The following discussion and analysis should be read in conjunction with our Unaudited Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q and our Audited Consolidated Financial Statements and related Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, and with the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2008. References to "we," "our," "us" or "CIBER" in this Quarterly Report on Form 10-Q refer to CIBER, Inc. and its subsidiaries.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our operations, results of operations and other matters that are based on our current expectations, estimates, forecasts and projections. Words, such as "anticipate," "believe," "could," "expect," "estimate," "intend," "may," "opportunity," "plan," "potential," "project," "should," and "will" and similar expressions, are intended to identify forward-looking statements. For example, we make certain forward-looking statements regarding our current estimates for revenue and profitability for certain of our business units for 2009. These statements are not guarantees and involve risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and results may differ materially from such forward-looking statements due to a number of factors, including without limitation, the factors set forth in our Annual Report on Form 10-K under the caption "Item 1A. Risk Factors." Forward-looking statements are not guarantees of performance and speak only as of the date they are made, and we undertake no obligation to publicly update any forward-looking statements in light of new information or future events. Undue reliance should not be placed on such forward-looking statements.

Business Overview

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

Our reportable segments are our operating divisions, which are organized internally primarily by the nature of their services, client base and geography. In 2009, we have combined our Commercial and State & Local Government operating divisions into one division called our Custom Solutions division. Therefore, our divisions now include our Europe division, which includes Eastern Asia, Australia and New Zealand, and our three domestic divisions, which consist of Custom Solutions, Federal Government and U.S. ERP. Our Europe division provides a broad range of IT consulting services, including package software implementation, application development, systems integration and support services. Our Custom Solutions and Federal Government divisions provide IT services and products in custom-developed software environments. Our India-based operations are considered part of our Custom Solutions division. Our U.S. ERP division primarily provides enterprise software implementation services, including enterprise resource planning ("ERP") and supply chain management software from software vendors such as Oracle, SAP and Lawson for U.S. customers. Also in 2009, certain centralized operation support departments have been moved from the Custom Solutions division to become part of our corporate group. Prior year segment data has been adjusted to conform to the 2009 presentation.

Retroactive Accounting Pronouncement Adjustments

In May 2008, the FASB issued new accounting guidance on convertible debt instruments that may be settled in cash upon conversion. This new guidance requires that the proceeds from the issuance of certain convertible debt instruments be allocated between a liability component (issued at a discount) and the embedded conversion option (i.e., the equity component) in a manner that reflects the entity's nonconvertible debt borrowing rate. The difference between the principal amount of the debt and the amount of the proceeds allocated to the liability component must be reported as a debt discount and subsequently amortized to earnings as additional non-cash interest expense over the convertible debt's expected life using the effective interest method. We adopted this new guidance, which requires retrospective application for all periods presented, on January 1, 2009. The adoption changed the historical accounting treatment for

our Convertible Senior Subordinated Debentures ("Debentures") even though all of our Debentures were repurchased and retired prior to December 31, 2008.

In December 2007, the FASB issued accounting guidance contained within ASC 810, "Consolidation," regarding noncontrolling interests. This standard requires that the noncontrolling interests in the equity of a subsidiary be accounted for and reported as equity, provides revised guidance on the treatment of net income and losses attributable to the noncontrolling interests and changes in ownership interests in a subsidiary and requires additional disclosures that identify and distinguish between the interest of the controlling and noncontrolling owners. We prospectively adopted these requirements on January 1, 2009, except for the presentation and disclosure requirements, which are to be applied retrospectively to all periods presented.

The required retrospective applications of the above standards had the following impact on our net income, diluted earnings per share and presentation of the consolidated statement of operations for the 2008 quarterly periods, as well as for the year ended December 31, 2008:

                                         First       Second      Third       Fourth
                                        Quarter     Quarter     Quarter     Quarter      Total
                                               (In thousands, except per share amounts)

Net income - CIBER , Inc., as
previously reported                    $   7,177    $  8,928    $  7,877    $  5,974    $ 29,956
Impact of convertible debenture
restatement                               (1,250 )      (743 )      (642 )      (437 )    (3,072 )
Net income - CIBER, Inc., as
restated                                   5,927       8,185       7,235       5,537      26,884
Net income - noncontrolling
interests                                    356         271         197         105         929
Consolidated net income                $   6,283    $  8,456    $  7,432    $  5,642    $ 27,813

Earnings per share - basic and
diluted:
Net income - CIBER, Inc., as
previously reported                    $    0.12    $   0.15    $   0.13    $   0.10    $   0.50
Impact of convertible debenture
restatement                                (0.02 )     (0.01 )     (0.01 )     (0.01 )     (0.05 )
Net income - CIBER, Inc., as
restated                               $    0.10    $   0.14    $   0.12    $   0.09    $   0.45

Comparison of the Three Months Ended September 30, 2008 and 2009 - Consolidated



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



                                                   Three Months Ended September 30,
                                                  2008                            2009
                                              (Dollars in thousands, except billing rate)
Consulting services                   $       286,004          95.3 %  $     245,113         95.6 %
Other revenue                                  13,962           4.7           11,254          4.4
Total revenue                                 299,966         100.0          256,367        100.0

Gross profit - consulting services             76,489          26.7           61,085         24.9
Gross profit - other revenue                    5,792          41.5            3,872         34.4
Gross profit - total                           82,281          27.4           64,957         25.3

SG&A expenses                                  67,464          22.5           56,417         22.0

Operating income                               13,213           4.4            7,034          2.7

Net income - CIBER, Inc.              $         7,235           2.4 %  $       3,505          1.4 %

Average hourly billing rate           $            89                  $          83
Consultant utilization                             86 %                           86 %
Average billable headcount                      7,420                          7,005

Revenue. Total revenue decreased $43.6 million, or 15%, for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. Poor economic conditions and a stronger U.S. dollar between the comparable periods are primarily responsible for the revenue decrease. As a global company, our revenue is denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations. The U.S. dollar has been significantly stronger against many currencies during 2009 as compared to 2008, resulting in unfavorable currency translation and lower U.S. dollar reported revenues. Foreign currency rate changes resulted in approximately $8 million of reduced reported revenue in the third quarter of 2009 over the same period of 2008.

Excluding the unfavorable currency translation effects, our total revenue decreased 12% for the three months ended September 30, 2009, compared to the three months ended September 30, 2008. The global economic downturn, which began in late 2008, has led to lower overall demand for IT services and products. Over much of the last year, many of our clients and prospects have been focused on initiatives to deliver near- and medium-term cost savings, and while they continue to exercise caution in launching new IT projects, especially larger ones, we are engaging in more conversations with our clients and prospects about possible projects relating to their future growth. Many clients and prospects have reduced, delayed or cancelled IT spending over the last year. We have also experienced pricing pressures from existing clients and prospects that have been working hard to manage their costs, but in the most recent quarter, we have seen a slowing in the frequency of pricing pressure from existing customers. The pricing environment for new work, however, continues to be very competitive.

Revenue by segment/division was as follows:

                            Three Months Ended
                              September 30,
                             2008        2009      % change
                              (In thousands)
Custom Solutions          $  134,831   $ 107,981      (19.9 )%
Europe                       105,406      89,720      (14.9 )
Federal Government            31,387      29,157       (7.1 )
U.S. ERP                      30,069      31,262        4.0
Corporate/inter-segment       (1,727 )    (1,753 )      n/m
Total revenue             $  299,966   $ 256,367      (14.5 )%


--------------------------------------------------------------------------------
n/m = not meaningful

† Custom Solutions revenue decreased most significantly between the comparable quarters due to a couple of large clients that significantly cut back on the use of our services in 2009 due to strategy changes. In addition to the normal completion of projects, we have experienced a number of cancelled or delayed projects and staffing reductions on other projects resulting from current economic conditions. We have been unable to close sufficient new contracts, especially larger ones, to offset these reductions.

† Unfavorable foreign currency fluctuations accounted for approximately half of the decline in Europe's current quarter revenue results. Excluding the impact of unfavorable foreign currency translation, our Europe division revenue decreased 7% primarily due to completed projects and delays in customer decisions. Client bankruptcy or financial constraints also caused cancellation of, or reductions in some client contracts that negatively impacted the current period.

† Federal division revenue was down 7% as compared to the same quarter of 2008 related to expired contracts that have yet to be replaced. Federal had a large contract that expired at the end of 2008 that was awarded to a qualified small business. The Federal division has recently obtained three large Multiple Award Contract vehicles that allow us to compete for new business. The Federal division is working on winning task order awards under these indefinite delivery/indefinite quantity contracts that we expect will lead to additional revenue in future periods. Delays in contract awards have continued to push out improvements in our Federal division's revenue, with some positive results beginning to take hold at the end of the current quarter.

† The 4% improvement in the U.S. ERP division in the current quarter is due to several new large commercial and public sector projects in our SAP and Oracle practices. Our Technology Solutions practice continues to lag behind prior year performance due to the weak economy resulting in lower than normal hardware sales.

Gross Profit. In total, our gross profit margin decreased 210 basis points to 25.3% for the three months ended September 30, 2009, compared to 27.4% for the same period in 2008. Gross profit margin on consulting services revenue accounted for the majority of the decrease, due to significant consulting services margin decreases in all divisions, other than the U.S. ERP division, which had a sizable improvement in its consulting services margin mainly due to significantly improved margins in our SAP practice. The significant declines in gross margins were primarily due to pricing pressures, which have reduced pricing on our existing work, as well as lower competitive pricing for new awards. Additionally, new pricing pressures from existing customers continue to arise, but at reduced levels from previous quarters. As customers have reduced, delayed or cancelled projects, it has been difficult to maintain our normal levels of consultant utilization, especially in our Europe division, which has also contributed to the reduction in our gross margin. We have obtained significant additional volume of services with two large clients, but at reduced margins. Europe also incurred an approximate 2.5% employee wage increase at the beginning of 2009 that we have not been able to recover through increased billing rates.

Selling, general and administrative. Our SG&A costs during the three months ended September 30, 2009, declined by $11.0 million, or 16%, from the same period of the prior year. Additionally, as a percentage of revenue, SG&A expenses decreased 50 basis points to 22.0% for the three months ended September 30, 2009, compared to 22.5% for the three months ended September 30, 2008. We initiated a number of cost reduction initiatives beginning in the fall of 2008 in response to the deteriorating economic conditions. Most significant has been the ongoing reduction of overhead personnel, which has continued throughout 2009 and resulted in $6.4 million of reduced expenses in the current quarter. In addition, the current quarter benefitted from a $1.2 million decrease in bad debt costs plus a number of smaller reductions in many other SG&A categories that helped to offset approximately $2.2 million of expense that CIBER incurred to settle a lawsuit, including attorney fees, during the current quarter.

Operating income. Our 210 basis point reduction in gross profit margin, offset by the 50 basis point decrease in SG&A costs as a percentage of revenue drove the reduction in our operating income margin to 2.7% for the three months ended September 30, 2009, compared to 4.4% for the three months ended September 30, 2008.

Operating income by segment/division was as follows:

                                Three Months Ended                 2008       2009
                                  September 30,          %         % of       % of
                                 2008         2009     change    revenue*   revenue*
                                  (In thousands)
Custom Solutions              $    13,522    $ 6,968    (48.5 )%     10.0 %      6.5 %
Europe                              7,342      4,832    (34.2 )       7.0        5.4
Federal Government                  2,762      1,486    (46.2 )       8.8        5.1
U.S. ERP                           (1,738 )    2,864    264.8        (5.8 )      9.2
Corporate expenses                 (7,071 )   (7,610 )   (7.6 )      (2.4 )     (3.0 )
Total                              14,817      8,540    (42.4 )%      4.9        3.3
Amortization of intangibles        (1,604 )   (1,506 )               (0.5 )     (0.6 )
Operating income              $    13,213    $ 7,034                  4.4 %      2.7 %

† Custom Solutions operating income decreased due to a sizable reduction in gross margin resulting primarily from higher-margin projects that ended or were cancelled, as well as downward pricing pressure from some existing customers. Additionally, SG&A expenses as a percentage of revenue increased between the comparable periods. We reduced direct and overhead labor costs by approximately $18 million in the three months ended September 30, 2009, as compared to the same period of 2008, but could not adjust these costs as quickly as our revenue was adjusting downward. This division represents the combination of our former Commercial and State & Local Government divisions, which was undertaken in 2009 to better align operations and reduce overhead costs.

† Europe's operating income declined due to the significant reduction in services gross profit margins stemming from lower consultant utilization and increased consultant wages, as well as some customer-induced pricing pressures. A considerable reduction in SG&A expenses due to lower overhead personnel cost, reduced bad debt expenses, plus lower recruiting and travel expenses helped to partially offset the gross margin decline. Typical labor regulations in many foreign countries make it more difficult to quickly reduce staff levels without significant separation costs. As a result, we may experience lower utilization than normal.

† Our Federal division operating income decreased substantially due to the erosion of gross profit margin as revenues have continued to decline. The Federal division has made significant improvements to infrastructure, but has not been able to fully offset the decreased revenue with reductions in overhead costs.

† The U.S. ERP division increased revenues and improved both gross profit margin on services and operating income, led by significant improvements in our SAP practice. Improved consultant utilization, cost reductions and completion of a large low-margin fixed-priced contract helped improve gross profit. In addition, reduced SG&A expenses in total dollars and as a percentage of revenue helped improve operating income margin.

† Corporate expenses increased by 8% as we incurred $2.2 million of legal settlement costs, including attorney fees, during the current quarter, which more than offset the reductions in personnel and other SG&A costs.

Interest expense. Interest expense decreased $1.7 million during the three months ended September 30, 2009, compared to 2008, $1.1 million of which related to the 2008 restatement of interest expense due to our January 1, 2009 adoption of FASB's new accounting guidance for convertible debt. The remaining decrease was a function of lower average borrowings during the 2009 quarter and lower average interest rates on those borrowings as compared to the same period of the prior year.

Other income (expense), net. Other expense, net was $0.6 million for the three months ended September 30, 2009, compared to other income, net of $0.4 million for the similar period in 2008, primarily due to foreign exchange losses during the current quarter as compared to foreign exchange gains during the same period of the prior year.

Income taxes. Our effective tax rates were 28.2% and 28.8% for the three months ended September 30, 2009 and 2008, respectively. Our tax rate is affected by the mix of our profits and losses across many different tax jurisdictions. In 2009, we have continued to see a shift in the mix of our profits toward lower tax jurisdictions.

Comparison of the Nine Months Ended September 30, 2008 and 2009 - Consolidated



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



                                                     Nine Months Ended September 30,
                                                   2008                            2009
                                               (Dollars in thousands, except billing rate)
Consulting services                   $        867,484          95.1 %  $     743,170          95.8 %
Other revenue                                   44,525           4.9           32,276           4.2
Total revenue                                  912,009         100.0          775,446         100.0

Gross profit - consulting services             234,673          27.1          184,049          24.8
Gross profit - other revenue                    15,675          35.2           11,719          36.3
Gross profit - total                           250,348          27.5          195,768          25.2

SG&A expenses                                  200,000          21.9          169,879          21.9

Operating income                                45,525           5.0           21,518           2.8

Net income - CIBER, Inc.              $         21,347           2.3 %  $      12,426           1.6 %

Average hourly billing rate           $             88                  $          83
Consultant utilization                              88 %                           87 %
Average billable headcount                       7,405                          7,135

Revenue. Total revenue decreased $136.6 million, or 15%, for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. Poor economic conditions and a stronger U.S. dollar between the comparable periods are primarily responsible for the revenue decrease. As a global company, our revenue is denominated in multiple currencies and may be significantly affected by currency exchange-rate fluctuations. The U.S. dollar has been significantly stronger against many currencies during 2009 as compared to 2008, resulting in unfavorable currency translation and lower U.S. dollar reported revenues. Foreign currency rate changes resulted in approximately $53 million of reduced reported revenue in 2009 over 2008. Excluding the unfavorable currency translation effects, our total revenue decreased 9% for the nine months ended September 30, 2009, compared to the nine months ended September 30, 2008. The global economic downturn, which began in late 2008, has led to lower overall demand for IT services and products. Over much of the last year, many of our clients and prospects have been focused on initiatives to deliver near- and medium-term cost savings, and while they continue to exercise caution in launching new IT projects, especially larger ones, we are engaging in more conversations with our clients and prospects about possible projects relating to their future growth. Many clients and prospects have reduced, delayed or cancelled IT spending over the last year. We have also experienced pricing pressures from existing clients and prospects that have been working hard to manage their costs, but in the most recent quarter, we have seen a slowing in the frequency of pricing pressure from existing customers. The pricing environment for new work, however, continues to be very competitive.

Revenue by segment/division was as follows:

                            Nine Months Ended
                              September 30,
                            2008        2009      % change
                             (In thousands)
Custom Solutions          $ 406,358   $ 340,403      (16.2 )%
Europe                      321,145     258,302      (19.6 )
Federal Government           96,672      87,877       (9.1 )
U.S. ERP                     93,071      92,928       (0.2 )
Corporate/inter-segment      (5,237 )    (4,064 )      n/m
Total revenue             $ 912,009   $ 775,446      (15.0 )%


--------------------------------------------------------------------------------
n/m = not meaningful

† Custom Solutions revenue decreased primarily due to the successful completion of the very large Pennsylvania Turnpike Commission ("PTC") project in mid-2008, plus normal completion of other projects, as well as a number of cancelled or delayed projects and staffing reductions on other projects resulting from current economic conditions. Most significantly, a couple of large clients cut back on the use of our services in 2009 due to strategy decisions. We have been unable to close sufficient new contracts, especially larger ones, to offset these reductions.

† Unfavorable foreign currency fluctuations accounted for a 16% decline in Europe's current year results. Excluding the impact of unfavorable foreign currency translation, our Europe division revenue decreased by approximately 3%. Completed projects and delays in customer decisions on new projects have slowed revenue in 2009. Client bankruptcy or financial constraints also caused cancellation of, or reductions in some client contracts which has negatively impacted Europe's 2009 results.

† Federal division revenue was down 9% as compared to the same period of 2008 related to expired contracts that have yet to be replaced. Federal had a large contract that expired at the end of 2008 that was awarded to a qualified small business. In addition, delays in contract awards have continued to push out improvements in our Federal division's revenue. In mid-2009, the Federal division obtained three large Multiple Award Contract vehicles that allow us to compete for new business. The Federal division is working on winning task order . . .