a percentage of revenue:

 
| ** **                              | ** ** | **Year Ended December 31,**                | ** ** |
|-----------------------------------------|------------|-------------------------------------------------|------------|
| ** **                              | ** ** | **2007**                                        | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **(Dollars in thousands, except billing rate)** | ** ** |
| Consulting services                     |       | $                                               | 1,024,172  |   | 94.7 | % | $ | 1,133,233 |   | 95.1 | % |
| Other revenue                           |       | 57,803                                          |       | 5.3 |   | 58,334 |   | 4.9 |   |
| Total revenue                           |       | 1,081,975                                       |       | 100.0 |   | 1,191,567 |   | 100.0 |   |
|                                    |       |                                            |       |   |   |   |   |   |   |
| Gross profit — consulting services |       | 269,057                                         |       | 26.3 |   | 303,427 |   | 26.8 |   |
| Gross profit — other revenue       |       | 23,402                                          |       | 40.5 |   | 21,053 |   | 36.1 |   |
| Gross profit — total               |       | 292,459                                         |       | 27.0 |   | 324,480 |   | 27.2 |   |
|                                    |       |                                            |       |   |   |   |   |   |   |
| SG&A expenses                       |       | 232,119                                         |       | 21.5 |   | 264,268 |   | 22.2 |   |
|                                    |       |                                            |       |   |   |   |   |   |   |
| Operating income                        |       | 54,520                                          |       | 5.0 |   | 53,938 |   | 4.5 |   |
|                                    |       |                                            |       |   |   |   |   |   |   |
| Net income — CIBER, Inc.      |       | 23,951                                          |       | 2.2 |   | 26,884 |   | 2.3 |   |
|                                    |       |                                            |       |   |   |   |   |   |   |
| Consultant utilization                  |       | 84                                              | %          |   |   | 87 | % |   |   |
| Average billable headcount              |       | 7,220                                           |       |   |   | 7,395 |   |   |   |

 

*Revenue.*  Total revenue for 2008 increased 10% comparedto total revenue for 2007.  We are aglobal company; therefore, our revenue is denominated in multiple currenciesand may be significantly affected by currency exchange-rate fluctuations.  The U.S. dollar weakened in the first half of2008 and strengthened during the last half of 2008 against many currencies;however, overall the U.S. dollar was weaker against many currencies during 2008as compared to 2007, resulting in favorable currency translation and greaterreported U.S. dollar revenues in the current year.  Foreign currency rate changes resulted inapproximately $19 million, or almost 2%, of additional reported revenue in 2008over 2007.  Additionally, smallacquisitions completed in both our U.S. ERP and International divisionscontributed incremental revenue of approximately $18 million to 2008results.  Excluding the favorablecurrency translation effects and the incremental revenue from acquisitions, ourtotal revenue for 2008 increased 7% from total revenue reported for 2007,primarily due to increased SAP software-related services in our Internationaldivision, as well as increased consulting services revenue in our CustomSolutions and IT Outsourcing divisions. Our 2008 results, most notably in the fourth quarter, were adverselyaffected by the worsening global economic conditions.  During the fourth quarter of 2008, we beganto experience client reductions in the use of our services, as well as clientsdelaying starts on new projects and seeking price reductions.  Additionally, billable headcount was down toapproximately 7,250 at December 31, 2008, as compared to our averagebillable headcount of 7,395 for the 2008 fiscal year and compared to 7,325 asof December 31, 2007.

 

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Revenueby segment/division was as follows:

 
| ** **              | ** ** | **Year Ended December 31,** | ** ** | ** ** | ** ** |
|-------------------------|------------|----------------------------------|------------|------------|------------|
| ** **              | ** ** | **2007**                         | ** ** | **2008**   | ** ** | **% change** | ** ** |
| ** **              | ** ** | **(In  thousands)**              | ** ** | ** ** | ** ** |
| Custom Solutions        |       | $                                | 450,679    |       | $          | 466,208 |   | 3.5 | % |
| International           |       | 315,202                          |       | 406,071    |       | 28.8 |   |
| IT Outsourcing          |       | 61,521                           |       | 72,453     |       | 17.8 |   |
| Federal                 |       | 137,268                          |       | 127,391    |       | (7.2 | ) |
| U.S. ERP                |       | 119,670                          |       | 122,163    |       | 2.1 |   |
| Corporate/Inter-segment |       | (2,365                           | )          | (2,719     | )          | n/m |   |
| Total revenue           |       | $                                | 1,081,975  |       | $          | 1,191,567 |   | 10.1 | % |

 

----

n/m= not meaningful

 

·                  Custom Solutions revenue increased in 2008 mainly due to severalsizable contract wins, additional work on other existing contracts and improvedproductivity.

 

·                  The performance of our International division during 2008 representedits best revenue results to date.  In2008, our International division represented approximately 34% of ourconsolidated revenue, up from 29% of consolidated revenue in 2007.  These results were in part due toapproximately $19 million related to favorable foreign currency fluctuations,as well as approximately $8 million of incremental revenue from several smallacquisitions in late 2007 and the first half of 2008.  Excluding these items, our Internationaldivision grew approximately 20% resulting from continued strong sales of SAPimplementation services in almost all of our major operating territories, aswell as many of our smaller territories. Despite the strong revenue growth of 2008, the International divisionslowed in the fourth quarter of 2008 due to the deteriorating economicenvironment, including two client bankruptcies in 2008 and strength in the U.S.dollar against a number of currencies.

 

·                  IT Outsourcing division revenue increased primarily due to newcontracts, although account growth at existing clients also contributed.

 

·                  Federal revenue declined mainly due to the expiration of one of ourlarger, long-term contracts that was subsequently awarded to a qualified smallbusiness.  CIBER has similarly lostseveral contracts in recent years because we do not qualify as a smallbusiness; therefore, we have been precluded from bidding on the renewal business.  We initially obtained these contracts throughacquisitions of qualified small businesses that were originally awarded thesecontracts.  We submitted proposals on anumber of projects in 2008 where we would serve as either the prime contractoror a subcontractor, but the deteriorating economic environment delayeddecisions to award and start projects funded by the federal government; thus,we were unsuccessful in replacing our expired contracts.  The Federal division did have a high numberof contract renewals during 2008, of which a sizable majority was won.

 

·                  Included in the U.S. ERP division revenue for 2008 is approximately $10million of incremental revenue associated with an acquisition completed in September 2007.  Excluding that acquisition, our U.S. ERPdivision revenue shrunk over 6% in 2008, compared to 2007.  Our U.S. SAP practice had a particularlychallenging year as its revenue decreased by $8.3 million, or 20%, compared to2007.  This decrease was partially offsetby revenue growth in our Oracle Higher Education and Lawson practices.

 

*Gross Profit. *In total,our gross profit margin improved 20 basis points to 27.2% for 2008 compared to27.0% for 2007.  Gross profit margin onconsulting services revenue, which grew by 50 basis points, accounted for theincrease.  Strong consulting servicesmargin improvements in our Custom Solutions and Federal divisions wereresponsible.  An increased focus on thepursuit of higher-margin business, project pricing and delivery improvement hashelped to achieve these results.  OurInternational division experienced a decrease in its services gross profitmargin in 2008 due to a shift in the mix of its service offerings towardlonger, fixed-term contracts that are more secure yet earn lower grossmargins.  The U.S. ERP division had asubstantial decrease in its services gross margin for 2008, related to severallarge completed projects that have not yet been successfully replaced,resulting in poor consultant utilization during the year.  In addition, the margins in the U.S. ERPdivision were hurt by several lower-margin fixed-price projects.  In 2008, margins on other revenue havedeclined to 36.1% from 40.5% for 2007 related to profit margins being squeezedby hardware and software manufacturers. Our Custom Solutions and International divisions are our largest segments;therefore, changes in their margins tend to greatly 

 

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dictate our consolidated results. For 2008, margin gains in our Custom Solutions division were mostlyoffset by International’s gross margin decreases, resulting in a slightimprovement in gross margin over the prior year.

 

*Selling, general and administrative. *As a percentage of revenue, SG&A expenses increasedto 22.2% for 2008 compared to 21.5% for 2007. Over 50 basis points of the increase can be attributed to a $6.1 millionincrease in our provision for doubtful receivables between 2007 and 2008.  The remaining 20 basis points relatedprimarily to increased costs in the U.S. ERP and Federal divisions.  The U.S. ERP division’s SG&A costsincreased due to infrastructure and sales-related costs from a mid-2007acquisition.  Federal’s SG&A costsincreased due to costs incurred to further our ability to bid on large projectsas a prime contractor.  All of the abovewere partially offset by International’s continuing efforts to drive down itsrelative SG&A spending, despite increased bad debt costs during 2008.

 

*Operating income.*  As a result ofthe increased SG&A expenses as a percentage of revenue, our operatingincome decreased 50 basis points to 4.5% for 2008 compared to 5.0% for 2007.

 

Operating income by segment/division was as follows:

 
| ** **                  | ** ** | **Year Ended  December 31,** | ** ** | **%**      | ** ** | **2007  % of** | ** ** | **2008  % of** | ** ** |
|-----------------------------|------------|-----------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| ** **                  | ** ** | **2007**                          | ** ** | **2008**   | ** ** | **change**     | ** ** | **revenue***   | ** ** | **revenue*** | ** ** |
| ** **                  | ** ** | **(In thousands)**                | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| Custom Solutions            |       | $                                 | 39,072     |       | $          | 45,170         |       | 15.6           | %          | 8.7 | % | 9.7 | % |
| International               |       | 19,140                            |       | 30,795     |       | 60.9           |       | 6.1            |       | 7.6 |   |
| IT Outsourcing              |       | 2,610                             |       | (244       | )          | (109.4         | )          | 4.2            |       | (0.3 | ) |
| Federal                     |       | 11,031                            |       | 8,682      |       | (21.3          | )          | 8.0            |       | 6.8 |   |
| U.S. ERP                    |       | 11,370                            |       | 1,196      |       | (89.5          | )          | 9.5            |       | 1.0 |   |
| Corporate expenses          |       | (22,883                           | )          | (25,387    | )          | (10.9          | )          | (2.1           | )          | (2.1 | ) |
| Total                       |       | 60,340                            |       | 60,212     |       | (0.2           | )%         | 5.6            |       | 5.0 |   |
| Amortization of intangibles |       | (5,820                            | )          | (6,274     | )          |           |       | (0.6           | )          | (0.5 | ) |
| Operating income            |       | $                                 | 54,520     |       | $          | 53,938         |       |           |       | 5.0 | % | 4.5 | % |

 

----

*Divisionscalculated as a % of division revenue, all other calculated as a % of totalrevenue

 

·                  Custom Solutions’ operating income percentage increased due to thedivision making a strong improvement in gross profit margin on services revenue,which was due to better pricing on newer engagements, as well as efficientstaff utilization.  The gross profitmargin improvement was partially offset by increased SG&A costs as apercentage of revenue related to salaries for delivery infrastructure enhancementsand increased recruiting costs.

 

·                  International’s operating income improved primarily due to a reductionin SG&A expenses as a percentage of revenue that was attained fromoperating leverage achieved on higher revenue volumes and reduced overheadpersonnel costs as a percentage of sales, which were partially offset by higherbad debt expenses.  The improvement inSG&A as a percentage of revenue was partially offset by decreased grossprofit margins due to a shift in product mix. Our International division had fewer high-margin software sales in 2008,as well as increased revenues from lower-margin, long-term outsourcingcontracts and increased costs to build additional outsourcing infrastructure.

 

·                  IT Outsourcing division operating income significantly decreasedrelated to a decrease in the gross profit margin on consulting services, aswell as increased SG&A costs as a percentage of revenue.  Some of the impact was due to adding to thedata center facilities and infrastructure costs to position the division forfuture growth, as well as increased travel costs associated with the division’snew global delivery model and bad debt expense related a client bankruptcyduring 2008.

 

·                  The Federal division’s operating income was down because increasedSG&A expenses for operations infrastructure enhancements related toobtaining certifications for prime contractor bidding status more than offsetthe improvement in this division’s consulting services margin.

 

·                  The U.S. ERP division had 1.0% operating income percentage in thecurrent year compared to 9.5% in 2007, primarily due to several large SAPprojects coming to completion that had not been replaced, resulting in lowerrevenue and lower consultant utilization, as well as lower or negative marginson a couple of fixed-price SAP projects. Additionally, the division incurred increased SG&A costs, some ofwhich were due to increased infrastructure costs from a 2007 acquisition,increased SAP sales costs on reduced levels of revenue and a bad debt expenseresulting from client bankruptcy.  Asindicated above, our U.S. ERP division was negatively impacted by 

 

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losses in our domestic SAP practice in 2008.  As a result, during the second half of 2008,we made a number of significant changes to our domestic SAP practice includingrestructured leadership, refocused marketing and delivery efforts, as well asimplementation of a number of cost-reduction measures.

 

·                  Corporate expenses increased by $2.5 million, primarily as a result ofincreased share-based compensation costs, lower 401(k) forfeitures andincreased operational support costs.

 

*Interestexpense.*  Interestexpense decreased $2.6 million during 2008 compared to the prior year,primarily due to lower average interest rates on our borrowings.  In late 2007, we began to repurchase andretire our fixed-rate Debentures, which were completely retired by December 31,2008.  We used borrowings under ourrevolving credit facility to fund repurchases of our fixed-rateDebentures.  During 2008, our revolvingcredit facility interest rates, which were tied to market rates for Prime andLIBOR, also decreased.

 

*Other expense, net.*  Other expense,net was $1.4 million in 2008, compared to $0.2 million in 2007.  Our foreign exchange transaction gains/lossesaccounted for a $1.4 million decrease between the comparable periods.  Offsetting the decrease from foreign exchangeresults was a $0.4 million increase in the gain on the retirement of ourDebentures between the comparable periods.

 

*Incometaxes.*  Our effective tax ratesdecreased to 30.3% for 2008 compared to 34.0% for 2007, primarily due to ahigher proportion of income being generated in lower tax jurisdictions.  Our International division tends to have alower effective tax rate than our domestic operations.  In addition, during 2008 our Internationaldivision benefitted from lower statutory rates in several countries, as well ashaving profitable operations in all territories.  Our foreign operations contributed 67% of ourtotal income before taxes for 2008 as compared to 40% during 2007.

 

**Liquidityand Capital Resources**

 

AtDecember 31, 2009, we had $136.9 million of working capital and acurrent ratio of 1.8:1, compared to working capital of $165.2 million and acurrent ratio of 2.1:1 at December 31, 2008.  This reduction in working capital is due toaccounts receivable collections, increased income tax liabilities and debtrepayments.  We have used cash flows fromthe collection of domestic accounts receivable to reduce our long-term bankdebt.  Beginning on December 31,2009, the term loan portion of our August 2009 Senior Credit Facilityrequires quarterly repayments of $2.5 million; thus, $10.0 million of the newSenior Credit Facility is classified as a current liability.  Historically, we have used our operating cashflow and borrowings, as well as periodic sales of our common stock to financeongoing operations and business combinations. We believe that our cash and cash equivalents, our operating cash flowand our available Senior Credit Facility will be sufficient to finance our workingcapital needs through the next year.

 
| ** **                                            | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                            | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                            | ** ** | **(In thousands)**               | ** ** |
| Net cash provided by (used in):                       |       |                             |       |   |   |   |   |
| Operating activities                                  |       | $                                | 22,676     |   | $ | 92,171 |   | $ | 81,547 |   |
| Investing activities                                  |       | (33,650                          | )          | (22,237 | ) | (13,389 | ) |
| Financing activities                                  |       | 6,097                            |       | (49,932 | ) | (52,583 | ) |
| Effect of foreign exchange rates on cash              |       | 3,275                            |       | (2,870 | ) | 3,000 |   |
| Net increase (decrease) in cash and cash  equivalents |       | $                                | (1,602     | ) | $ | 17,132 |   | $ | 18,575 |   |

 

Ourbalance of cash and cash equivalents was $67.4 million at December 31,2009, compared to a balance of $48.8 million at December 31,2008.  Typically, most of our cashbalance is maintained by our foreign subsidiaries and our domestic cashbalances are used daily to reduce our outstanding balance on our Senior CreditFacility.

 

*Operating activities.*  Cash provided by operating activities in 2009was down approximately $10.6 million compared with 2008, mainly due todecreased net income, net of decreases in our bad debt provision and non-cashinterest on our Debentures, related to our restatements of 2007 and 2008 fornew accounting treatment for convertible debt. Changes in normal short-term working capital items like accountsreceivable, especially domestic accounts receivable, accrued and other liabilitiesand income taxes, offset our reduced net income.  Our working capital fluctuates based onseasonal factors, as well as the timing of our domestic payroll and accountspayable processing cycles in regard to month-end dates.  The primary reason for significantly reducedcash flows from operating activities in 2007 was related to reduced accountsreceivable collections in Europe at the end of the year with a number ofexpected client payments slipping into early 2008.

 

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Totalaccounts receivable decreased to $213.1 million at December 31, 2009, from$235.1****million at December 31, 2008,primarily due to decreased revenues.  Ourtotal accounts receivable day’s sales outstanding (“DSO”) was 68 days at December 31,2009, compared to 72 days at December 31, 2008.  The overall reduction was achieved as aresult of 3-4 day reductions in both our domestic and International divisionDSO.  Our International divisiontypically experiences their lowest DSO levels in December.  Changes in accounts receivable have asignificant impact on our cash flow. Items that can affect our accounts receivable DSO include: contractualpayment terms, client payment patterns (including approval or processing delaysand cash management), client mix (public vs. private), fluctuations in thelevel of IT product sales and the effectiveness of our collection efforts.  Many of the individual reasons are outside ofour control and, as a result, it is normal for our DSO to fluctuate from periodto period, affecting our liquidity.  Ouroutstanding accounts receivable balance from the City of New Orleans (the “City”)was approximately $3.9 million at December 31, 2009, down from $9.2million at December 31, 2008.  Ofour outstanding receivable balance from the City at December 31, 2009, asignificant portion still relates to work performed following the 2005hurricane disaster.  The City continuesto experience administrative complications and FEMA reimbursement delays, whichhave delayed payment for our services. We continue to work with the City and FEMA on the remaining balance andbased on our communications with them, we believe we will be able to collectthe balance in full.

 

Accruedcompensation and related liabilities increased to $65.7 million at December 31,2009, from $62.4 million at December 31, 2008.  These balances are subject to the effectsfrom the timing of our normal bi-weekly U.S. payroll cycle; however, at December 31,2009, there were 9 days of unpaid wages, compared to 8 days of unpaid wages at December 31,2008.  In addition, annual bonuses aretypically accrued throughout the year and paid in the first quarter of thefollowing year, causing some fluctuation from quarter to quarter.

 

Accountspayable and other accrued liabilities typically fluctuate based on when wereceive actual vendor invoices and when they are paid.  The largest of such items typically relatesto vendor payments for IT hardware and software products that we resell andpayments to services-related contractors. Other accrued expenses and liabilities increased to $34.6 million at December 31,2009, from $28.9 million at December 31, 2008, primarily due to anincrease in our liability for value added taxes (“VAT”) in Europe, a goodportion of which has been deferred related to a payment deferral plan.

 

*Investing activities.* Investing activities are primarily comprised of cash paid foracquisitions and purchases of property and equipment.  We used $4.3 million (net of $0.4 million ofcash acquired) to acquire Iteamic Pvt. Ltd., a Bangalore, India-based ITservices company during 2009, compared with $7.8 million primarily for theacquisition of a Norwegian SAP consultancy and a noncontrolling interest in oneof our European subsidiaries during 2008, and $22.3 million used foracquisitions during 2007.  Spending onproperty and equipment decreased to $9.1 million in 2009, compared to $14.7million and $13.2 million in 2008 and 2007, respectively.  Capital spending was unusually high in 2008,as we built the infrastructure to support our IT Outsourcing division.  During 2007, we sold an aircraft acquired inthe Novasoft AG acquisition in 2004 for $1.9 million.

 

*Financingactivities.*Typically, our most significant financing activities consist of the borrowingsand repayments on our long-term bank debt. During the year ended December 31, 2009, we had net payments of$69.5 million, compared to net borrowings of $109.0 million and $38.3 millionfor the years ended December 31, 2008 and 2007, respectively.  The net payments in 2009 resulted primarilyfrom $23.2 million of cash received following the sale of our common stock, aswell as the positive cash flow generated by our operating activities and theuse of existing cash balances.  The netborrowings in 2008 were primarily used to retire our Debentures.  During the year ended December 31, 2008,we used $149.5 million of cash for this purpose, compared to $22.1 million forthe year ended December 31, 2007, resulting in gains on retirement of debtof approximately $2.1 million in 2008 and $0.9 million in 2007.  Additional financing activity inflows consistof sales of stock under our employee stock purchase plan and the exercise ofemployee stock options.  The cashprovided by sales of stock under our employee stock purchase plan and optionsexercised was $2.4 million for the year ended December 31, 2009, comparedto $4.0 million and $5.6 million for the years ended December 31, 2008 and2007, respectively.  In addition topayments on our long-term bank debt, our other primary financing activityoutflow typically includes the purchase of treasury stock.  We repurchased $5.0 million of common stockinto treasury during the year ended December 31, 2009, compared to $8.1million and $15.3 million for the years ended December 31, 2008 and 2007,respectively.  In 2008, we also had anoutflow of $4.3 million related to the settlement of cross-currency interestrate swaps, compared to a similar settlement outflow of $0.3 million in2007.  At December 31, 2009, we hadauthorization for the repurchase of an additional $5.5 million of our commonstock under our current repurchase plan. We may continue to use cash to repurchase our common stock (subject tolimitations under our Senior Credit Facility discussed below).

 

*Senior Credit Facility.*  On August 20, 2009, CIBERentered into a three-year senior credit agreement with several financialinstitutions as lenders and Bank of America, N.A. as administrative agent (the “SeniorCredit Facility”).  The Senior CreditFacility replaced our previous senior secured reducing revolving creditfacility and refinanced all amounts outstanding thereunder.  The credit available under the Senior CreditFacility may be used for the working capital needs and general 

 

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corporate purposes of the Company.  The Senior Credit Facility was subsequentlyamended on February 18, 2010, and matures on August 20, 2012.

 

The Senior Credit Facility, as amended, providesfor: 1) an $85 million revolving line of credit (“Revolver”), which may be usedfor revolving loans and to request the issuance of letters of credit on CIBER’sbehalf, and 2) a $50 million term loan (“Term Loan”).  The Term Loan requires quarterly principalreductions of $2.5 million, beginning on December 31, 2009.  The Term Loan balance at December 31,2009, following the first required quarterly principal reduction, is $47.5million, of which $10.0 million is classified as a current liability.

 

Additionally, the Senior Credit Facility issubject to mandatory prepayments (and commitment reductions) in amounts equalto the net cash proceeds of any asset disposition, event of loss, extraordinaryreceipts, issuance or incurrence of indebtedness and issuance of equity,subject in each case as appropriate to thresholds and other exceptions anddefinitions as specified in the credit agreement.  CIBER’s obligations underthe Senior Credit Facility are secured by all of CIBER’s present and futuredomestic tangible and intangible assets, as well as a pledge of 66% of thecapital stock of CIBER’s direct foreign subsidiaries.

 

Subjectto applicable conditions, we may elect interest rates on our Senior CreditFacility borrowings calculated by reference to either the Bank of America primelending rate (“Prime”) plus a margin that ranges from 1.75% to 2.50%, or aLondon Interbank Offered Rate (“LIBOR”) for one, three or six month maturities,plus a margin that ranges from 2.75% to 3.50%. The applicable margins on our Prime loans and LIBOR loans are determinedby reference to our current consolidated total leverage ratio.  Weare also required to pay a commitment fee of 0.50% per annum on the unusedportion of the Senior Credit Facility. The Senior Credit Facility and the related loan documents provide forthe payment of other specified recurring fees and expenses, includingadministrative agent fees, letter of credit and other fees.  We currently have two interest rateswaps.  The first interest rate swapmatures on March 12, 2010, and effectively converts $50.0 million of ourborrowings under our Senior Credit Facility from a variable-rate instrumentinto a 1.26% fixed-rate instrument, plus the applicable margin.  The second interest rate swap matures on March 31,2012, and effectively converts $25.0 million of our borrowings under our SeniorCredit Facility from a variable-rate instrument into a 1.77% fixed-rateinstrument, plus the applicable margin. At December 31, 2009, our weighted average interest rate on ouroutstanding borrowings under the Senior Credit Facility, including the interestswaps, was 4.41%.

 

Theterms of the Senior Credit Facility, as amended, include among otherprovisions, specific limitations on the incurrence of additional indebtednessand liens, stock repurchases, investments, guarantees, mergers, dispositionsand acquisitions, and a prohibition on the payment of any dividends.  The Senior Credit Facility also containscertain financial covenants, including: 1) a maximum consolidated totalleverage ratio; 2) a minimum consolidated fixed charge coverage ratio; 3) aminimum EBITDA; and 4) an asset coverage test. A summary of these financial covenants is as follows:

 

·                  Themaximum consolidated total leverage ratio (Funded Debt divided by EBITDA) maynot be greater than 2.75 to 1.00 through December 31, 2009.  The maximum leverage ratio reduces to 2.50 to1.00 on March 31, 2010, and further to 2.25 to 1.00 on June 30, 2010,and then to 2.00 to 1.00 on June 30, 2011.

 

·                  Theminimum consolidated fixed charge coverage ratio (EBITDA minus capitalexpenditures divided by the sum of tax expense plus interest expense plusscheduled funded debt payments plus any restricted payments) must be not lessthan 1.25 to 1.00 on December 31, 2009 and March 31, 2010, and notless than 1.20 to 1.00 on June 30, 2010 and September 30, 2010, andreturning to not less than 1.25 to 1.00 on December 31, 2010 andthereafter.

 

·                  Wemust maintain twelve-month EBITDA of at least $50 million through December 31,2009, and $45 million thereafter.

 

·                  Underthe asset coverage test, the aggregate amount of loans advanced under theSenior Credit Facility shall, at any time, not exceed an amount equal to 80% ofall of our net accounts receivable.

 

Certainelements of these ratios are defined below:

 

·                  Funded Debt includes borrowings under ourSenior Credit Facility, any other bank debt plus the face amount of anyoutstanding Letters of Credit.

 

·                  EBITDA represents the sum of net income(or net loss), net interest expense, income tax expense, depreciation expense,amortization expense, share-based compensation expense and September 2009legal settlement costs of $2.2 million, measured over the twelve-month periodending as of the end of each fiscal quarter.

 

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Weare required to be in compliance with the financial covenants at the end ofeach calendar quarter, and we were in compliance with these financial covenantsas of December 31, 2009, with the following calculations for our financialcovenant ratios:

 

Consolidatedtotal leverage ratio — 1.90 to 1.00 (maximum permitted — 2.75 to 1.00)

Consolidatedfixed charge coverage ratio — 1.47 to 1.00 (minimum permitted — 1.25 to 1.00)

ConsolidatedEBITDA - $51.7 million (minimum permitted - $50 million)

AssetCoverage Test - $97.5 million (not to exceed $170.5 million)

 

AtDecember 31, 2009, our closest financial covenant was the minimum EBITDAof $50 million.  Based on management’scurrent estimates, we do not currently believe a covenant violation to beprobable of occurring through at least December 31, 2010.  However, given the current volatile economicconditions, there can be no assurance that we will continue to be in compliancewith these bank covenants.

 

At December 31, 2009, we had outstanding borrowingsof $97.5 million under the Senior Credit Facility.

 

Wecannot be certain that the foregoing factors will not result in any financialcovenant violation in the future and given these factors, it is possible that afinancial covenant violation may occur in subsequent quarters.  If a covenant violation were to occur, webelieve that we would be able to obtain a waiver or amendment from our creditgroup.  Any such waiver or amendmentwould come at additional costs to CIBER and such costs could be material.  We believe that other sources of credit orfinancing would be available to us; however, we cannot predict at this timewhat types of credit or financing will be available in the future or the costsof such credit or financing.

 

**Off-Balance Sheet Arrangements**

 

Wedo not have any reportable off-balance sheet arrangements.

 

**ContractualObligations**

 

The contractual obligations presented in the table below represent ourestimates of future payments under fixed contractual obligations andcommitments.  Changes in our businessneeds, cancellation provisions, changing interest rates and other factors mayresult in actual payments differing from these estimates.  We cannot provide certainty regarding thetiming and amounts of payments.  We havepresented below a summary of the most significant assumptions used in ourinformation within the context of our consolidated financial position, resultsof operations and cash flows.

 

Thefollowing table is a summary of our contractual obligations as of December 31,2009:

 
| ** **                             | ** ** | **Payments due by period** | ** ** |
|----------------------------------------|------------|----------------------------|------------|
| ** **                             | ** ** | **Total**                  | ** ** | **2010** | ** ** | **2011-2012** | ** ** | **2013-2014** | ** ** | **Thereafter** | ** ** |
| ** **                             | ** ** | **(In thousands)**         | ** ** |
| Principal payments on long-term debt   |       | $                          | 98,197     |   | $ | 10,697 |   | $ | 87,500 |   | $ | — |   | $ | — |   |
| Interest payments on long-term debt(1) |       | 9,954                      |       | 4,134 |   | 5,820 |   | — |   | — |   |
| Operating leases(2)                    |       | 77,952                     |       | 25,520 |   | 31,703 |   | 11,612 |   | 9,117 |   |
| Purchase obligations                   |       | 861                        |       | 581 |   | 247 |   | 33 |   | — |   |
| Total(3)                               |       | $                          | 186,964    |   | $ | 40,932 |   | $ | 125,270 |   | $ | 11,645 |   | $ | 9,117 |   |

 

----

(1)  Interest payments were calculated based onterms of the related agreements and effective interest rates as of December 31,2009, for our borrowings.

 

(2) Includes operating leases for all office locations, automobiles and officeequipment.

 

(3)  At December 31, 2009, we had grossunrecognized tax benefits of $3.6 million, all of which is expected to be paidafter one year.  We are unable to make areasonably reliable estimate as to when a cash settlement with the appropriatetaxing authority may occur; as such, our unrecognized tax benefits are notincluded in the table above.

 

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**CriticalAccounting Policies and Estimates**

 

Thepreparation of our consolidated financial statements in accordance with U.S.generally accepted accounting principles requires management to make estimates,judgments and assumptions that affect the reported amounts of assets andliabilities as of the date of the financial statements, as well as the reportedamounts of revenue and expenses during the periods presented.  We continually evaluate our estimates, judgmentsand assumptions based on available information and experience.  We believe that our estimates, judgments andassumptions are reasonable based on information available to us at the timethey are made.  To the extent there aredifferences between our estimates, judgments and assumptions and actualresults, our financial statements will be affected.  Such differences may be material to ourfinancial statements.  The accountingpolicies that reflect our more significant estimates, judgments and assumptionsare described below.

 

*Revenuerecognition*- CIBER earns revenue primarily from providing ITservices to its clients, and to a much lesser extent, from the sale and resaleof IT hardware and software products. CIBER’s consulting services revenue comes from three primary sources: (1) technologyintegration services where we design, build and implement new or enhancedsystem applications and related processes; (2) general IT consultingservices, such as system selection or assessment, feasibility studies, trainingand staffing; and (3) managed IT services in which we manage, staff,maintain, host or otherwise run solutions and/or systems provided to ourcustomers.  Contracts for these serviceshave different terms based on the scope, deliverables and complexity of theengagement, which requires management to make judgments and estimates inrecognizing revenue.  Fees for thesecontracts may be in the form of time-and-materials or fixed-price.  The majority of our consulting servicesrevenue is recognized under time-and-materials contracts as hours and costs areincurred.  Consulting services revenuealso includes project-related reimbursable expenses for travel and otherout-of-pocket expenses separately billed to clients.

 

Revenuefor technology integration consulting services where we design/redesign, buildand implement new or enhanced systems applications and related processes forour clients is generally recognized based on the percentage-of-completionmethod.  Under thepercentage-of-completion method, management estimates the percentage ofcompletion based upon the contract costs incurred to date as a percentage ofthe total estimated contract costs.  Ifthe total cost estimate exceeds revenue, we accrue for the estimated lossimmediately.  The use of thepercentage-of-completion method requires significant judgment relative toestimating total contract revenue and costs, including assumptions as to thelength of time to complete the project, the nature and complexity of the workto be performed and anticipated changes in estimated costs.  Estimates of total contract costs arecontinuously monitored during the term of the contract and recorded revenuesand costs are subject to revision as the contract progresses.  Such revisions may result in increases ordecreases to revenue and income and are reflected in the Consolidated FinancialStatements in the periods in which they are first identified.

 

Revenuefor general IT consulting services is recognized as work is performed andamounts are earned.  We consider amountsto be earned once evidence of an arrangement has been obtained, services aredelivered, fees are fixed or determinable and collectability is reasonablyassured.  For contracts with fees basedon time-and-materials or cost-plus, we recognize revenue over the period ofperformance.  For fixed-price contracts,depending on the specific contractual provisions and nature of thedeliverables, revenue may be recognized on a proportional performance modelbased on level-of-effort, as milestones are achieved or when final deliverableshave been provided.

 

ManagedIT services arrangements typically span several years.  Revenue from managed servicestime-and-materials contracts is recognized as the services are performed.  Revenue from unit-priced contracts isrecognized as transactions are processed based on objective measures ofoutput.  Revenue from fixed-pricecontracts is recognized on a straight-line basis, unless revenues are earnedand obligations are fulfilled in a different pattern.  Costs related to delivering managed servicesare expensed as incurred, with the exception of labor and other direct costsrelated to the set-up of processes, personnel and systems, which are deferredduring the transition period and expensed evenly over the period services areprovided.  Amounts billable to the clientfor transition or set-up activities are also deferred and recognized as revenueevenly over the period that the managed services are provided.

 

Otherrevenue includes resale of third-party IT hardware and software products, salesof proprietary software and commissions on sales of IT products.  Some software license arrangements alsoinclude implementation services and/or post-contract customer support.  In such multi-element arrangements, if thecriteria are met, revenue is recognized based on the vendor specific objectiveevidence of the fair value of each element. Software support revenue is recognized ratably over the term of therelated agreement.  Revenue related tothe sale of IT products is generally recognized when the products are shippedor if applicable, when delivered and installed in accordance with the terms ofthe sale.  Where we are the re-marketerof certain IT products, commission revenue is recognized when the products aredrop-shipped from the vendor to the customer. Our commission revenue represents the sales price to the customer lessthe cost paid to the vendor.

 

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Unbilledaccounts receivable represent amounts recognized as revenue based on servicesperformed in advance of billings in accordance with contract terms.  Under our typical time-and-materials billingarrangement, we bill our customers on a regularly scheduled basis, such asbiweekly or monthly.  At the end of eachaccounting period, we accrue revenue for services performed since the lastbilling cycle.  These unbilled amountsare generally billed the following month. Unbilled accounts receivable also arise when percentage-of-completionaccounting is used and costs plus estimated contract earnings exceedbillings.  Such amounts are billed atspecific milestone dates or at contract completion.  Management expects all unbilled accounts receivableto be collected within one year of the balance sheet date.  Billings in excess of revenue recognized arerecorded as deferred revenue and are primarily comprised of deferred softwaresupport revenue.

 

*Goodwill*- At December 31, 2009, we had $450.7 million of goodwillresulting from acquisitions.  Goodwill isnot amortized, but rather is subject to impairment testing.  We review goodwill for impairment annually atJune 30, and whenever events or changes in circumstances indicate itscarrying value may not be recoverable. The result of our June 30, 2009 annual impairment test was that noimpairment was indicated.  Goodwillimpairment testing consists of a two-step process.  In the first step, we compare the fair valueof each reporting unit to its carrying value. Our reporting units are consistent with the reportable segmentsidentified in Note 13 to our Consolidated Financial Statements.  If the fair value of the reporting unitexceeds the carrying value of the net assets assigned to that unit, goodwill isconsidered not to be impaired and we are not required to perform furthertesting.  If the carrying value of thenet assets assigned to the reporting unit exceeds the fair value of thereporting unit, then we must perform the second step of the impairment test inorder to determine the implied fair value of the reporting unit’sgoodwill.  If the carrying value of areporting unit’s goodwill exceeds its implied fair value, then we would recordan impairment loss equal to the difference.

 

Determiningthe fair value of a reporting unit is judgmental in nature and involves the useof significant estimates and assumptions. These estimates and assumptions include revenue growth rates andoperating margins used to calculate projected future cash flows, risk-adjusteddiscount rates, future economic and market conditions and determination ofappropriate market comparables.  We baseour fair value estimates on assumptions we believe to be reasonable but thatare unpredictable and inherently uncertain. Actual future results may differ from those estimates.  In addition, we make certain judgments andassumptions in allocating shared assets and liabilities to determine thecarrying values for each of our reporting units.  Our most recent annual goodwill impairment analysis,which was performed as of June 30, 2009, did not result in an impairmentcharge for any of our business units. The forecasts utilized in the discounted cash flow analysis as part ofour impairment test assume future growth in each of our reporting units duringthe next five years and beyond.  OurFederal and U.S. ERP business units had decreases in their operating income orlosses in 2008.  If our business unitscan’t obtain, or we determine at a later date that we no longer expect them toobtain the projected levels of profitability, future impairment tests mayresult in an impairment charge.  Therecan be no assurances that these business units will be able to achieve ourestimated levels of profitability.  Wecurrently have goodwill of $74.3 million and $54.3 million recorded for ourFederal and U.S. ERP business units, respectively, and there was notsignificant excess fair value during the June 2009 annual impairmenttest.  The downturn in our financialresults in the second half of 2009, particularly in our Custom Solutions andFederal business units, increases our risk of a future goodwill impairmentcharge if we cannot start to grow revenue and profits in these business unitsin 2010.

 

Inaccordance with new accounting standards for fair value measurement that becameeffective in 2009, we have modified our approach to the determination of theweighted average cost of capital (“WACC”) to be used in the discounted cashflow calculations of our goodwill impairment testing.  In 2009, our WACC for each business unitranged from 8.3% to 13.0% and varied primarily based on our analysis of peergroup comparable companies’ WACC.  In ourprevious impairment test in December 2008, the business unit WACC wasprimarily based on CIBER’s WACC and ranged from 10.4% to 11.4%.

 

Inour process of estimating future cash flows for our business units, we haveassumed a blended overall 10% increase in revenue in 2010 and then increasesranging from 4% to 6% in future years. We have assumed a perpetual growth rate after 5 years of 4%.  In addition, we have assumed improvement inoperating income as a percentage of revenue resulting from recent changes wehave made to our cost structure, improvements in operating performance and leverageof revenue growth.  In our overallevaluation of the business unit fair value determinations from our discountedcash flow analysis, we also consider a sensitivity analysis of various discountrates and growth rate assumptions.

 

Itis not possible at this time to determine if any future impairment charge wouldresult from the foregoing factors but, if an impairment change were to berequired for any of our business units, it would likely be material.  Given the significant amount of goodwill wehave recorded, the deteriorated economic conditions of the industry in which weoperate, including the current worldwide economic conditions impacting ourcustomers and their use of our services, and the lack of significant excessfair value during our last impairment test, among other factors, we cannot becertain that a goodwill impairment write-down will not be required duringfuture periods.

 

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*Incometaxes* - Significant judgment is required in determining our worldwide incometax provision.  As a global company, wecalculate and provide for income taxes in each of the tax jurisdictions inwhich we operate.  This involvesestimating current tax exposures in each jurisdiction, as well as makingjudgments regarding the recoverability of deferred tax assets.  We calculate our current and deferred taxprovision based on estimates and assumptions that could differ from the actualresults reflected in income tax returns filed during the subsequent year.  Adjustments based on filed returns aregenerally recorded in the period when the tax returns are filed.  We apply an estimated annual effective taxrate to our quarterly operating results to determine the provision for incometax expense.  In the event there is asignificant unusual or infrequent item recognized in our quarterly operatingresults, the tax attributable to that item is recorded in the interim period inwhich it occurs.  Changes in thegeographic mix or estimated level of annual income before taxes can affect ouroverall effective tax rate.

 

Weare regularly audited by various taxing authorities, and sometimes these auditsresult in proposed assessments where the ultimate resolution may result in usowing additional taxes plus interest and possible penalties.  Tax exposures can involve complex issues andmay require an extended period to resolve. We establish reserves when, despite our belief that our tax returnpositions are appropriate and supportable under local tax law, we believe it ismore likely than not that all or some portion of a tax benefit will not berealized as the result of an audit.  Weevaluate these reserves each quarter and adjust the reserves and the relatedinterest in light of changing facts and circumstances regarding the estimatesof tax benefits to be realized, such as the progress of a tax audit or theexpiration of a statute of limitations. We believe the estimates and assumptions used to support our evaluationof tax benefit realization are reasonable. However, final determinations of prior-year tax liabilities, either bysettlement with tax authorities or expiration of statutes of limitations, couldbe materially different from estimates reflected in assets and liabilities andhistorical income tax provisions.  Theoutcome of these final determinations could have a material effect on ourincome tax provision, net income or cash flows in the period in which thatdetermination is made.  We believe ourtax positions comply with applicable tax law and that we have adequatelyprovided for any known tax contingencies.

 

Notaxes have been provided on undistributed foreign earnings that are planned tobe indefinitely reinvested.  If futureevents, including material changes in estimates of cash, working capital andlong-term investment requirements, necessitate that these earnings bedistributed, an additional provision for withholding taxes may apply, whichcould materially affect our future effective tax rate.

 

*Allowancefor doubtful accounts receivable* - We maintain an allowancefor doubtful accounts at an amount we estimate to be sufficient to cover therisk of collecting less than full payment on our receivables.  At December 31, 2009, we had grossaccounts receivable of $216.3 million and our allowance for doubtful accountswas $3.2 million.  Our allowance fordoubtful accounts is based upon specific identification of probablelosses.  We review our accountsreceivable and reassess our estimates of collectability each month.  Historically, our bad debt expense has been avery small percentage of our total revenue, as most of our revenues are fromlarge, credit-worthy Fortune 1000 companies and governments.  During 2008, as global economic conditionsworsened, we experienced an unusually high number of client bankruptcies andfinancial difficulties.  Our bad debtexpense increased to $7.0 million in 2008 as compared to $0.8 million in2007.  If our clients’ financialcondition or liquidity were to deteriorate, resulting in an impairment of theirability to make payments, or if customers were to express dissatisfaction withthe services we have provided, additional allowances may be required.  At December 31, 2009, our outstandingaccounts receivable balance from the City of New Orleans (the “City”) wasapproximately $3.9 million, down from $9.2 million at December 31,2008.  The City continues to experienceadministrative complications and FEMA reimbursement delays, which have delayedpayment for our services.  We continue towork with the City and FEMA on the remaining balance and based on ourcommunications with them, we believe we will be able to collect the balance infull.  Therefore, we have not providedfor any reserves related to this balance at December 31, 2009.  We cannot be assured that we will be 100%successful in our collection efforts. Should the City’s financial condition deteriorate or should otherinformation arise in the future to indicate that we may not be paid in full, wewould provide for an appropriate reserve at such time.

 

*Accruedcompensation and certain other accrued liabilities* - Employeecompensation costs are our largest expense category.  We have several different variablecompensation programs, which are highly dependent on estimates and judgments,particularly at interim reporting dates. Some programs are discretionary, while others have quantifiableperformance metrics.  Certain programsare annual, while others are quarterly or monthly.  Often actual compensation amounts cannot bedetermined until after our results are reported.  We believe we make reasonable estimates andjudgments using all significant information available.  We also estimate the amounts required forincurred but not reported health claims under our self-insured employee benefitprograms.  Our accrual for health costsis based on historical experience and actual amounts may vary.  In the ordinary course of business, we arecurrently involved in various claims and legal proceedings.  We periodically review the status of eachsignificant matter and assess our potential financial exposure.  If the potential loss from any claim or legalproceeding is considered probable and the amount can be reasonably estimated,we accrue a liability for the estimated 

 

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loss.  We use significant judgment in both thedetermination of probability and the determination as to whether an exposure isreasonably estimable.  Because ofuncertainties related to these matters, accruals are based only on the bestinformation at that time.  As additionalinformation becomes available, we reassess the potential liability related toour pending claims and litigation and may revise our estimates.  Such revisions in the estimates of potentialliabilities could have a material impact on our financial position and resultsof operations.  We expense legal fees asincurred.

 

O*ther intangible assets* - In connection with our acquisitions,we are required to recognize other intangible assets separate and apart fromgoodwill, if such assets arise from contractual or other legal rights or ifsuch assets are separable from the acquired business.  Other intangible assets primarily include,among other things, customer-related assets such as order backlog, customercontracts and customer relationships. Determining a fair value for such items requires a high degree ofjudgment, assumptions and estimates.  Weoften use third parties to assist us with such valuations.  In addition, these intangible assets areamortized over our best estimate of their useful life.

 

**Item 7A.  Quantitative andQualitative Disclosures about Market Risk**

 

We are exposed to market risks related to changes in foreign currencyexchange rates and interest rates.  Webelieve our exposure to other market risks is immaterial.

 

During 2009, 35.0%, or $363.2 million of our total revenue wasattributable to our foreign operations. Using sensitivity analysis, a hypothetical 10% increase or decrease inthe value of the U.S. dollar against all currencies would change total revenueby 3.5%, or $36.0 million.  A portion ofthis fluctuation would be offset by expenses incurred in local currency.  Additionally, we have exposure to changes inforeign currency rates related to short-term inter-company transactions withour foreign subsidiaries and from client receivables in differentcurrencies.  Foreign sales are mostlymade by our foreign subsidiaries in their respective countries and are typicallydenominated in the local currency of each country.  Our foreign subsidiaries incur most of theirexpenses in their local currency as well, which helps minimize our risk ofexchange rate fluctuations.

 

Our exposure to changes in interest rates arises primarily because ourindebtedness under our Senior Credit Facility has a variable interestrate.  At December 31, 2009, ouroutstanding borrowings under our Senior Credit Facility were $97.5 million andour weighted average interest rate was 4.41%. We currently have two interest rate swaps with financial institutions tohelp us manage our interest rate risk under our Senior Credit Facility byconverting a portion of our floating-rate debt to a fixed-rate basis, thusreducing the impact of interest rate changes on future interest expense.  The first interest rate swap matures on March 12,2010, and effectively converts $50.0 million of our floating-rate debt to afixed-rate basis (1.26%, plus the applicable margin).  The second interest rate swap matures on March 31,2012, and effectively converts $25.0 million of our floating-rate debt to afixed-rate basis (1.77%, plus the applicable margin).  Assuming $97.5 million of outstandingborrowings, of which $75.0 million is fixed-rate due to the interest rateswaps, a 1% increase in interest rates would result in approximately $0.2million of additional interest expense.

 

# **Item 8.  Financial Statements and Supplementary Data**

 

The following consolidated financial statements and supplementary dataare included as part of this Annual Report on Form 10-K:

 
| Report of Independent Registered Public Accounting  Firm                                                       |
|----------------------------------------------------------------------------------------------------------------|
| Consolidated Statements of Operations — Years Ended  December 31, 2007, 2008 and 2009                |
| Consolidated  Balance Sheets — December 31, 2008 and 2009                                            |
| Consolidated Statements of Shareholders’ Equity —  Years Ended December 31, 2007, 2008 and 2009 |
| Consolidated Statements of Cash Flows — Years Ended  December 31, 2007, 2008 and 2009                |
| Notes to Consolidated Financial Statements                                                                     |

 

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** **

**Report of IndependentRegistered Public Accounting Firm**

** **

**The Board of Directors and Shareholders of CIBER, Inc.**

** **

Wehave audited the accompanying consolidated balance sheets of CIBER, Inc.and subsidiaries (the Company) as of December 31, 2008 and 2009, and therelated consolidated statements of operations, shareholders’ equity, and cashflows for each of the three years in the period ended December 31,2009.  These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of the Company at December 31,2008 and 2009, and the consolidated results of its operations and its cashflows for each of the three years in the period ended December 31, 2009,in conformity with U.S. generally accepted accounting principles.

 

Asdiscussed in Note 1 to the consolidated financial statements, effective as of January 1,2009, the Company adopted Financial Accounting Standards Board (FASB) StaffPosition No. APB 14-1, “Accounting for Convertible Debt Instruments That May BeSettled in Cash Upon Conversion (Including Partial Cash Settlement)” (codifiedin FASB ASC Topic 470, “Debt with Conversions and Other Options”) and FASBStatement No. 160 “Non-Controlling Interests in Consolidated FinancialStatements” (codified in FASB ASC Topic 810, “Consolidation”) andretrospectively adjusted its accounting for its consolidated financialstatements for the years ended December 31, 2008 and 2007 presentedherein.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), CIBER, Inc.’s internal controlover financial reporting as of December 31, 2009, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission and our report dated March 4,2010 expressed an unqualified opinion thereon.

 
|                | /s/  Ernst & Young LLP |
|---------------------|---------------------------------|
|                |                            |
| Denver,  Colorado   |                            |
| March 4,  2010 |                            |

 

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**CIBER, Inc. and Subsidiaries**

**Consolidated Statementsof Operations**

*(In thousands, except per share data)*

 
| ** **                                       | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| Consulting services                              |       | $                                | 1,024,172  |   | $ | 1,133,233 |   | $ | 992,779 |   |
| Other revenue                                    |       | 57,803                           |       | 58,334 |   | 44,921 |   |
| Total revenue                                    |       | 1,081,975                        |       | 1,191,567 |   | 1,037,700 |   |
|                                             |       |                             |       |   |   |   |   |
| Cost of consulting services                      |       | 755,115                          |       | 829,806 |   | 750,164 |   |
| Cost of other revenue                            |       | 34,401                           |       | 37,281 |   | 28,243 |   |
| Selling, general and administrative expenses     |       | 232,119                          |       | 264,268 |   | 225,643 |   |
| Amortization of intangible assets                |       | 5,820                            |       | 6,274 |   | 5,891 |   |
| Operating income                                 |       | 54,520                           |       | 53,938 |   | 27,759 |   |
| Interest income                                  |       | 854                              |       | 1,253 |   | 994 |   |
| Interest expense                                 |       | (16,508                          | )          | (13,854 | ) | (6,180 | ) |
| Other income (expense), net                      |       | (184                             | )          | (1,444 | ) | 338 |   |
| Income before income taxes                       |       | 38,682                           |       | 39,893 |   | 22,911 |   |
| Income tax expense                               |       | 13,165                           |       | 12,080 |   | 7,795 |   |
| Consolidated net income                          |       | 25,517                           |       | 27,813 |   | 15,116 |   |
| Less: Net income — noncontrolling interests |       | 1,566                            |       | 929 |   | 158 |   |
| Net income — CIBER, Inc.               |       | $                                | 23,951     |   | $ | 26,884 |   | $ | 14,958 |   |
|                                             |       |                             |       |   |   |   |   |
| Net income per share — CIBER, Inc.:    |       |                             |       |   |   |   |   |
| Basic                                            |       | $                                | 0.39       |   | $ | 0.45 |   | $ | 0.22 |   |
| Diluted                                          |       | $                                | 0.39       |   | $ | 0.45 |   | $ | 0.22 |   |
|                                             |       |                             |       |   |   |   |   |
| Weighted average shares outstanding:             |       |                             |       |   |   |   |   |
| Basic                                            |       | 61,207                           |       | 60,092 |   | 67,996 |   |
| Diluted                                          |       | 61,924                           |       | 60,389 |   | 68,107 |   |

 

See accompanying notes to consolidated financial statements.

 

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**CIBER, Inc. and Subsidiaries**

**ConsolidatedBalance Sheets**

*(In thousands, except per sharedata)*

* *
| ** **                                                                                               | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                               | ** ** | **2008**              | ** ** | **2009** | ** ** |
| *Assets*                                                                                                 |       |                  |       |   |   |
| Current assets:                                                                                          |       |                  |       |   |   |
| Cash and cash equivalents                                                                                |       | $                     | 48,849     |   | $ | 67,424 |   |
| Accounts receivable, net of allowances of $4,411  and $3,192 respectively                                |       | 235,066               |       | 213,100 |   |
| Prepaid expenses and other current assets                                                                |       | 20,633                |       | 22,727 |   |
| Deferred income taxes                                                                                    |       | 4,883                 |       | 6,627 |   |
| Total current assets                                                                                     |       | 309,431               |       | 309,878 |   |
|                                                                                                     |       |                  |       |   |   |
| Property and equipment, at cost                                                                          |       | 80,360                |       | 82,788 |   |
| Less accumulated depreciation                                                                            |       | (52,988               | )          | (57,958 | ) |
| Property and equipment, net                                                                              |       | 27,372                |       | 24,830 |   |
|                                                                                                     |       |                  |       |   |   |
| Goodwill                                                                                                 |       | 439,147               |       | 450,739 |   |
| Other intangible assets, net                                                                             |       | 10,666                |       | 5,159 |   |
| Other assets                                                                                             |       | 10,904                |       | 12,650 |   |
| Total assets                                                                                             |       | $                     | 797,520    |   | $ | 803,256 |   |
|                                                                                                     |       |                  |       |   |   |
| *Liabilities and Shareholders’  Equity*                                                             | * *   | * *              | * *   | * * | * * |
| Current liabilities:                                                                                     |       |                  |       |   |   |
| Current portion of long-term bank debt                                                                   |       | $                     | 2,002      |   | $ | 10,697 |   |
| Accounts payable                                                                                         |       | 35,373                |       | 33,981 |   |
| Accrued compensation and related liabilities                                                             |       | 62,437                |       | 65,747 |   |
| Deferred revenue                                                                                         |       | 13,591                |       | 17,634 |   |
| Income taxes payable                                                                                     |       | 1,874                 |       | 10,402 |   |
| Other accrued expenses and liabilities                                                                   |       | 28,921                |       | 34,563 |   |
| Total current liabilities                                                                                |       | 144,198               |       | 173,024 |   |
|                                                                                                     |       |                  |       |   |   |
| Long-term bank debt                                                                                      |       | 165,710               |       | 87,500 |   |
| Deferred income taxes                                                                                    |       | 34,288                |       | 36,486 |   |
| Total liabilities                                                                                        |       | 344,196               |       | 297,010 |   |
|                                                                                                     |       |                  |       |   |   |
| Commitments and contingencies                                                                            |       |                  |       |   |   |
|                                                                                                     |       |                  |       |   |   |
| Shareholders’ equity:                                                                               |       |                  |       |   |   |
| Preferred stock, $0.01 par value, 1,000 shares  authorized, no shares issued                             |       | —                |       | — |   |
| Common stock, $0.01 par value, 100,000 shares  authorized, 64,705 and 74,487 shares issued, respectively |       | 647                   |       | 745 |   |
| Additional paid-in capital                                                                               |       | 296,227               |       | 322,999 |   |
| Retained earnings                                                                                        |       | 188,428               |       | 199,668 |   |
| Accumulated other comprehensive income (loss)                                                            |       | (983                  | )          | 12,193 |   |
| Treasury stock, 4,620 and 5,005 shares, at cost                                                          |       | (31,889               | )          | (30,069 | ) |
| Total CIBER, Inc. shareholders’ equity                                                         |       | 452,430               |       | 505,536 |   |
| Noncontrolling interests                                                                                 |       | 894                   |       | 710 |   |
| Total shareholders’ equity                                                                          |       | 453,324               |       | 506,246 |   |
| Total liabilities and shareholders’ equity                                                          |       | $                     | 797,520    |   | $ | 803,256 |   |

 

See accompanying notes to consolidated financial statements.

 

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**CIBER, Inc.and Subsidiaries**

**ConsolidatedStatements of Shareholders’ Equity**

*(In thousands)*

 
| ** **                                                                                                      | ** ** | ** **        | ** ** | ** **          | ** ** | ** **  | ** ** | ** **   | ** ** | ** **        | ** ** | ** **         | ** ** | **Accumulated**        | ** ** | ** **    | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|---------------------|------------|-------------|------------|--------------|------------|-------------------|------------|--------------------|------------|------------------------|------------|---------------|------------|------------|------------|
| ** **                                                                                                      | ** ** | ** **        | ** ** | ** **          | ** ** | ** **  | ** ** | ** **   | ** ** | **Additional**    | ** ** | ** **         | ** ** | **Other**              | ** ** | ** **    | ** ** | **Total**  | ** ** |
| ** **                                                                                                      | ** ** | **Common  Stock** | ** ** | **Treasury  Stock** | ** ** | **Paid-in** | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** | **Noncontrolling** | ** ** | **Shareholders’** | ** ** |
| ** **                                                                                                      | ** ** | **Shares**        | ** ** | **Amount**          | ** ** | **Shares**  | ** ** | **Amount**   | ** ** | **Capital**       | ** ** | **Earnings**       | ** ** | **Income  (Loss)**     | ** ** | **Interests** | ** ** | **Equity** | ** ** |
| **Balances at January 1, 2007, as previously  stated**                                                     |       | 64,705            |       | $                   | 647        |        | (2,952     | )            | $          | (21,865           | )          | $                  | 269,303    |                   | $          | 152,681       |       | $          | 15,356     |   | $ | — |   | $ | 416,122 |   |
| Cumulative  effect of changes in accounting principles for convertible debentures and  noncontrolling interests |       | —            |       | —              |       | —      |       | —       |       | 23,104            |       | (12,696            | )          | —                 |       | 129           |       | 10,537     |       |
| **Balances at January 1, 2007, as adjusted**                                                               |       | 64,705            |       | 647                 |       | (2,952      | )          | (21,865      | )          | 292,407           |       | 139,985            |       | 15,356                 |       | 129           |       | 426,659    |       |
| Consolidated  net income                                                                                        |       | —            |       | —              |       | —      |       | —       |       | —            |       | 23,951             |       | —                 |       | 1,566         |       | 25,517     |       |
| Loss  on hedging activity, net of $1,796 tax                                                                    |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | (3,140                 | )          | —        |       | (3,140     | )          |
| Foreign  currency translation                                                                                   |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | 18,367                 |       | (143          | )          | 18,224     |       |
| Debenture  retirement                                                                                           |       | —            |       | —              |       | —      |       | —       |       | (743              | )          | —             |       | —                 |       | —        |       | (743       | )          |
| Dividends  paid to noncontrolling interests                                                                     |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | —                 |       | (400          | )          | (400       | )          |
| Buyout  of noncontrolling interests                                                                             |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | —                 |       | (362          | )          | (362       | )          |
| Acquisition  consideration                                                                                      |       | —            |       | —              |       | 122         |       | 910          |       | —            |       | 57                 |       | —                 |       | —        |       | 967        |       |
| Treasury  shares issued under employee share plans                                                              |       | —            |       | —              |       | 917         |       | 6,779        |       | —            |       | (1,150             | )          | —                 |       | —        |       | 5,629      |       |
| Tax  benefit from employee share plans                                                                          |       | —            |       | —              |       | —      |       | —       |       | 313               |       | —             |       | —                 |       | —        |       | 313        |       |
| Share-based  compensation                                                                                       |       | —            |       | —              |       | 30          |       | 224          |       | 2,384             |       | (1                 | )          | —                 |       | —        |       | 2,607      |       |
| Purchases  of treasury stock                                                                                    |       | —            |       | —              |       | (2,075      | )          | (15,332      | )          | —            |       | —             |       | —                 |       | —        |       | (15,332    | )          |
| **Balances at December 31, 2007**                                                                          |       | 64,705            |       | 647                 |       | (3,958      | )          | (29,284      | )          | 294,361           |       | 162,842            |       | 30,583                 |       | 790           |       | 459,939    |       |
| Consolidated  net income                                                                                        |       | —            |       | —              |       | —      |       | —       |       | —            |       | 26,884             |       | —                 |       | 929           |       | 27,813     |       |
| Gain  on hedging activity, net of $54 tax                                                                       |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | 89                     |       | —        |       | 89         |       |
| Foreign  currency translation                                                                                   |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | (31,655                | )          | (283          | )          | (31,938    | )          |
| Debenture  retirement                                                                                           |       | —            |       | —              |       | —      |       | —       |       | (1,518            | )          | —             |       | —                 |       | —        |       | (1,518     | )          |
| Buyout  of noncontrolling interests                                                                             |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | —                 |       | (542          | )          | (542       | )          |
| Treasury  shares issued under employee share plans                                                              |       | —            |       | —              |       | 757         |       | 5,289        |       | (4                | )          | (1,255             | )          | —                 |       | —        |       | 4,030      |       |
| Tax  benefit from employee share plans                                                                          |       | —            |       | —              |       | —      |       | —       |       | 121               |       | —             |       | —                 |       | —        |       | 121        |       |
| Share-based  compensation                                                                                       |       | —            |       | —              |       | 31          |       | 215          |       | 3,267             |       | (43                | )          | —                 |       | —        |       | 3,439      |       |
| Purchases  of treasury stock                                                                                    |       | —            |       | —              |       | (1,450      | )          | (8,109       | )          | —            |       | —             |       | —                 |       | —        |       | (8,109     | )          |
| **Balances at December 31, 2008**                                                                          |       | 64,705            |       | 647                 |       | (4,620      | )          | (31,889      | )          | 296,227           |       | 188,428            |       | (983                   | )          | 894           |       | 453,324    |       |
| Consolidated  net income                                                                                        |       | —            |       | —              |       | —      |       | —       |       | —            |       | 14,958             |       | —                 |       | 158           |       | 15,116     |       |
| Loss  on hedging activity, net of $122 tax                                                                      |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | (198                   | )          | —        |       | (198       | )          |
| Foreign  currency translation                                                                                   |       | —            |       | —              |       | —      |       | —       |       | —            |       | —             |       | 13,374                 |       | 23            |       | 13,397     |       |
| Sale  of common stock, net of $194 of issuance costs                                                            |       | 9,000             |       | 90                  |       | —      |       | —       |       | 23,130            |       | —             |       | —                 |       | —        |       | 23,220     |       |
| Acquisition  of noncontrolling interests                                                                        |       | 782               |       | 8                   |       | —      |       | —       |       | 628               |       | —             |       | —                 |       | (365          | )          | 271        |       |
| Treasury  shares issued under employee share plans                                                              |       | —            |       | —              |       | 1,018       |       | 6,545        |       | (565              | )          | (3,576             | )          | —                 |       | —        |       | 2,404      |       |
| Tax  benefit deficiency from employee share plans                                                               |       | —            |       | —              |       | —      |       | —       |       | (53               | )          | —             |       | —                 |       | —        |       | (53        | )          |
| Share-based  compensation                                                                                       |       | —            |       | —              |       | 42          |       | 273          |       | 3,632             |       | (142               | )          | —                 |       | —        |       | 3,763      |       |
| Purchases  of treasury stock                                                                                    |       | —            |       | —              |       | (1,445      | )          | (4,998       | )          | —            |       | —             |       | —                 |       | —        |       | (4,998     | )          |
| **Balances at December 31, 2009**                                                                          |       | 74,487            |       | $                   | 745        |        | (5,005     | )            | $          | (30,069           | )          | $                  | 322,999    |                   | $          | 199,668       |       | $          | 12,193     |   | $ | 710 |   | $ | 506,246 |   |

 

See accompanying notes to consolidated financial statements.

 

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**CIBER, Inc. andSubsidiaries**

**Consolidated Statementsof Cash Flows**

*(In thousands)*

 
| ** **                                                                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| **Operating activities:**                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                                                         |       | $                                | 25,517     |   | $ | 27,813 |   | $ | 15,116 |   |
| Adjustments to reconcile net income to net cash  provided by operating activities: |       |                             |       |   |   |   |   |
| Depreciation                                                                       |       | 11,872                           |       | 12,519 |   | 11,719 |   |
| Amortization of intangible assets                                                  |       | 5,820                            |       | 6,274 |   | 5,891 |   |
| Deferred income tax expense                                                        |       | 2,122                            |       | 3,120 |   | 1,462 |   |
| Provision for doubtful receivables                                                 |       | 831                              |       | 6,965 |   | 2,260 |   |
| Share-based compensation expense                                                   |       | 2,607                            |       | 3,439 |   | 3,763 |   |
| Noncash interest from discount on convertible  debentures                          |       | 9,615                            |       | 5,303 |   | — |   |
| Other, net                                                                         |       | (54                              | )          | 216 |   | 2,329 |   |
| Changes in operating assets and liabilities, net  of acquisitions:                 |       |                             |       |   |   |   |   |
| Accounts receivable                                                                |       | (32,318                          | )          | 16,527 |   | 24,775 |   |
| Other current and long-term assets                                                 |       | (2,110                           | )          | (653 | ) | (520 | ) |
| Accounts payable                                                                   |       | (7,166                           | )          | 1,860 |   | (1,967 | ) |
| Accrued compensation and related liabilities                                       |       | 8,423                            |       | 11,641 |   | 1,035 |   |
| Other accrued expenses and liabilities                                             |       | (3,970                           | )          | (3,792 | ) | 8,441 |   |
| Income taxes payable/refundable                                                    |       | 1,487                            |       | 939 |   | 7,243 |   |
| Net cash provided by operating activities                                          |       | 22,676                           |       | 92,171 |   | 81,547 |   |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Investing activities:**                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Acquisitions, net of cash acquired                                                 |       | (22,342                          | )          | (7,790 | ) | (4,330 | ) |
| Purchases of property and equipment, net                                           |       | (13,172                          | )          | (14,680 | ) | (9,059 | ) |
| Proceeds from sale of property and equipment                                       |       | 1,864                            |       | — |   | — |   |
| Other, net                                                                         |       | —                           |       | 233 |   | — |   |
| Net cash used in investing activities                                              |       | (33,650                          | )          | (22,237 | ) | (13,389 | ) |
| ** **                                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Financing activities:**                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Borrowings on long-term bank debt                                                  |       | 378,965                          |       | 619,850 |   | 569,619 |   |
| Payments on long-term bank debt                                                    |       | (340,694                         | )          | (510,829 | ) | (639,135 | ) |
| Retirement of debentures                                                           |       | (22,113                          | )          | (149,495 | ) | — |   |
| Sale of common stock, net of $194 of issuance  costs                               |       | —                           |       | — |   | 23,220 |   |
| Employee stock purchases and options exercised                                     |       | 5,629                            |       | 4,030 |   | 2,404 |   |
| Purchases of treasury stock                                                        |       | (15,332                          | )          | (8,109 | ) | (4,998 | ) |
| Excess tax benefits from share-based compensation                                  |       | 323                              |       | 148 |   | — |   |
| Settlement of cross-currency interest rate swaps                                   |       | (339                             | )          | (4,280 | ) | — |   |
| Credit facility origination/amendment fees paid                                    |       | —                           |       | (1,243 | ) | (3,471 | ) |
| Other, net                                                                         |       | (342                             | )          | (4 | ) | (222 | ) |
| Net cash provided by (used in) financing  activities                               |       | 6,097                            |       | (49,932 | ) | (52,583 | ) |
| Effect of foreign exchange rate changes on cash  and cash equivalents              |       | 3,275                            |       | (2,870 | ) | 3,000 |   |
| Net increase (decrease) in cash and cash  equivalents                              |       | (1,602                           | )          | 17,132 |   | 18,575 |   |
| Cash and cash equivalents, beginning of year                                       |       | 33,319                           |       | 31,717 |   | 48,849 |   |
| Cash and cash equivalents, end of year                                             |       | $                                | 31,717     |   | $ | 48,849 |   | $ | 67,424 |   |

 

See accompanying notes to consolidated financial statements.

 

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**CIBER, Inc. and Subsidiaries**

**Notesto Consolidated Financial Statements**

 

**(1) Summaryof Significant Accounting Policies**

 

*(a) Descriptionof Business*

 

CIBER, Inc.and its subsidiaries, collectively, are an international, diversified, systemintegration and information technology (“IT”) services consulting firm.  Our services are offered on a project orstrategic staffing basis, in both custom and enterprise resource planning (“ERP”)package environments, and across all technology platforms, operating systemsand infrastructures.  To a lesser extent,we resell certain third-party IT hardware and software products.  Our clients consist primarily of governmentalagencies and Fortune 1000 and middle market companies across most majorindustries.  Founded in 1974, we operatein a geographically-based business model, with our consultants serving clientsfrom over 70 offices in 18 countries.

 

*(b) Principlesof Consolidation*

 

TheConsolidated Financial Statements include the accounts of CIBER, Inc. andall of its majority-owned subsidiaries (together “CIBER,” “the Company,” “we,” “our,”or “us”).  All material inter-companybalances and transactions have been eliminated. Certain amounts reported in 2007 and 2008 have been reclassified toconform to the 2009 presentation.  Thesereclassifications have no effect on our previously reported net income or cashflows.

 

The shares of our foreign subsidiaries that are owned bypersons other than CIBER are referred to as noncontrolling interests in theseConsolidated Financial Statements.  Thenoncontrolling shareholders’ proportionate share of the equity of thesesubsidiaries is reflected as “noncontrolling interests” in the ConsolidatedBalance Sheet.  The noncontrollingshareholders’ proportionate share of the net income or loss of thesesubsidiaries is reflected as “net income — noncontrolling interests” in theConsolidated Statement of Operations.  Inaccounting for the acquisition of a noncontrolling interest, any considerationin excess of the book value of the noncontrolling interest is recorded as areduction of CIBER shareholders’ equity. In April 2009, we issued 782,584 shares of our common stock, valuedat approximately $2.4 million, in exchange for all of the noncontrollinginterests in one of our foreign subsidiaries.

 

*(c) Useof Estimates*

 

Thepreparation of our Consolidated Financial Statements in conformity with U.S.generally accepted accounting principles (“GAAP”) requires management to makeestimates and assumptions that affect amounts reported in the ConsolidatedFinancial Statements and accompanying disclosures.  We base our estimates on historicalexperience and on various other assumptions that we believe are reasonableunder the circumstances.  Actual resultscould differ from those estimates.

 

*(d) RetroactiveAccounting Pronouncement Adjustments*

 

InMay 2008, the FASB issued new accounting guidance on convertible debtinstruments that may be settled in cash upon conversion.  This guidance requires that the proceeds fromthe issuance of certain convertible debt instruments be allocated between aliability component (issued at a discount) and the embedded conversion option(i.e., the equity component) in a manner that reflects the entity’snonconvertible debt borrowing rate.  Thedifference between the principal amount of the debt and the amount of theproceeds allocated to the liability component must be reported as a debtdiscount and subsequently amortized to earnings as additional non-cash interestexpense over the convertible debt’s expected life using the effective interestmethod.  We adopted this guidance, whichrequires retrospective application for all periods presented, on January 1,2009.  The adoption changed thehistorical accounting treatment for our Convertible Senior SubordinatedDebentures (“Debentures”) even though all of our Debentures were repurchasedand retired prior to December 31, 2008.

 

InDecember 2007, the FASB issued accounting guidance contained within ASC810, “Consolidation,” regarding noncontrolling interests. This guidancerequires that the noncontrolling interests in the equity of a subsidiary beaccounted for and reported as equity, provides revised guidance on thetreatment of net income and losses attributable to the noncontrolling interestsand changes in ownership interests in a subsidiary, and requires additionaldisclosures that identify and distinguish between the interest of thecontrolling and noncontrolling owners.  We prospectively adopted theserequirements on January 1, 2009, except for the presentation anddisclosure requirements, which have been applied retrospectively to all periodspresented.

 

Therequired retrospective applications of the above guidance had the followingimpact on our net income, diluted earnings per share and presentation of theconsolidated statement of operations for 2007 and 2008:

 

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| ** **                                                  | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                  | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| ** **                                                  | ** ** | **(In thousands)**               | ** ** |
| Net  income — CIBER, Inc., as previously reported |       | $                                | 29,026     |   | $ | 29,956 |   |
| Impact  of convertible debenture adjustment                 |       | (5,075                           | )          | (3,072 | ) |
| Net  income — CIBER, Inc., as adjusted            |       | 23,951                           |       | 26,884 |   |
| Net  income — noncontrolling interests                 |       | 1,566                            |       | 929 |   |
| Consolidated  net income                                    |       | $                                | 25,517     |   | $ | 27,813 |   |
|                                                        |       |                             |       |   |   |
| Earnings  per share — basic and diluted:               |       |                             |       |   |   |
| Net  income — CIBER, Inc., as previously reported |       | $                                | 0.47       |   | $ | 0.50 |   |
| Impact  of convertible debenture adjustment                 |       | (0.08                            | )          | (0.05 | ) |
| Net  income — CIBER, Inc., as adjusted            |       | $                                | 0.39       |   | $ | 0.45 |   |

 

*(e) RevenueRecognition*

 

CIBERearns revenue primarily from providing IT services to its clients, and to amuch lesser extent, from the sale and resale of IT hardware and softwareproducts.  CIBER’s consulting servicesrevenue comes from three primary sources: (1) technology integrationservices where we design, build and implement new or enhanced systemapplications and related processes; (2) general IT consulting services,such as system selection or assessment, feasibility studies, training andstaffing; and (3) managed IT services in which we manage, staff, maintain,host or otherwise run solutions and/or systems provided to our customers.  Contracts for these services have differentterms based on the scope, deliverables and complexity of the engagement, whichrequires management to make judgments and estimates in recognizingrevenue.  Fees for these contracts may bein the form of time-and-materials or fixed-price.  The majority of our consulting servicesrevenue is recognized under time-and-materials contracts as hours and costs areincurred.  Consulting services revenuealso includes project-related reimbursable expenses for travel and otherout-of-pocket expenses separately billed to clients.

 

Revenuefor technology integration consulting services where we design/redesign, buildand implement new or enhanced systems applications and related processes forour clients is generally recognized based on the percentage-of-completionmethod.  Under thepercentage-of-completion method, management estimates the percentage ofcompletion based upon the contract costs incurred to date as a percentage ofthe total estimated contract costs.  Ifthe total cost estimate exceeds revenue, we accrue for the estimated lossimmediately.  The use of thepercentage-of-completion method requires significant judgment relative toestimating total contract revenue and costs, including assumptions as to thelength of time to complete the project, the nature and complexity of the workto be performed and anticipated changes in estimated costs.  Estimates of total contract costs arecontinuously monitored during the term of the contract and recorded revenuesand costs are subject to revision as the contract progresses.  Such revisions may result in increases ordecreases to revenue and income and are reflected in the Consolidated FinancialStatements in the periods in which they are first identified.

 

Revenuefor general IT consulting services is recognized as work is performed andamounts are earned.  We consider amountsto be earned once evidence of an arrangement has been obtained, services aredelivered, fees are fixed or determinable and collectability is reasonablyassured.  For contracts with fees basedon time-and-materials or cost-plus, we recognize revenue over the period ofperformance.  For fixed-price contracts,depending on the specific contractual provisions and nature of the deliverables,revenue may be recognized on a proportional performance model based onlevel-of-effort, as milestones are achieved or when final deliverables havebeen provided.

 

ManagedIT services arrangements typically span several years.  Revenue from managed servicestime-and-materials contracts is recognized as the services are performed.  Revenue from unit-priced contracts isrecognized as transactions are processed based on objective measures ofoutput.  Revenue from fixed-pricecontracts is recognized on a straight-line basis, unless revenues are earnedand obligations are fulfilled in a different pattern.  Costs related to delivering managed servicesare expensed as incurred, with the exception of labor and other direct costsrelated to the set-up of processes, personnel and systems, which are deferredduring the transition period and expensed evenly over the period services areprovided.  Amounts billable to the clientfor transition or set-up activities are also deferred and recognized as revenueevenly over the period that the managed services are provided.

 

Otherrevenue includes resale of third-party IT hardware and software products, salesof proprietary software and commissions on sales of IT products.  Some software license arrangements alsoinclude implementation services and/or post-contract customer support.  In such multi-element arrangements, if thecriteria are met, revenue is recognized based on the vendor specific objectiveevidence of the fair value of each element. Software support revenue is recognized ratably over the term of therelated agreement.  Revenue related tothe sale of IT products is generally recognized when the products are 

 

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shippedor if applicable, when delivered and installed in accordance with the terms ofthe sale.  Where we are the re-marketerof certain IT products, commission revenue is recognized when the products aredrop-shipped from the vendor to the customer.  Our commission revenue represents the salesprice to the customer less the cost paid to the vendor.

 

Unbilledaccounts receivable represent amounts recognized as revenue based on servicesperformed in advance of billings in accordance with contract terms.  Under our typical time-and-materials billingarrangement, we bill our customers on a regularly scheduled basis, such asbiweekly or monthly.  At the end of eachaccounting period, we accrue revenue for services performed since the lastbilling cycle.  These unbilled amountsare generally billed the following month. Unbilled accounts receivable also arise when percentage-of-completionaccounting is used and costs plus estimated contract earnings exceed billings.  Such amounts are billed at specific milestonedates or at contract completion. Management expects all unbilled accounts receivable to be collectedwithin one year of the balance sheet date. Billings in excess of revenue recognized are recorded as deferredrevenue and are primarily comprised of deferred software support revenue.

 

*(f) Cashand Cash Equivalents*

 

Cashand cash equivalents includes bank demand and time deposits, money market fundsand all other highly liquid investments with maturities of three months or lesswhen purchased.  Substantially all of ourcash balance at December 31, 2008 and 2009 was held by our Europeansubsidiaries.

 

*(g) AccountsReceivable and Allowance for Doubtful Accounts*

 

Werecord accounts receivable at their face amount less an allowance for doubtfulaccounts.  On a regular basis, weevaluate our client receivables, especially receivables that are past due, andwe establish an allowance for doubtful accounts based on specific clientcollection issues.

 

*(h) Propertyand Equipment*

 

Propertyand equipment, which consists of computer equipment and software, furniture andleasehold improvements, is stated at cost. Depreciation is computed using straight-line and accelerated methodsover the estimated useful lives, ranging primarily from three to seven years,or the related lease term, if shorter. Direct costs of time and materials incurred for the development ofsoftware for internal use are capitalized as property and equipment.

 

*(i) Goodwill andOther Intangible Assets*

 

Goodwill represents the cost of acquired businesses in excess of theestimated fair value assigned to the net assets acquired.  Goodwill is not amortized, but rather issubject to impairment testing.  We reviewgoodwill for impairment annually at June 30, and whenever events orchanges in circumstances indicate its carrying value may not berecoverable.  The result of our June 30,2009 annual impairment test was that no impairment was indicated.  Goodwill impairment testing consists of atwo-step process.  In the first step, wecompare the fair value of each reporting unit to its carrying value.  Our reporting units are consistent with thereportable segments identified in Note 13 to our Consolidated FinancialStatements.  If the fair value of thereporting unit exceeds the carrying value of the net assets assigned to thatunit, goodwill is considered not to be impaired and we are not required toperform further testing.  If the carryingvalue of the net assets assigned to the reporting unit exceeds the fair valueof the reporting unit, then we must perform the second step of the impairmenttest in order to determine the implied fair value of the reporting unit’sgoodwill.  If the carrying value of thereporting unit’s goodwill exceeds its implied fair value, we would record animpairment loss equal to the difference. Our goodwill impairment tests did not result in any impairment in 2007,2008 or 2009.

 

Other intangible assets arise from business combinations and consistprimarily of customer relationships that are amortized over periods of up toseven years.

 

*(j) CapitalizedSoftware Development Costs*

 

For software we intend to sell, we capitalize internal softwaredevelopment costs from the time technological feasibility is established.  Capitalized software development costs arereported at the lower of unamortized cost or estimated net realizablevalue.  At December 31, 2008 and2009, unamortized software development costs were $1.6 million and $520,000,respectively, and are included in “other assets” on the Consolidated BalanceSheet.  Amortization of the capitalizedsoftware costs began in 2007 and will occur over the software’s estimateduseful life of 36 months.  Amortizationof approximately $820,000, $1.0 million and $1.0 million was recorded in 2007,2008 and 2009, respectively, and was included in cost of product sales in theConsolidated Statement of Operations.

 

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*(k) Long-LivedAssets (excluding Goodwill)*

 

Long-lived assets are reviewed for impairment whenever events orcircumstances indicate that the carrying amount of an asset may not be fullyrecoverable.  An impairment loss isrecognized only if the carrying amount of a long-lived asset is not recoverablefrom its undiscounted cash flows and is measured as the difference between thecarrying amount and fair value of the asset.

 

*(l) IncomeTaxes*

 

Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statementcarrying amounts of existing assets and liabilities and their respective taxbases and for operating loss carryforwards. Deferred tax amounts are based on enacted tax rates expected to be ineffect during the year in which the differences reverse.  The effect on deferred tax assets andliabilities due to a change in tax rates is recognized in income tax expense inthe period that includes the enactment date. Deferred tax assets and liabilities are classified as current andnon-current amounts based on the financial statement classification of therelated asset and liability.  A valuationallowance is provided when it is more likely than not that a deferred tax assetwill not be realized.  We use a two-stepapproach to recognizing and measuring uncertain tax positions taken or expectedto be taken in an income tax return.  Wefirst determine if the weight of available evidence indicates that it is morelikely than not that the tax position will be sustained on audit, includingresolution of any related appeals or litigation processes.  The second step involves measuring the taxbenefit as the largest amount that is more than 50% likely to be realized uponultimate settlement.

 

The provision for income taxes represents the estimated amounts forfederal, state and foreign taxes.  Thedetermination of the provision for income tax expense, deferred tax assets andliabilities and related valuation allowance involves judgment.  As a global company, we are required tocalculate and provide for income taxes in each of the tax jurisdictions wherewe operate.  This involves makingjudgments regarding the recoverability of deferred tax assets, which can affectthe overall effective tax rate.  Inaddition, changes in the geographic mix or estimated level of pre-tax incomecan affect the overall effective tax rate. Interim-period tax expense is recorded based upon our best estimate ofthe effective tax rate expected to be applicable for the full fiscal year.  Interest expense on tax liabilities isincluded in interest expense.

 

*(m) ForeignCurrency*

 

Theassets and liabilities of our foreign operations are translated into U.S.dollars at current exchange rates and revenue and expense are translated ataverage exchange rates for the period.  Theresulting translation adjustments are included in “accumulated othercomprehensive income (loss)” on the Consolidated Balance Sheet.  Gains and losses arising from inter-companyinternational transactions that are of a long-term investment nature are reportedin the same manner as translation adjustments.

 

Allforeign currency transaction gains and losses, including foreign currency gainsand losses on short-term inter-company loans and advances, are included in “otherincome (expense), net” in the Consolidated Statement of Operations as incurred.

 

*(n) Share-BasedCompensation*

 

We record share-based compensation expense forawards of equity instruments to employees based on the estimated grant-datefair value of these awards.  Share-basedcompensation cost is recognized, as appropriate, in either “cost of consultingservices” or in “selling, general and administrative expense” in theConsolidated Statement of Operations.

 

*(o) OtherIncome (Expense), Net*

 

Otherincome (expense), net consisted of the following:

 
| ** **                                   | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                   | ** ** | **(In thousands)**               | ** ** |
| Foreign exchange gains (losses), net         |       | $                                | (1,021     | ) | $ | (2,459 | ) | $ | 296 |   |
| Gain on retirement of convertible debentures |       | 887                              |       | 1,264 |   | — |   |
| Other                                        |       | (50                              | )          | (249 | ) | 42 |   |
| Other income (expense), net                  |       | $                                | (184       | ) | $ | (1,444 | ) | $ | 338 |   |

 

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*(p) FairValue of Financial Instruments*

 

Thecarrying values of our cash and cash equivalents, accounts receivable andaccounts payable approximate their fair values due to their short-termnature.  The fair value of derivativeinstruments such as interest rate swaps is determined utilizing market basedinformation.  The book values of theborrowings under our senior credit facilityand our other bank debt approximate their fair values due to either theirvariable interest rates or their short-term nature.

 

*(q) Businessand Credit Concentrations*

 

Financial instruments that are potentially subject to concentrations ofcredit risk are cash and cash equivalents and accounts receivable.  Our cash and cash equivalents are inhigh-credit quality short-term investments and held by financial institutions.  Accounts receivable are reviewed on a periodicbasis and an allowance for bad debts is recorded where such amounts aredetermined to be uncollectible.  We donot require collateral from our customers. Our revenue and accounts receivable are principally concentrated withlarge companies across several industries and governmental entities locatedthroughout the United States and Europe.

 

*(r) Contingencies*

 

We are routinely involved in legal proceedings,audits, claims and litigation arising in the ordinary course of business.  Although, the outcome of such matters is notpredictable with assurance, we do not expect that the ultimate outcome of anyof these matters, individually or in the aggregate, will have a materialadverse effect on our financial condition. However, depending on the amount and timing, an unfavorable outcome ofany such matters could possibly materially affect our future results ofoperations or cash flow in any particular period.

 

*(s) RecentlyAdopted Accounting Pronouncements*

 

InJune 2009, the Financial Accounting Standards Board (“FASB”) issuedAccounting Standards Codification (“ASC”) 105, “Generally Accepted AccountingPrincipals.”  ASC 105 establishes theFASB ASC as the single source of authoritative nongovernmental U.S. GAAP.  The standard is effective for interim and annualperiods ending after September 15, 2009. We adopted the provisions of the standard on September 30,2009.  The adoption of the standard haschanged how we reference various elements of GAAP when preparing our financialstatement disclosures, but did not have an impact on CIBER’s financialposition, results of operations or cash flows.

 

**(2) Acquisitions**

 

Wehave acquired certain businesses, as set forth below, that we have accountedfor using the purchase method of accounting for business combinations and,accordingly, the accompanying Consolidated Financial Statements include theresults of operations of each acquired business since the date of acquisition.

 

*Acquisitions— 2009*

 

In January 2009, we acquired Iteamic Private Ltd. (“Iteamic”) of Bangalore,India.  Iteamic specialized inapplication development of offshore projects, primarily with companies in NorthAmerica, and became part of our Custom Solutions division.  The acquisition added leadership and deliveryskills depth to our India offshore global solution center.  The purchase price was approximately $4.7million, and was allocated as follows: $800,000 to net tangible assets acquiredand $3.9 million to goodwill.

 

*Acquisitions— 2008*

 

OnApril 15, 2008, our International division acquired a Norwegian SAPconsultancy for a total purchase price of approximately $6.5 million.  The results of the acquired operation havebeen included in our consolidated financial statements since the date ofacquisition.  Approximately $4.8 millionwas paid during 2008 and approximately $1.7 million is expected to be paid inthe future.  In connection with theacquisition, we recorded goodwill of approximately $5.5 million and acquiredother net assets of $1.0 million.

 

Additionally,in 2008, we purchased a noncontrolling interest in one of our Europeansubsidiaries for a purchase price of approximately $2.8 million.

 

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*Acquisitions— 2007*

 

OnSeptember 4, 2007, we acquired California-basedMetamor Enterprise Solutions LLC (“Metamor”).  Metamor, which provided SAP softwareimplementation services and was a reseller of SAP products, became part of ourU.S. ERP division.  At the time of theacquisition, Metamor had approximately 100 SAP consultants.  The acquisitionprovided scale to our domestic SAP activities, where we previously haddifficulty in locating skilled SAP employee resources.  The purchase price was approximately $16.4million, including expenses, and was allocated as follows: $2.1 million to nettangible assets acquired, $1.3 million to other intangibles and $13.0 millionto goodwill.

 

OnOctober 12, 2007, our International division acquired a Swedish SAPconsultancy with approximately 30 consultants for a total purchase price ofapproximately $4.2 million, which included approximately 122,000 shares ofCIBER common stock valued at $967,000. We acquired net tangible liabilities of approximately $100,000, otherintangible assets of approximately $500,000 and recorded goodwill ofapproximately $3.8 million.

 

Additionallyin 2007, we purchased a noncontrolling interest in one of our Europeansubsidiaries for a purchase price of approximately $1.4 million.

 

**(3) Net Income per Share**

 

Our computation of net income per share — basic and diluted is asfollows:

 
| ** **                                   | ** ** | **Year Ended December 31,**             | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                   | ** ** | **2007**                                     | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                   | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **Numerator:**                               | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net  income — CIBER, Inc.          |       | $                                            | 23,951     |   | $ | 26,884 |   | $ | 14,958 |   |
| **Denominator:**                             | ** ** | ** **                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Basic  weighted average shares outstanding   |       | 61,207                                       |       | 60,092 |   | 67,996 |   |
| Dilutive  effect of employee share plans     |       | 717                                          |       | 297 |   | 111 |   |
| Diluted  weighted average shares outstanding |       | 61,924                                       |       | 60,389 |   | 68,107 |   |
|                                         |       |                                         |       |   |   |   |   |
| Net  income per share — basic           |       | $                                            | 0.39       |   | $ | 0.45 |   | $ | 0.22 |   |
| Net  income per share — diluted         |       | $                                            | 0.39       |   | $ | 0.45 |   | $ | 0.22 |   |

 

Dilutive securities are excluded from the diluted weighted averageshares outstanding computation in periods in which they have an anti-dilutiveeffect, such as when stock options have an exercise price that is greater thanthe average market price of CIBER common stock during the period.  The approximate average number ofanti-dilutive securities omitted from the computation of diluted weightedaverage shares outstanding was 4,415,000, 6,256,000 and 9,149,000 for 2007,2008 and 2009, respectively.

 

**(4) Accounts Receivable**

 

Accountsreceivable consists of the following:

 
| ** **                                         | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2008**              | ** ** | **2009** | ** ** |
| ** **                                         | ** ** | **(In thousands)**    | ** ** |
| Billed accounts receivable                         |       | $                     | 183,415    |   | $ | 159,895 |   |
| Unbilled - scheduled billings                      |       | 39,394                |       | 40,578 |   |
| Costs and estimated earnings in excess of billings |       | 16,668                |       | 15,819 |   |
|                                               |       | 239,477               |       | 216,292 |   |
| Less allowance for doubtful accounts               |       | (4,411                | )          | (3,192 | ) |
|                                               |       | $                     | 235,066    |   | $ | 213,100 |   |

 

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The activity inthe allowance for doubtful accounts consists of the following:

 
| ** **                        | ** ** | ** **         | ** ** | **Additions**   | ** ** | ** **     | ** ** | **Effect of**    | ** ** | ** **    | ** ** |
|-----------------------------------|------------|--------------------|------------|-----------------|------------|----------------|------------|------------------|------------|---------------|------------|
| ** **                        | ** ** | **Balance at**     | ** ** | **Charge**      | ** ** | ** **     | ** ** | **foreign**      | ** ** | **Balance**   | ** ** |
| ** **                        | ** ** | **beginning**      | ** ** | **to cost and** | ** ** | **Deductions** | ** ** | **exchange**     | ** ** | **at end**    | ** ** |
| ** **                        | ** ** | **of period**      | ** ** | **expense**     | ** ** | **Write-offs** | ** ** | **rate changes** | ** ** | **of period** | ** ** |
| ** **                        | ** ** | **(In thousands)** | ** ** |
| Year ended December 31, 2007 |       | $                  | 2,989      |            | 831        |           | (1,800     | )                | 38         |          | $          | 2,058 |   |
| Year ended December 31, 2008 |       | $                  | 2,058      |            | 6,965      |           | (4,337     | )                | (275       | )             | $          | 4,411 |   |
| Year ended December 31, 2009 |       | $                  | 4,411      |            | 2,260      |           | (3,528     | )                | 49         |          | $          | 3,192 |   |

 

**(5) Property and Equipment**

 

Property and equipment consist of the following:

 
| ** **                                  | ** ** | **December 31,** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|
| ** **                                  | ** ** | **2008**              | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **(In thousands)**    | ** ** |
| Computer equipment and software             |       | $                     | 60,281     |   | $ | 63,447 |   |
| Furniture and fixtures                      |       | 10,956                |       | 9,922 |   |
| Leasehold improvements, buildings and other |       | 9,123                 |       | 9,419 |   |
|                                        |       | 80,360                |       | 82,788 |   |
| Less accumulated depreciation               |       | (52,988               | )          | (57,958 | ) |
| Property and equipment, net                 |       | $                     | 27,372     |   | $ | 24,830 |   |

 

**(6) Goodwilland Other Intangible Assets**

 

Thechanges in the carrying amount of goodwill are as follows:

 
| ** **                              | ** ** | **Custom********Solutions** | ** ** | **International** | ** ** | **IT********Outsourcing** | ** ** | **Federal** | ** ** | **U.S. ERP** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|-------------------|------------|---------------------------|------------|-------------|------------|--------------|------------|-----------|------------|
| ** **                              | ** ** | **(In thousands)**          | ** ** |
| **Balance at January 1, 2008**     |       | $                           | 144,948    |              | $          | 152,359                   |       | $           | 31,935     |         | $          | 74,264    |       | $ | 54,339 |   | $ | 457,845 |   |
| Acquisitions                            |       | —                      |       | 7,744             |       | —                    |       | —      |       | —       |       | 7,744     |       |
| Adjustments on prior acquisitions:      |       |                        |       |              |       |                      |       |        |       |         |       |      |       |
| Acquired tax benefits realized          |       | —                      |       | (3,191            | )          | —                    |       | —      |       | —       |       | (3,191    | )          |
| Other                                   |       | 748                         |       | —            |       | —                    |       | —      |       | —       |       | 748       |       |
| Effect of foreign exchange rate changes |       | —                      |       | (23,999           | )          | —                    |       | —      |       | —       |       | (23,999   | )          |
| **Balance at December 31,  2008**  |       | 145,696                     |       | 132,913           |       | 31,935                    |       | 74,264      |       | 54,339       |       | 439,147   |       |
| Acquisitions                            |       | 3,922                       |       | 64                |       | —                    |       | —      |       | —       |       | 3,986     |       |
| Adjustments on prior acquisitions       |       | —                      |       | (1,289            | )          | —                    |       | —      |       | —       |       | (1,289    | )          |
| Effect of foreign exchange rate changes |       | —                      |       | 8,895             |       | —                    |       | —      |       | —       |       | 8,895     |       |
| **Balance at December 31,  2009**  |       | $                           | 149,618    |              | $          | 140,583                   |       | $           | 31,935     |         | $          | 74,264    |       | $ | 54,339 |   | $ | 450,739 |   |

 

Otherintangible assets are comprised of the following:

 
| ** **                 | ** ** | **Cost**           | ** ** | **Accumulated  Amortization** | ** ** | **Intangible  Assets, Net** | ** ** |
|----------------------------|------------|--------------------|------------|-------------------------------|------------|-----------------------------|------------|
| ** **                 | ** ** | **(In thousands)** | ** ** |
| **December 31, 2008** | ** ** | ** **         | ** ** | ** **                    | ** ** | ** **                  | ** ** |
| Noncompete agreements      |       | $                  | 50         |                          | $          | (50                         | )          | $ | — |   |
| Customer relationships     |       | 35,791             |       | (25,125                       | )          | 10,666                      |       |
| ** **                 |       | $                  | 35,841     |                          | $          | (25,175                     | )          | $ | 10,666 |   |
| ** **                 | ** ** | ** **         | ** ** | ** **                    | ** ** | ** **                  | ** ** |
| **December 31, 2009** | ** ** | ** **         | ** ** | ** **                    | ** ** | ** **                  | ** ** |
| Customer relationships     |       | $                  | 37,542     |                          | $          | (32,383                     | )          | $ | 5,159 |   |

 

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AtDecember 31, 2009, our customer relationships have a weighted averageremaining life of 1.2 years. Amortization expense for future periods as estimated at December 31,2009, consists of the following *(in thousands)*:

 
| ** **                        | ** ** | **Estimated Amortization  Expense** | ** ** |
|-----------------------------------|------------|-------------------------------------|------------|
| Year ended December 31, 2010 |       | $                                   | 4,121      |   |
| Year ended December 31, 2011 |       | 1,038                               |       |
|                                   |            |                                     |            |  |

 

**(7) Operating Leases**

 

We have non-cancelable operating leases primarily for our office space,automobiles and office equipment. Expense for operating leases totaledapproximately $23.0 million, $25.4 million and $25.7 million in 2007, 2008 and2009, respectively.

 

Future minimum operating lease payments as of December 31, 2009,are *(in thousands)*:

 
| ** ** | ** ** | **Rental Payments** | ** ** |
|------------|------------|---------------------|------------|
| 2010       |       | $                   | 25,520     |   |
| 2011       |       | 18,590              |       |
| 2012       |       | 13,113              |       |
| 2013       |       | 7,623               |       |
| 2014       |       | 3,989               |       |
| Thereafter |       | 9,117               |       |
| ** ** |       | $                   | 77,952     |   |

 

**(8) Borrowings**

 

*Senior Credit Facility*— On August 20, 2009, CIBER entered into athree-year senior credit agreement with several financial institutions aslenders and Bank of America, N.A. as administrative agent (the “Senior CreditFacility”).  The Senior Credit Facilityreplaced our previous senior secured reducing revolving credit facility andrefinanced all amounts outstanding thereunder. The credit available under the Senior Credit Facility may be used forthe working capital needs and general corporate purposes of the Company.  The Senior Credit Facility was subsequentlyamended on February 18, 2010, and matures on August 20, 2012.

 

The Senior Credit Facility, as amended, providesfor: 1) an $85 million revolving line of credit (“Revolver”), which may be usedfor revolving loans and to request the issuance of letters of credit on CIBER’sbehalf, and 2) a $50 million term loan (“Term Loan”).  The Term Loan requires quarterly principalreductions of $2.5 million, beginning on December 31, 2009.  The Term Loan balance at December 31,2009, is $47.5 million, of which $10.0 million is classified as a currentliability.

 

Additionally, the Senior Credit Facility issubject to mandatory prepayments (and commitment reductions) in amounts equalto the net cash proceeds of any asset disposition, event of loss, extraordinaryreceipts, issuance or incurrence of indebtedness and issuance of equity,subject in each case as appropriate to thresholds and other exceptions anddefinitions as specified in the credit agreement.  CIBER’s obligations underthe Senior Credit Facility are secured by all of CIBER’s present and futuredomestic tangible and intangible assets, as well as a pledge of 66% of thecapital stock of CIBER’s direct foreign subsidiaries.

 

Subjectto applicable conditions, we may elect interest rates on our Senior CreditFacility borrowings calculated by reference to either the Bank of America primelending rate (“Prime”) plus a margin that ranges from 1.75% to 2.50%, or aLondon Interbank Offered Rate (“LIBOR”) for one, three or six month maturities,plus a margin that ranges from 2.75% to 3.50%. The applicable margins on our Prime loans and LIBOR loans are determinedby reference to our current consolidated total leverage ratio.  Weare also required to pay a commitment fee of 0.50% per annum on the unusedportion of the Senior Credit Facility. The Senior Credit Facility and the related loan documents provide forthe payment of other specified recurring fees and expenses, includingadministrative agent fees, letter of credit and other fees.  We currently have two interest rate swaps.  The first interest rate swap matures on March 12,2010, and effectively converts $50.0 million of our borrowings under our SeniorCredit Facility from a variable-rate instrument into a 1.26% fixed-rateinstrument, plus the applicable margin. The second interest rate swap matures on March 31, 2012, andeffectively converts $25.0 million of our borrowings under our Senior CreditFacility from a variable-rate instrument into a 1.77% fixed-rate instrument,plus the applicable margin.  At December 31,2009, our weighted average interest rate on our outstanding borrowings underthe Senior Credit Facility, including the interest swaps, was 4.41%.

 

Theterms of the Senior Credit Facility, as amended, include among otherprovisions, specific limitations on the incurrence of additional indebtednessand liens, stock repurchases, investments, guarantees, mergers, dispositionsand acquisitions, and a prohibition on the payment of any dividends.  The Senior Credit Facility also containscertain financial covenants, including: 

 

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1)a maximum consolidated total leverage ratio; 2) a minimum consolidated fixedcharge coverage ratio; 3) a minimum EBITDA; and 4) an asset coverage test.

 

Totalupfront and arrangement fees and related expenses for completing the SeniorCredit Facility in 2009 were approximately $3.5 million and are being amortizedover three years to interest expense.

 

At December 31, 2009, wehad outstanding borrowings of $97.5 million under the Senior CreditFacility.  We are required to be in compliance with the financialcovenants at the end of each calendar quarter, and we were in compliance withthese financial covenants as of December 31, 2009.

 

We estimated the fairvalue of the Senior Credit Facility by discounting expected future cash flowsusing estimated interest rate spreads currently available for a credit facilitywith similar terms and maturity to our existing outstanding borrowings.  At December 31, 2009, interest ratespreads are the same as when we entered into the Senior Credit Facility,therefore, the estimated fair value of our amounts outstanding under the SeniorCredit Facility are the same as the outstanding borrowings recorded in ourfinancial statements at the carrying value of $97.5 million.

 

*Bank Debt*—**Bank debt consisted of the following (*dollars in thousands)*:

 
| ** **                                                                                                                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                        | ** ** | **2008**              | ** ** | **2009** | ** ** |
| Revolving Credit Facility                                                                                                                         |       | $                     | 165,710    |   | $ | — |   |
| Senior Credit Facility                                                                                                                            |       | —                |       | 97,500 |   |
| Loan payable in monthly installments of $136  (including principal and interest), at a fixed interest rate of 7.11%,  maturing November 2009 |       | 1,442                 |       | — |   |
| Other                                                                                                                                             |       | 560                   |       | 697 |   |
| Total bank debt                                                                                                                                   |       | 167,712               |       | 98,197 |   |
| Less current portion                                                                                                                              |       | (2,002                | )          | (10,697 | ) |
| Long-term bank debt                                                                                                                               |       | $                     | 165,710    |   | $ | 87,500 |   |

 

*Maturities* — Maturitiesof long-term debt were determined to be as follows *(inthousands)*:

 
| ** ** | ** ** | **Amount Maturing** | ** ** |
|------------|------------|---------------------|------------|
| 2010       |       | $                   | 10,697     |   |
| 2011       |       | 10,000              |       |
| 2012       |       | 77,500              |       |
| ** ** |       | $                   | 98,197     |   |

 

**(9) FinancialInstruments**

 

Werecognize all derivative instruments as either assets or liabilities on ourbalance sheet at fair value.  Theaccounting for changes in the fair value (i.e., gains or losses) of aderivative instrument depends on whether it has been designated and qualifiesas part of a hedging relationship and further, on the type of hedgingrelationship.  All hedging instrumentsmust be designated, based on the exposure being hedged, as a fair value hedge,a cash flow hedge or a hedge of a net investment in a foreign operation.

 

CIBERis exposed to certain risks related to its ongoing business operations.  From time to time, CIBER may choose to usederivative instruments to manage certain risks related to foreign currencyexchange rates and interest rates.

 

Forderivative instruments that are designated and qualify as a cash flow hedge,the gain or loss on the effective hedge portion of the derivative instrument isreported as a component of “accumulated other comprehensive income (loss)” onthe Consolidated Balance Sheet and is reclassified into earnings in the sameperiod during which the hedged transaction affects earnings.  The gain or loss is classified in the samestatement of operations line item as the associated item being hedged.

 

Wehave entered into several interest rate swaps with financial institutions, forwhich we have elected hedge accounting and have designated them as cash flowhedges.  These interest rate swaps helpus manage our interest rate risk under our Senior Credit Facility by convertinga portion of our floating-rate debt to a fixed-rate basis, thus reducing theimpact of interest rate changes on future interest expense.  These agreements involve the receipt offloating-rate amounts in exchange for fixed-rate payments over the life of theagreements without any exchange of underlying principal amounts.  Interest is net settled monthly with thefinancial institution counterparties. The first interest rate swap, which matures on March 12, 2010, 

 

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effectivelyconverts $50.0 million of our borrowings under our Senior Credit Facility froma variable-rate instrument into a fixed-rate instrument at 1.26% plus ourcurrent credit margin of 3.25% at December 31, 2009, for a total rate of4.51%.  The second interest rate swap,which matures on March 31, 2012, effectively converts $25.0 million of ourborrowings under our Senior Credit Facility from a variable-rate instrumentinto a fixed-rate instrument at 1.77% plus our current credit margin of 3.25%at December 31, 2009, for a total rate of 5.02%.  At December 31, 2009, the estimatedunrealized loss on our interest rate swaps, net of taxes of $122,000, reflectedin “accumulated other comprehensive income” was approximately $198,000.  The liability for the unrealized loss on theswaps of $320,000 is presented with “other accrued expenses and liabilities” onthe Consolidated Balance Sheet and is expected to be recognized in earningsover the remaining terms of the swaps.

 

CIBER will also, from time to time, enter into foreign currency forwardcontracts related to customer agreements or intercompany transactionsdenominated in a foreign currency or related to certain forecasted foreignoperating results.  We have not electedhedge accounting for these derivatives. We had several of these instruments outstanding during 2009, with onlyone instrument remaining at December 31, 2009, none of which werematerial.

 

**(10) IncomeTaxes**

 

Income tax expense consists of the following:

 
|               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------|------------|----------------------------------|------------|
|               | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
|               | ** ** | **(In thousands)**               | ** ** |
| Current:           | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal            |       | $                                | 5,282      |   | $ | 1,520 |   | $ | (436 | ) |
| State and local    |       | 1,969                            |       | 1,016 |   | 380 |   |
| Foreign            |       | 3,792                            |       | 6,424 |   | 6,389 |   |
| ** **         |       | 11,043                           |       | 8,960 |   | 6,333 |   |
| Deferred:          | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Federal            |       | 662                              |       | 2,055 |   | 2,169 |   |
| State and local    |       | 105                              |       | 763 |   | 475 |   |
| Foreign            |       | 1,355                            |       | 302 |   | (1,182 | ) |
| ** **         |       | 2,122                            |       | 3,120 |   | 1,462 |   |
| Income tax expense |       | $                                | 13,165     |   | $ | 12,080 |   | $ | 7,795 |   |

 

U.S. and foreign income before income taxes are asfollows:

 
|                       |   | **Year Ended December 31,** |   |
|----------------------------|--------|----------------------------------|--------|
|                       |   | **2007**                         |   | **2008** |   | **2009** |   |
|                       |   | **(In thousands)**               |   |
| United States              |   | $                                | 23,057 |   | $ | 13,247 |   | $ | 3,790 |   |
| Foreign                    |   | 15,625                           |   | 26,646 |   | 19,121 |   |
| Income before income taxes |   | $                                | 38,682 |   | $ | 39,893 |   | $ | 22,911 |   |

 

Incometax expense differs from the amounts computed by applying the statutory U.S.Federal income tax rate to income before income taxes as a result of thefollowing:

 
| ** **                                               | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                               | ** ** | **(In thousands)**               | ** ** |
| Income tax expense at the federal statutory rate  of 35% |       | $                                | 13,539     |   | $ | 13,963 |   | $ | 8,019 |   |
| Increase (decrease) resulting from:                      | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** |
| State income taxes, net of federal income tax  benefit   |       | 1,310                            |       | 1,132 |   | 556 |   |
| Non-deductible other costs                               |       | 965                              |       | 1,282 |   | 1,232 |   |
| Federal research credit                                  |       | (1,684                           | )          | (1,586 | ) | (1,083 | ) |
| Impact of foreign taxes                                  |       | 226                              |       | (2,275 | ) | (1,485 | ) |
| Other                                                    |       | (1,191                           | )          | (436 | ) | 556 |   |
| Income tax expense                                       |       | $                                | 13,165     |   | $ | 12,080 |   | $ | 7,795 |   |

 

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Thecomponents of the net deferred tax asset or liability are as follows:

 
| ** **                                              | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------|------------|-----------------------|------------|
| ** **                                              | ** ** | **2008**              | ** ** | **2009** | ** ** |
| ** **                                              | ** ** | **(In thousands)**    | ** ** |
| Deferred tax assets:                                    | ** ** | ** **            | ** ** | ** ** | ** ** |
| Accrued expenses                                        |       | $                     | 5,092      |   | $ | 6,069 |   |
| Federal tax credit carryforwards                        |       | 7,168                 |       | 8,597 |   |
| U.S. net operating loss (“NOL”) carryforwards |       | 1,545                 |       | 1,346 |   |
| Foreign NOL carryforwards                               |       | 5,990                 |       | 7,753 |   |
| Other                                                   |       | 2,330                 |       | 2,799 |   |
| Total gross deferred tax assets                         |       | 22,125                |       | 26,564 |   |
| Less valuation allowance for foreign NOL  carryforwards |       | (5,990                | )          | (7,753 | ) |
| Deferred tax assets, net                                |       | 16,135                |       | 18,811 |   |
| Deferred tax liabilities:                               | ** ** | ** **            | ** ** | ** ** | ** ** |
| Intangible assets                                       |       | (43,204               | )          | (47,828 | ) |
| Other                                                   |       | (1,835                | )          | (1,157 | ) |
| Total gross deferred tax liabilities                    |       | (45,039               | )          | (48,985 | ) |
| Net deferred tax liability                              |       | $                     | (28,904    | ) | $ | (30,174 | ) |
|                                                    |       |                  |       |   |   |
| Balance sheet classification of deferred taxes:         | ** ** | ** **            | ** ** | ** ** | ** ** |
| Deferred tax asset — current                       |       | $                     | 4,883      |   | $ | 6,627 |   |
| Deferred tax asset — long-term                     |       | 705                   |       | — |   |
| Deferred tax liability — current                   |       | (204                  | )          | (315 | ) |
| Deferred tax liability — long-term                 |       | (34,288               | )          | (36,486 | ) |
| Net deferred tax liability                              |       | $                     | (28,904    | ) | $ | (30,174 | ) |

 

Based on our evaluation of current and anticipated future taxableincome, we believe sufficient taxable income will be generated to realize thenet deferred tax assets.

 

At December 31, 2009, we have approximately $4.0 million of NOLcarryforwards for U.S. Federal tax purposes resulting from acquisitions.  Annual usage of these U.S. NOL carryforwardsis limited under U.S. tax rules; however, they do not begin to expire until2022.  There is no valuation allowancefor U.S. NOL carryforwards as we expect to fully utilize them.  At December 31, 2009, we also haveapproximately $29.1****million offoreign NOL carryforwards of which approximately $6.7 million werepre-acquisition NOLs.  We have recorded avaluation allowance for 100% of the foreign NOL carryforwards, as we do notbelieve it is more likely than not that we will utilize them.  Less than 20% of the foreign NOLcarryforwards may expire.  In 2008, wereduced goodwill by $3.2 million as a result of the realization of tax benefitsfrom the usage of pre-acquisition foreign NOL carryforwards.  Any future year’s realized benefit from ourforeign NOL carryforwards will be recorded as a reduction of income taxexpense.

 

We do not provide for U.S. income taxes on the undistributed earningsof our foreign subsidiaries, as we consider these to be permanently reinvestedin the operations of such subsidiaries. At December 31, 2009, these undistributed earnings totaledapproximately $126.0 million.  If some ofthese earnings were distributed, some countries may impose withholdingtaxes.  In addition, as foreign taxeshave previously been paid on these earnings, we would expect to be entitled toa U.S. foreign tax credit that would reduce the U.S. taxes owed on such distribution.  As such, it is not practicable to determinethe net amount of the related unrecognized U.S. deferred tax liability.

 

We are routinely subject to examination by various domestic and foreigntax authorities.  The outcome of taxaudits is always uncertain and could result in cash tax payments that could bematerial.  Tax audits may take longperiods of time to ultimately resolve. We do not believe the outcome of any tax audit at December 31,2009, will have a material adverse effect on our consolidated financialposition or results of operations.

 

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Thechanges in the balance of our unrecognized tax benefits were as follows:

 
| ** **                                      | ** ** | **Unrecognized  Tax Benefits** | ** ** |
|-------------------------------------------------|------------|--------------------------------|------------|
| ** **                                      | ** ** | **(In thousands)**             | ** ** |
| **Balance at January 1, 2008**             |       | $                              | 2,985      |   |
| Increases related to current year tax positions |       | 680                            |       |
| Lapse of statute of limitations                 |       | (353                           | )          |
| **Balance at December 31,  2008**          |       | 3,312                          |       |
| Increases related to current year tax positions |       | 464                            |       |
| Lapse of statute of limitations                 |       | (210                           | )          |
| **Balance at December 31,  2009**          |       | $                              | 3,566      |   |

 

Most of ourunrecognized tax benefits would affect our effective tax rate ifrecognized.  Furthermore, we do notreasonably expect the total amounts of unrecognized tax benefits tosignificantly increase or decrease within the next 12 months.  We file a U.S. Federal income tax return andtax returns in nearly all U.S. states, as well as in numerous foreignjurisdictions.  We routinely have taxexaminations in process.  Currently, ourU.S. Federal income tax returns dating back to 2006 are open to possibleexamination.  Our most significantforeign operations are in the U.K., the Netherlands, Germany and Norway, wherewe are no longer subject to tax examination for years prior to 2008, 2004, 2007and 2000, respectively.

 

**(11) 401(k) SavingsPlan**

 

Almostall of our U.S. employees are eligible to participate in our 401(k) savingsplan.  We match a portion of theemployees’ contribution.  In 2009, theCompany’s match was reduced to a maximum of one and one-half percent of anemployee’s compensation, with a limit of $1,500 per calendar year, from amaximum of three percent of an employee’s contribution, with a $3,000 limit percalendar year in 2007 and 2008.  Vestingin CIBER’s matching contribution occurs over six years.  Forfeitures reduce our matchingcontributions.  We record forfeitureswhen a participant’s employment ends.  Werecorded expense of $3.3 million, $4.8 million and $1.4 million in 2007, 2008and 2009, respectively, related to this plan.

 

**(12) Shareholders’Equity**

 

*Share-Based Compensation*— On April 27, 2004, our shareholders approved the adoption of theCIBER, Inc. 2004 Incentive Plan (the “2004 Plan”).  To date, 10,000,000 shares of CIBER, Inc.common stock have been authorized for issuance under the 2004 Plan.  The plan administrators may grant restrictedstock, stock options, performance units or any combination thereof, toofficers, employees and consultants.  TheCompensation Committee of the Board of Directors determines the number, natureand vesting of such awards.  As of December 31,2009, there are approximately 2,902,000 shares available for future grantsunder the 2004 Plan.

 

The 2004 Plan also implements a formula stock optionplan for non-employee directors.  Underthe formula plan, each non-employee director will receive a non-statutoryoption to purchase 20,000 shares of common stock upon election to the Board ofDirectors and an option to purchase 5,000 shares of common stock on eachanniversary of election to the Board of Directors.  Effective until October 1, 2009, the2004 Plan further provided that non-employee directors would receive shares ofCIBER common stock as compensation for attending Board, Annual and committeemeetings, as well as for serving as committee chairpersons.  Subsequent to October 1, 2009,non-employee directors will instead receive cash payments for above-mentionedpurposes.  Compensation expense forgrants of common stock to non-employee directors was $224,000, $153,000 and$131,000 for the years ended December 31, 2007, 2008 and 2009,respectively, and is included in our total recorded share-based compensationcosts.

 

Thetable below summarizes the amounts recorded in the Consolidated Statement ofOperations for share-based compensation:

 
| ** **                                                                                            | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                            | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                                                                            | ** ** | **(In thousands)**               | ** ** |
| Total share-based compensation costs included in  consolidated net income                             |       | $                                | 2,607      |   | $ | 3,439 |   | $ | 3,763 |   |
| Estimated income tax benefit related to  share-based compensation included in consolidated net income |       | 646                              |       | 833 |   | 829 |   |
|                                                                                                       |            |                                  |            |  |  |  |  |  |  |  |

 

Optionsgranted under the 2004 Plan generally have an exercise price that is at leastequal to the market value of our common stock on the date of issuance.  Options currently being granted under the2004 Plan are subject to cliff or graded vesting or performance-basedconditions in combination with graded vesting. Graded vesting generally ranges from one to four years, 

 

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asdetermined at the date of grant by the Board of Directors, with the exceptionof some options granted to employees of our International division, which maybe fully vested on the grant date. Additionally, options granted under the 2004 Plan have contractual termsranging from four to 10 years, but all 2004 Plan options must expire no laterthan 10 years from the grant date. During 2009, all options granted had contractual terms of five years.

 

Thefair value of each option award is estimated on the date of grant using theBlack-Scholes option pricing method. Compensation costs related to options with graded vesting are recognizedon a straight-line basis over the vesting period.  The expected life for options with acontractual life of 10 years is derived from historical data pertaining tooption exercises and employee terminations. The expected life for options with a contractual life of less than 10years is derived using the SEC’s “simplified method,” as we did not havesufficient historical data pertaining to options with contractual lives of lessthan 10 years upon which to base an expected term assumption.  Expected volatilities are based on historicalvolatility of our common stock.  Therisk-free interest rate is derived from the U.S. Treasury yields in effect atthe time of grant and the dividend yield is based on historical experience andexpected future changes.  A summary ofthe weighted average assumptions used to value options granted and the grantdate fair value follows:

 
| ** **               | ** ** | **Year Ended December 31,** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| Expected life (in years) |       | 5.0                              |       | 3.4 |   | 3.4 |   |
| Risk-free interest rate  |       | 4.46                             | %          | 2.25 | % | 1.72 | % |
| Expected volatility      |       | 36                               | %          | 41 | % | 54 | % |
| Dividend yield           |       | 0                                | %          | 0 | % | 0 | % |
| Fair value               |       | $                                | 2.79       |   | $ | 1.81 |   | $ | 1.37 |   |
|                          |            |                                  |            |  |  |  |  |  |  |  |

 

A summary of stock option activity for 2009 is presented below:

 
| ** **                                                   | ** ** | **Number  of  Options**    | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Weighted  Average  Remaining  Contractual  Term  (In Years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|--------------------------------------------------------------|------------|----------------------------|------------|----------------------------------------|------------|-----------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                   | ** ** | **(Options in thousands)** | ** ** |
| **Outstanding at January 1,  2009**                     |       | 8,712                      |       | $                                      | 6.97       |                                                            |       |                            |       |   |
| Granted                                                      |       | 1,386                      |       | $                                      | 3.71       |                                                            |       |                            |       |   |
| Exercised                                                    |       | —                     |       | $                                      | —     |                                                            |       |                            |       |   |
| Expired or cancelled                                         |       | (425                       | )          | $                                      | 10.76      |                                                            |       |                            |       |   |
| Forfeited                                                    |       | (133                       | )          | $                                      | 5.83       |                                                            |       |                            |       |   |
| **Outstanding at  December 31, 2009**                   |       | 9,540                      |       | $                                      | 6.35       |                                                            | 3.8        |                            | $          | 868,692 |   |
| **Vested and expected to vest at****December 31, 2009** |       | 9,463                      |       | $                                      | 6.36       |                                                            | 3.8        |                            | $          | 846,777 |   |
| **Exercisable at  December 31, 2009**                   |       | 7,597                      |       | $                                      | 6.82       |                                                            | 3.7        |                            | $          | 128,794 |   |

 

The totalintrinsic value of options exercised (which is the amount by which the stockprice exceeded the exercise price of the options on the date of exercise)during the years ended December 31, 2007, 2008 and 2009, was approximately$963,000, $584,000 and $0, respectively.

 

Restrictedstock units (“RSUs”) currently being granted under the 2004 Plan are subject tothree-year graded vesting or performance-based conditions in combination withthree-year graded vesting, as determined at the date of grant by the Board ofDirectors.  The fair value of the RSUs,equivalent to the Company’s stock price at the date of grant, is expensed overthe vesting term.

 

Asummary of RSU activity for 2009 is presented below:

 
| ** **                                                  | ** ** | **Number  of  RSUs**    | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------------------|------------|-------------------------|------------|-----------------------------------------------|------------|
| ** **                                                  | ** ** | **(RSUs in thousands)** | ** ** |
| **Nonvested shares outstanding at  January 1, 2009**   |       | 174                     |       | $                                             | 4.91       |   |
| Granted                                                     |       | 354                     |       | $                                             | 3.16       |   |
| Vested                                                      |       | (89                     | )          | $                                             | 5.29       |   |
| Forfeited                                                   |       | (3                      | )          | $                                             | 6.00       |   |
| **Nonvested shares outstanding at  December 31, 2009** |       | 436                     |       | $                                             | 3.40       |   |

 

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The total fairvalue of RSUs vested during the year ended December 31, 2009, was$307,000.

 

As of December 31,2009, there was approximately $2.8 million of total unrecognized compensationcost related to the nonvested stock options and RSUs disclosed in the tablesabove.  That cost is expected to berecognized over a weighted average period of 1.7 years.

 

At December 31,2009, there were approximately 12,878,000 shares of CIBER common stock reservedfor share-based awards outstanding and available future grants under ourshare-based plans.

 

Our Employee Stock Purchase Plan (“ESPP”), which is a non-qualifiedplan, allows eligible employees to purchase shares of our common stock at aprice equal to 85% of the lesser of the fair market value on the first or lastday of the applicable offering period, which is equal to three months.  Under this plan, substantially all employeesmay elect to contribute up to $6,000 of their compensation during one calendaryear.  In 2007, 2008 and 2009, we issuedapproximately 354,000, 475,000 and 1,030,000 shares, respectively, under ourESPP and the related compensation cost recorded was approximately $531,000 for2007, $740,000 for 2008 and $900,000 for 2009.

 

*Sale ofCommon Stock*—**During theyear ended December 31, 2009, we sold nine million shares of our commonstock, for proceeds of $23.2 million, net of issuance costs, which were used torepay a portion of the outstanding borrowings under our then-outstanding seniorsecured reducing revolving credit facility.

 

*RepurchaseProgram*****— CIBER has had a common stock share repurchaseprogram since 1999 that has been amended from time to time by our Board ofDirectors to increase the authorized shares available for repurchase.  Under the most recent authorization in October 2009,the Board approved an additional $5 million for future repurchases of ourcommon stock.  Under the program in 2009,we repurchased approximately 1,445,000 shares of common stock at a cost of $5.0million.  At December 31, 2009,there was approximately $5.5 million remaining for future repurchases underthis program.

 

*Shelf Registration Statements on Form S-4* — At December 31,2009, we have two effective registration statements on Form S-4, underwhich together approximately 13,469,000 shares of our common stock remainavailable.  The shares available undereither one of these registration statements may be used by CIBER from time totime in connection with future business combinations.

 

*Shelf Registration Statement on Form S-3* — At December 31, 2009, we have aneffective registration statement on Form S-3, under which up to $100 million ofdebt securities, shares of our common stock, shares of our preferred stock andwarrants may be sold in the future.  Thisregistration statement enables us to raise funds from the offering of suchinstruments described above from time to time, subject to market conditions andour capital needs.

 

*StockPurchase Rights* — Pursuant to our Rights Agreement, dated August 31,1998, CIBER, Inc. paid a dividend of one preferred stock purchase right (a“Right”) for each outstanding share of CIBER, Inc. common stock (“CommonStock”) on September 21, 1998.  ARight is also attached to all shares of Common Stock issued after the dividenddate.  On May 2, 2008, we amendedand restated our original Rights Agreement. Under the Amended Rights Agreement, each shareholder of the Companyholds one Right for each share of Common Stock held.  The Rights generally become exercisable onlyin the event that an acquiring party accumulates 15% or more of our outstandingCommon Stock.  Each Right entitles theregistered holder to purchase one one-thousandth of a share of Series AJunior Participating Preferred Stock of CIBER, Inc., par value $0.01, at apurchase price of thirty-seven dollars, subject to the conditions set forth inthe Amended Rights Agreement.  If thiswere to occur, subject to certain exceptions, each Right (except for the Rightsheld by the acquiring party) would allow its holder to purchase Common Stockwith a value equal to twice the exercise price of the Right.  In the event that, after an acquiring partyhas accumulated 15% or more of our outstanding Common Stock, the Company isacquired in a merger or other business combination transaction or 50% or moreof its consolidated assets, cash flow or earning power are sold, eachunexercised Right (except for the Rights held by the acquiring party) wouldthereafter allow its holder to purchase stock of the acquiring company (or ourCommon Stock if it is the surviving company to the transaction) with a valueequal to twice the purchase price of the Right. If the Rights were fully exercised, the shares issued would causesubstantial dilution to the acquiring party or the shareholders of theacquiring company.  The Amended RightsAgreement provides a period of time during which we may redeem the Rights, inwhole or in part at a price of $0.001 per Right, such that this period will endon the earlier of (i) the tenth business day following the date a personor group becomes the beneficial owner of 15% or more of the Common Stock or (ii) thefinal expiration date of the Rights, which is May 2, 2018.

* *

*ComprehensiveIncome (Loss)*— Comprehensive income (loss) includes changes inthe balances of items that are reported directly as separate components ofshareholders’ equity.  Comprehensiveincome (loss) includes net income plus changes in cumulative foreign currencytranslation adjustment and gains or losses on foreign subsidiary net investmenthedges, net of taxes.

 

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The components of comprehensive income (loss)were as follows:

 
| ** **                                                  | ** ** | **Year Ended December 31,** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                  | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                                  | ** ** | **(In thousands)**               | ** ** |
| Comprehensive  income (loss):                               |       |                             |       |   |   |   |   |
| Consolidated  net income                                    |       | $                                | 25,517     |   | $ | 27,813 |   | $ | 15,116 |   |
| Gain  (loss) on hedging activity, net of tax                |       | (3,140                           | )          | 89 |   | (198 | ) |
| Foreign  currency translation adjustments                   |       | 18,224                           |       | (31,938 | ) | 13,397 |   |
| Comprehensive  income (loss)                                |       | 40,601                           |       | (4,036 | ) | 28,315 |   |
| Less:  Comprehensive income — noncontrolling interests |       | 1,423                            |       | 646 |   | 181 |   |
| Comprehensive  income (loss) — CIBER, Inc.        |       | $                                | 39,178     |   | $ | (4,682 | ) | $ | 28,134 |   |

 

The balance of accumulated other comprehensive income(loss) reflected on the Consolidated Balance Sheets was comprised of thefollowing:

 
| ** **                                                 | ** ** | **Accumulated Other Comprehensive Income (Loss)** | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                 | ** ** | **Foreign  Currency  Translation**                | ** ** | **Hedge Gain  (Loss)** | ** ** | **Total** | ** ** |
| ** **                                                 | ** ** | **(In thousands)**                                | ** ** |
| **Balance at January 1, 2008**                        |       | $                                                 | 33,325     |   | $ | (2,742 | ) | $ | 30,583 |   |
| Change in foreign currency translation                     |       | (31,655                                           | )          | — |   | (31,655 | ) |
| Change in fair value of net investment hedges, net  of tax |       | —                                            |       | 89 |   | 89 |   |
| Settlement of net investment hedges                        |       | (2,653                                            | )          | 2,653 |   | — |   |
| **Balance at December 31,  2008**                     |       | (983                                              | )          | — |   | (983 | ) |
| Change in foreign currency translation                     |       | 13,374                                            |       | — |   | 13,374 |   |
| Change in fair value of cash flow hedges, net of  tax      |       | —                                            |       | (198 | ) | (198 | ) |
| **Balance at December 31,  2009**                     |       | $                                                 | 12,391     |   | $ | (198 | ) | $ | 12,193 |   |

 

In 2009, we had a loss of $479,000 on our interestrate swaps (cash flow hedges) that was reclassified to interest expense.

 

**(13) Segment Information**

 

Ourreportable segments are our operating divisions, which are organized internallyprimarily by the nature of their services, client base and geography.  In 2009, we made several changes to ourdivisions.  All prior year segment datahas been adjusted to conform to the 2009 presentation.  Our divisions now consist of ourInternational division (formerly Europe), which includes Europe, Eastern Asia,Australia and New Zealand, and our Custom Solutions, IT Outsourcing, Federaland U.S. ERP (formerly Enterprise Solutions) divisions.  Our International division provides a broadrange of IT consulting services, including package software implementation,application development, systems integration and support services.  Our Custom Solutions and Federal divisionsprovide IT services and products in custom-developed software environments.  Our India-based operations are consideredpart of our Custom Solutions division.  Our IT Outsourcing division offers aset of solutions that span the entire spectrum of IT infrastructure and IToperations services.  Our U.S. ERPdivision primarily provides enterprise software implementation services,including ERP software from software vendors such as Oracle, SAP and Lawson forU.S. customers.

 

Weevaluate our divisions’ results of operations based on operating income beforeamortization of intangible assets.  Theaccounting policies of our divisions are the same as those disclosed in theSummary of Significant Accounting Policies in Note 1, except for share-basedcompensation.  Share-based compensationis not charged to operating divisions, but rather is recorded as part ofcorporate expenses.  We do not accountfor, or report to, our chief executive officer any information on assets orcapital expenditures by division as such information is only prepared on aconsolidated basis.

 

Ourlargest client is the various agencies of the U.S. federal government, whichaccounted for approximately 12%, 11% and 11% of our total revenue in 2007, 2008and 2009, respectively.  No other clientaccounted for more than 5% of our total revenue in 2009.  Most of our divisions had revenue from asingle client that equaled or exceeded 10% of their division’s totalrevenue.  These clients accounted for thefollowing percentages of each division’s 2009 total revenues: Custom Solutions- 12%; IT Outsourcing - 20%; Federal - 100%; and U.S. ERP - 10%.

 

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Thefollowing presents financial information about our reporting segments:

 
| ** **                         | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                         | ** ** | **(In thousands)**               | ** ** |
| Total revenue:                     |       |                             |       |   |   |   |   |
| Custom Solutions                   |       | $                                | 450,679    |   | $ | 466,208 |   | $ | 372,168 |   |
| International                      |       | 315,202                          |       | 406,071 |   | 349,834 |   |
| IT Outsourcing                     |       | 61,521                           |       | 72,453 |   | 76,341 |   |
| Federal                            |       | 137,268                          |       | 127,391 |   | 117,613 |   |
| U.S. ERP                           |       | 119,670                          |       | 122,163 |   | 126,443 |   |
| Corporate/Inter-segment            |       | (2,365                           | )          | (2,719 | ) | (4,699 | ) |
| Total revenue                      |       | $                                | 1,081,975  |   | $ | 1,191,567 |   | $ | 1,037,700 |   |
|                               |       |                             |       |   |   |   |   |
| Income from operations:            |       |                             |       |   |   |   |   |
| Custom Solutions                   |       | $                                | 39,072     |   | $ | 45,170 |   | $ | 24,125 |   |
| International                      |       | 19,140                           |       | 30,795 |   | 20,107 |   |
| IT Outsourcing                     |       | 2,610                            |       | (244 | ) | (1,823 | ) |
| Federal                            |       | 11,031                           |       | 8,682 |   | 5,994 |   |
| U.S. ERP                           |       | 11,370                           |       | 1,196 |   | 9,764 |   |
| Corporate expenses                 |       | (22,883                          | )          | (25,387 | ) | (24,517 | ) |
| Total                              |       | 60,340                           |       | 60,212 |   | 33,650 |   |
| Amortization of intangibles        |       | (5,820                           | )          | (6,274 | ) | (5,891 | ) |
| Operating income                   |       | $                                | 54,520     |   | $ | 53,938 |   | $ | 27,759 |   |
|                               |       |                             |       |   |   |   |   |
| Other information:                 |       |                             |       |   |   |   |   |
| Total foreign revenue(1)           |       | $                                | 331,078    |   | $ | 429,843 |   | $ | 363,192 |   |
| Total foreign long-lived assets(2) |       | 177,284                          |       | 151,874 |   | 157,809 |   |

 

----

(1) Representssales to all foreign clients based on client locations.

 

(2) This balance includes $162.2 million, $138.1 millionand $142.8 million of goodwill and other intangible assets as of December 31,2007, 2008 and 2009, respectively.

 

**(14) Supplemental Statement of Cash Flow Information**

 

Supplemental statement of cash flow information is as follows:

 
| ** **                                           | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **2007**                         | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                                           | ** ** | **(In thousands)**               | ** ** |
| Acquisitions:                                        |       |                             |       |   |   |   |   |
| Fair value of assets recorded, excluding cash        |       | $                                | 27,482     |   | $ | 8,315 |   | $ | 5,279 |   |
| Liabilities recorded                                 |       | (4,554                           | )          | (1,385 | ) | (949 | ) |
| Noncontrolling interest reduction                    |       | 381                              |       | 860 |   | — |   |
| Common stock and options issued                      |       | (967                             | )          | — |   | — |   |
| Cash paid for acquisitions, net of cash acquired     |       | $                                | 22,342     |   | $ | 7,790 |   | $ | 4,330 |   |
|                                                 |       |                             |       |   |   |   |   |
| Noncash investing and financing activities:          |       |                             |       |   |   |   |   |
| Value of shares and options issued for  acquisitions |       | $                                | 967        |   | $ | — |   | $ | — |   |
| Cash paid for interest                               |       | 7,964                            |       | 10,241 |   | 5,673 |   |
| Cash paid for income taxes, net                      |       | 9,922                            |       | 8,966 |   | 1,419 |   |

 

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**(15) Selected Quarterly Financial Information (Unaudited)**

 
| ** **                                                      | ** ** | **First  Quarter**                           | ** ** | **Second  Quarter** | ** ** | **Third  Quarter** | ** ** | **Fourth  Quarter** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------|------------|---------------------|------------|--------------------|------------|---------------------|------------|-----------|------------|
| ** **                                                      | ** ** | **(In thousands, except per share amounts)** | ** ** |
| **Year ended December 31,  2008**                          |       |                                         |       |                |       |               |       |                |       |      |       |
| Revenue                                                         |       | $                                            | 294,464    |                | $          | 317,579            |       | $                   | 299,966    |      | $          | 279,558 |   | $ | 1,191,567 |   |
| Gross profit                                                    |       | 80,965                                       |       | 87,102              |       | 82,281             |       | 74,132              |       | 324,480   |       |
| Operating income                                                |       | 14,903                                       |       | 17,409              |       | 13,213             |       | 8,413               |       | 53,938    |       |
| Consolidated net income                                         |       | 6,283                                        |       | 8,456               |       | 7,432              |       | 5,642               |       | 27,813    |       |
| Net income — CIBER, Inc.                              |       | 5,927                                        |       | 8,185               |       | 7,235              |       | 5,537               |       | 26,884    |       |
| Net income per share — CIBER, Inc. basic and  diluted |       | 0.10                                         |       | 0.14                |       | 0.12               |       | 0.09                |       | 0.45      |       |
|                                                            |       |                                         |       |                |       |               |       |                |       |      |       |
| **Year ended December 31,  2009**                          |       |                                         |       |                |       |               |       |                |       |      |       |
| Revenue                                                         |       | $                                            | 258,475    |                | $          | 260,604            |       | $                   | 256,367    |      | $          | 262,254 |   | $ | 1,037,700 |   |
| Gross profit                                                    |       | 64,882                                       |       | 65,929              |       | 64,957             |       | 63,525              |       | 259,293   |       |
| Operating income                                                |       | 7,016                                        |       | 7,468               |       | 7,034              |       | 6,241               |       | 27,759    |       |
| Consolidated net income                                         |       | 4,297                                        |       | 4,709               |       | 3,559              |       | 2,551               |       | 15,116    |       |
| Net income — CIBER, Inc.                              |       | 4,265                                        |       | 4,656               |       | 3,505              |       | 2,532               |       | 14,958    |       |
| Net income per share — CIBER, Inc. basic and  diluted |       | 0.07                                         |       | 0.07                |       | 0.05               |       | 0.04                |       | 0.22      |       |

 

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# **Item9.        Changes in and Disagreementswith Accountants on Accounting and Financial Disclosure**

 

Notapplicable.

 

**Item 9A.     Controls and Procedures**

 

**Evaluationof Disclosure Controls and Procedures -** During the fiscal period covered by this report, ourmanagement, with the participation of our Chief Executive Officer and ChiefFinancial Officer, carried out an evaluation of the effectiveness of the designand operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and15d-15(e) of the Exchange Act. Based upon this evaluation, our principal executive officer andprincipal financial officer have concluded that, as of the end of the periodcovered by this report, our disclosure controls and procedures were effectiveto ensure that information required to be disclosed by us in reports we file orsubmit under the Exchange Act is (1) recorded, processed, summarized andreported within the time periods specified in Securities and ExchangeCommission rules and forms, and (2) accumulated and communicated toour management, including our Chief Executive Officer and Chief FinancialOfficer, to allow timely decisions regarding required disclosure.

 

**Management’s Report on Internal Control OverFinancial Reporting** - Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  CIBER’s internal control systems weredesigned to provide reasonable assurance to the Company’s management and Boardof Directors regarding the preparation and fair presentation of publishedfinancial statements.  All internalcontrol systems, no matter how well designed, have inherent limitations.  Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined tobe effective can provide only reasonable assurance with respect to financialstatement preparation and presentation. Also, projections of any evaluation of effectiveness to future periodsare subject to the risk that controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

 

Underthe supervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of the effectiveness of our internal control over financialreporting as of December 31, 2009, based on the framework in InternalControl - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control -Integrated Framework, our management concluded that our internal control overfinancial reporting was effective as of December 31, 2009.

 

Theattestation report on our internal control over financial reporting as of December 31,2009, issued by Ernst & Young LLP, the independent registered publicaccounting firm who also audited our consolidated financial statements, isincluded following this Item 8A.

 

**Changesin Internal Controls -**The Company recently completed the development and installation ofmajor modifications to the SAP Enterprise Resource Planning (“ERP”) system andrelated changes to internal controls for the International division of theCompany.  We have updated the Company’sinternal controls over financial reporting as necessary to accommodate thesemodifications to business processes or accounting procedures.

 

Other than thematters noted above, there were no changes in our internal control overfinancial reporting that occurred during our most recently completed fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, our internal control over financial reporting.

 

We continue tomonitor the effectiveness of our internal controls and make necessarymodifications to our processes and testing as appropriate on an on-going basis.

 

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** **

**Report of IndependentRegistered Public Accounting Firm**

** **

**The Board of Directors and Shareholders of**CIBER, Inc.

** **

We have audited CIBER, Inc.’sinternal control over financial reporting as of December 31, 2009, basedon criteria established in InternalControl—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria).  CIBER, Inc.’s management is responsiblefor maintaining effective internal control over financial reporting, and forits assessment of the effectiveness of internal control over financialreporting included in the accompanying Management’s Report on Internal Controlover Financial Reporting.  Ourresponsibility is to express an opinion on the company’s internal control overfinancial reporting based on our audit.

 

We conducted our audit in accordance withthe standards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  Our audit includedobtaining an understanding of internal control over financial reporting, assessingthe risk that a material weakness exists, testing and evaluating the design andoperating effectiveness of internal control based on the assessed risk, andperforming such other procedures as we considered necessary in thecircumstances.  We believe that our auditprovides a reasonable basis for our opinion.

 

A company’s internal control overfinancial reporting is a process designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generallyaccepted accounting principles.  Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements.  Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

Inour opinion, CIBER, Inc. maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2009, basedon****the COSO criteria**.**

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheets ofCIBER, Inc. as of December 31, 2008 and 2009, and the relatedconsolidated statements of operations, shareholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2009 and ourreport dated March 4, 2010 expressed an unqualified opinion thereon.

 
|               | /s/  Ernst & Young LLP |
|--------------------|---------------------------------|
|               |                            |
| Denver, Colorado   |                            |
| March 4, 2010 |                            |

 

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**Item 9B.     OtherInformation**

 

None

 

**Part III**

** **

The information requiredby Part III is omitted from this Report on Form 10-K because theRegistrant will file a definitive proxy statement for its 2010 Annual Meetingof Shareholders scheduled for May 11, 2010 (the “2010 Proxy Statement”),within 120 days after December 31, 2009, and certain information includedtherein is incorporated herein by reference.

 

# **Item10.     Directors, Executive Officers andCorporate Governance**

 

*Corporate Governance Matters*

 

We have a Code ofBusiness Conduct and Ethics (the “Code”) that applies to our principalexecutive officer, principal financial officer, principal accounting officer,or persons performing similar functions. The code can be found on our website at http://www.ciber.com.  We also have Corporate Governance Guidelinesand charters for the Audit, Compensation and Nominating/Corporate GovernanceCommittees of our Board of Directors. These Guidelines and Charters can also be found on our website.  Any amendments or waivers to our Code will bedisclosed as necessary on our website. Additionally, copies of our Code and Corporate Governance Guidelines, aswell as the Charters for the various Committees of the Board of Directors areavailable in print, free of charge, to any shareholder that requests them.

 

As required by Section 303A.12(a) ofthe Listed Company Manual of the New York Stock Exchange (“NYSE”), the Companyhas filed with the NYSE the chief executive officer’s annual certificationregarding compliance with the NYSE’s corporate governance listingstandards.  Additionally, the Company’schief executive officer and chief financial officer certifications required by Section 302of the Sarbanes-Oxley Act are included as Exhibits  31.1 and 31.2 in this Annual Report on Form 10-K.

 

The additionalinformation required by this item is incorporated by reference from thesections captioned “Directors and Executive Officers,” “Section 16(a) BeneficialOwnership Reporting Compliance” and “Corporate Governance Practices” in CIBER’s2010 Proxy Statement.

 

# **Item11.     Executive Compensation**

 

The information requiredby this item is incorporated by reference from the sections captioned “ExecutiveCompensation” and “Corporate Governance Practices” in CIBER’s 2010 ProxyStatement.

 

**Item 12.****               ****Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters**

 

*Securities Authorized forIssuance under Equity Compensation Plans*

 

The following tableprovides information as of December 31, 2009, regarding compensation plansunder which our equity securities are authorized for issuance.

 
| ** **                                                               | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans (****1)** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans/arrangements approved by  shareholders         |       | 9,889,462                                                                                          | (2)        | $                                                                                  | 6.32       |                                                                                                         | 4,875,990  | (3) |
| Equity compensation plans/arrangements not  approved by shareholders (4) |       | 86,849                                                                                             |       | $                                                                                  | 9.57       | ** **                                                                                                   | **—** | ** ** |
| Total                                                                    |       | 9,976,311                                                                                          |       |                                                                               |       | 4,875,990                                                                                                    |       |

 

----

| (1) |   | Excludes  securities reflected in 1st column.                                                                                                                                                                                 |
|-----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Consists  of 9,453,445 stock options with a weighted average exercise price of $6.32  and 436,017 restricted stock units.                                                                                                          |
| (3) |   | Includes  2,901,953 shares remaining available for future grants at December 31,  2009, under our 2004 Incentive Plan, plus 1,974,037 shares available for  future sales to employees under our Employee Stock Purchase Plan. |
| (4) |   | Represents  shares issued under the SCB Employee Inducement Award Plan.                                                                                                                                                            |

 

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Theadditional information required by this item is incorporated by reference fromthe section captioned “Security Ownership of Certain Beneficial Owners andManagement” in CIBER’s 2010 Proxy Statement.

 

# **Item 13.     CertainRelationships and Related Transactions, and Director Independence**

# ** **

Theinformation required by this item is incorporated by reference from the sectioncaptioned “Certain Relationships and Related Party Transactions” and “CorporateGovernance Practices” in CIBER’s 2010 Proxy Statement.

 

# **Item 14.     Principal AccountantFees and Services**

# ** **

Theinformation required by this item is incorporated by reference from the sectioncaptioned “Independent Registered Public Accounting Firm” in CIBER’s 2010 ProxyStatement.

 

# **Part IV**

# ** **

# **Item 15.     Exhibitsand Financial Statement Schedules**

 
| (a)    | (1)    | Financial  Statements                                                                                                                                                                                         |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                          |
|   |   | The  following financial statements are filed as part of this report:                                                                                                                                         |
|   |   |                                                                                                                                                                                                          |
|   |   | Report  of Independent Registered Public Accounting Firm                                                                                                                                                      |
|   |   | Consolidated  Statements of Operations — Years Ended December 31, 2007, 2008 and 2009                                                                                                               |
|   |   | Consolidated  Balance Sheets — December 31, 2008 and 2009                                                                                                                                           |
|   |   | Consolidated  Statements of Shareholders’ Equity — Years Ended December 31, 2007, 2008  and 2009                                                                                               |
|   |   | Consolidated  Statements of Cash Flows — Years Ended December 31, 2007, 2008 and 2009                                                                                                               |
|   |   | Notes  to Consolidated Financial Statements                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                          |
|   | (2)    | Financial  Statement Schedules                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                          |
|   |   | All  schedules are omitted, either because they are not applicable or because the  required information is shown in the consolidated financial statements or  notes thereto.                                  |
|   |   |                                                                                                                                                                                                          |
|   | (3)    | Exhibits                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                          |
|   |   | The  Exhibits filed as part of this Annual Report on Form 10-K are listed on  the Exhibit Index immediately preceding such Exhibits, which  Exhibit Index is incorporated herein by reference. |

 

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# **SIGNATURES**

# ** **

Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, as amended, the Registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                     | **CIBER, Inc.** |
|--------------------------|----------------------|
|                     |                 |   |
| Date: March 4, 2010 | By:                  | /s/  Mac J. Slingerlend |
|                     |                 | Mac  J. Slingerlend |
| * *                 | * *             | *Chief  Executive Officer, President and Secretary* |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant and in thecapacities and on the dates indicated.

 
| **Signature**               | ** ** | **Title**                                | ** ** | **Date**            |
|-----------------------------|------------|------------------------------------------|------------|---------------------|
|                        |       |                                     |       |                |
| /s/ BOBBY G. STEVENSON      |       | Chairman  of the Board and Founder       |       | March 4,  2010 |
| Bobby G. Stevenson          |       |                                     |       |                |
|                        |       |                                     |       |                |
| /s/ MAC J. SLINGERLEND      |       | Chief  Executive Officer, President,     |       | March 4,  2010 |
| Mac J. Slingerlend          |       | Secretary  and Director                  |       |                |
|                        |       | (Principal  Executive Officer)           |       |                |
|                        |       |                                     |       |                |
| /s/ PETER H. CHEESBROUGH    |       | Chief  Financial Officer, Executive Vice |       | March 4,  2010 |
| Peter H. Cheesbrough        |       | President,  Treasurer and Director       |       |                |
|                        |       | (Principal  Financial Officer)           |       |                |
|                        |       |                                     |       |                |
| /s/ CHRISTOPHER L. LOFFREDO |       | Vice  President/Chief Accounting Officer |       | March 4,  2010 |
| Christopher L. Loffredo     |       | (Principal  Accounting Officer)          |       |                |
|                        |       |                                     |       |                |
| /s/ PAUL A. JACOBS          |       | Director                                 |       | March 4,  2010 |
| Paul A. Jacobs              |       |                                     |       |                |
|                        |       |                                     |       |                |
| /s/ STEPHEN S. KURTZ        |       | Director                                 |       | March 4,  2010 |
| Stephen S. Kurtz            |       |                                     |       |                |
|                        |       |                                     |       |                |
| /s/ ARCHIBALD J. MCGILL     |       | Director                                 |       | March 4,  2010 |
| Archibald J. McGill         |       |                                     |       |                |
|                        |       |                                     |       |                |
| /s/ JAMES C. SPIRA          |       | Director                                 |       | March 4,  2010 |
| James C. Spira              |       |                                     |       |                |
|                        |       |                                     |       |                |
| /s/ JAMES C. WETHERBE       |       | Director                                 |       | March 4,  2010 |
| James C. Wetherbe           |       |                                     |       |                |

 

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**EXHIBIT INDEX**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                       | ** ** | **Incorporated by Reference** |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|
| **Number**  | ** ** | **Exhibit Description**                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **Form**                      | ** ** | **File No.** | ** ** | **Date  Filed** |
| 3.1         |       | Restated  Certificate of Incorporation of CIBER, Inc.                                                                                                                                                                                                                                                                                                                                       |       | 10-Q                          |   | 001-13103 |   | 11/7/2005 |
| 3.2         |       | Amended and Restated  Bylaws of CIBER, Inc., as adopted February 15, 2001; Amendment to  the Amended and Restated Bylaws of CIBER, Inc., as adopted  February 18, 2003; Amendment to the Amended and Restated Bylaws of  CIBER, Inc., as adopted May 3, 2005; Amendment to the Amended and  Restated Bylaws of CIBER, Inc., as adopted February 25, 2009 |       | 10-K                          |   | 001-13103 |   | 3/5/2009 |
| 4.1         |       | Form of  Common Stock Certificate                                                                                                                                                                                                                                                                                                                                                           |       | S-1                           |   | 33-74774 |   | 2/2/1994 |
| 4.2         |       | First Amended and  Restated Rights Agreement, dated as of May 2, 2008, between  CIBER, Inc. and Wells Fargo Bank, National Association.                                                                                                                                                                                                                                                |       | 8-A/A                         |   | 001-13103 |   | 5/2/2008 |
| 10.1*       |       | 1989  CIBER, Inc. Employee Stock Option Plan                                                                                                                                                                                                                                                                                                                                                |       | S-1                           |   | 33-74774 |   | 2/2/1994 |
| 10.2*       |       | Form of  CIBER, Inc. Non-Employee Directors’ Stock Option Plan                                                                                                                                                                                                                                                                                                                    |       | S-1                           |   | 33-74774 |   | 2/2/1994 |
| 10.3*       |       | CIBER, Inc.  Equity Incentive Plan, amended and restated as of February 15, 2001                                                                                                                                                                                                                                                                                                       |       | 10-Q                          |   | 001-13103 |   | 5/7/2001 |
| 10.4*       |       | CIBER, Inc.  Non-Employee Directors’ Stock Compensation Plan (as amended  July 1, 1997)                                                                                                                                                                                                                                                                                      |       | 10-K                          |   | 001-13103 |   | 9/24/1998 |
| 10.5*       |       | Employment  Agreement with Mac J. Slingerlend dated March 30, 2005                                                                                                                                                                                                                                                                                                                          |       | 8-K                           |   | 001-13103 |   | 4/1/2005 |
| 10.6*       |       | Form of  Change of Control Agreement adopted as of February 18, 2003                                                                                                                                                                                                                                                                                                                   |       | 10-K                          |   | 001-13103 |   | 3/27/2003 |
| 10.7*       |       | Form of  Indemnification Agreement adopted as of February 18, 2003                                                                                                                                                                                                                                                                                                                     |       | 10-K                          |   | 001-13103 |   | 3/27/2003 |
| 10.8*       |       | CIBER, Inc.  SCB Employment Inducement Award Plan, effective March 1, 2004                                                                                                                                                                                                                                                                                                             |       | S-8                           |   | 333-113259 |   | 3/3/2004 |
| 10.9*       |       | CIBER, Inc. 2004  Incentive Plan, as amended April 29, 2008                                                                                                                                                                                                                                                                                                                            |       | 8-K                           |   | 001-13103 |   | 5/5/2008 |
| 10.10*      |       | Fourth  revision to the CIBER, Inc. Salary Continuation Retirement Plan for Mac  J. Slingerlend dated as of March 30, 2005                                                                                                                                                                                                                                                             |       | 8-K                           |   | 001-13103 |   | 4/1/2005 |
| 10.11*      |       | Employment  agreement with Terje Laugerud dated January 1, 2003                                                                                                                                                                                                                                                                                                                             |       | 10-K                          |   | 001-13103 |   | 3/14/2005 |
| 10.12*      |       | Employment  agreement with Marcia M. Kim dated April 23, 2007                                                                                                                                                                                                                                                                                                                               |       | 10-Q                          |   | 001-13103 |   | 5/7/2007 |
| 10.13*      |       | Employment  agreement with Peter Cheesbrough dated October 31, 2007                                                                                                                                                                                                                                                                                                                         |       | 8-K/A                         |   | 001-13103 |   | 11/2/2007 |
| 10.14*      |       | CIBER, Inc.  Employee Stock Purchase Plan, as amended and restated May 4, 2009                                                                                                                                                                                                                                                                                                         |       | S-8                           |   | 333-159635 |   | 6/1/2009 |
| 10.15       |       | Amended and Restated  Credit Agreement, by and among CIBER, Inc., as borrower, Bank of  America, N.A., as administrative agent, swing line lender and L/C issuer, and  the other lender parties thereto, dated August 20, 2009                                                                                                                                                         |       | 8-K                           |   | 001-13103 |   | 8/20/2009 |
| 10.16       |       | Security and Pledge  Agreement, by and among CIBER, Inc. and certain subsidiaries of  CIBER, Inc., in favor of Bank of America, N.A., in its capacity as  administrative agent, dated August 20, 2009                                                                                                                                                                             |       | 8-K                           |   | 001-13103 |   | 8/20/2009 |
| 10.17       |       | First Amendment to  Amended and Restated Credit Agreement, by and among CIBER, Inc., as  borrower, Bank of America, N.A., as administrative agent, swing line lender  and L/C issuer, and the other lender parties thereto, dated February 18,  2010                                                                                                                                   |       | 8-K                           |   | 001-13103 |   | 2/22/2010 |
| 21.1        |       | List  of Subsidiaries of CIBER, Inc.                                                                                                                                                                                                                                                                                                                                                        |       |                          |   | Filed herewith |   |   |
| 23.1        |       | Consent  of Ernst & Young, LLP                                                                                                                                                                                                                                                                                                                                                          |       |                          |   | Filed herewith |   |   |
| 31.1        |       | Certification  of Principal Executive Officer Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                    |       |                          |   | Filed herewith |   |   |
| 31.2        |       | Certification  of Principal Financial Officer Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                    |       |                          |   | Filed herewith |   |   |
| 32.1        |       | Principal  Executive Officer Certification Pursuant to Section 906 of                                                                                                                                                                                                                                                                                                                       |       |                          |   | Furnished |   |   |
|        |       | the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                  |       |                          |   |   |   |   |
| 32.2        |       | Principal  Financial Officer Certification Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                       |       |                          |   | Furnished |   |   |

 

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*                             Indicates amanagement contract or compensatory plan or arrangement.

 

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