UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission File Number 0-23488

CIBER, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

o Yes    ý No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

o Yes    ý No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ý Yes    o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

o Large accelerated filer                    ý Accelerated filer                              o Non-accelerated filer

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

The aggregate market value of the outstanding voting stock held by non-affiliates of the registrant as of June 30, 2005 was $442,386,239, based on the closing price of the registrant’s Common Stock of $7.98 per share reported on the New York Stock Exchange on such date.

As of February 15, 2006, there were 62,090,123 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Registrant’s 2006 Annual Meeting of Shareholders to be held on May 2, 2006 are incorporated by reference into Part III of this Report.

CIBER, Inc.

Form 10-K

Table of Contents

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Part I

Disclosure Regarding Forward-Looking Statements

Included in this Annual Report and elsewhere from time to time in other written and oral statements, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are based on current expectations, estimates, forecasts and projections about our Company, the industry in which we operate and other matters, as well as management’s beliefs and assumptions and other statements that are not historical facts.  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 and convey uncertainty of future events or outcomes.  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 this Annual Report under the caption “Item 1A. RISK FACTORS.”  As a result of these and other factors, our past financial performance should not be relied on as an indication of future performance.  Additionally, we caution investors not to place undue reliance on any forward-looking statement as these statements speak only as of the date when made.  We undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future events or otherwise.

Item 1.  Business

General Development of Business

CIBER, Inc. and its subsidiaries (generally referred to herein as “CIBER,” “the Company,” “we,” “our,” or “us”) provide information technology (“IT”) system integration consulting and other IT services.  Our services are offered on a project or strategic staffing basis, in both custom and enterprise resource planning (“ERP”) package environments, and across all technology platforms, operating systems and infrastructures.  Our clients consist primarily of governmental agencies, Fortune 500 and middle market companies, across most major industries.  To a small extent, we also resell certain IT hardware and software products.  Our consultants serve client businesses from over 60 U.S. offices, over 20 European offices, as well as several offices in Asia/India/Pacific.  Our foreign operations, across 16 countries, accounted for 23% of our total revenue in 2005.  CIBER, Inc. was originally incorporated in Michigan in 1974 and later reincorporated in Delaware in 1993.  We completed our initial public offering in 1994 and our common stock trades on the New York Stock Exchange under the symbol “CBR.”  Our corporate headquarters is located in Greenwood Village, Colorado, and our main telephone number is 303-220-0100.

Financial Information about Segments and Geographic Areas

The information required by these items is incorporated herein by reference to “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 19 of the Notes to Consolidated Financial Statements included under “Item 8. Financial Statements and Supplementary Data” of this Annual Report.

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Narrative Description of Business

Services and Operations

We organize our operations by the nature of their services, client base and geography.  At December 31, 2005, we had five reportable segments as follows:

Custom Solutions

Our Custom Solutions branch office network provides IT project solutions and IT staffing in custom-developed software environments to Commercial, Federal Government and State & Local Government clients.  The branch office network is an integral part of our business strategy.  Each branch office has local leadership, sales, recruiting and delivery capabilities.  Through the branch office network, we can (1) offer a broad range of consulting services on a local basis, (2) respond to changing market demands for IT services through a variety of relationships in many industries and geographic areas and (3) maintain a quality professional staff because of our nationwide reputation and strong recruiting capabilities.  Our sales methodology and solution delivery capabilities continue to enhance our ability to identify, pursue and close project or solutions-based business.  The primary service offerings of Custom Solutions include:

•                  Application Development;

•                  Enterprise Integration;

•                  Application Management Outsourcing; and

•                  Global Security

CIBER’s Application Development services provide analysis, design, development, testing, implementation and maintenance of business applications.  Our delivery capabilities span service-oriented architectures, including J2EE and .NET, as well as traditional client/server and mainframe development.  We also offer portal development, wireless and mobility applications and managed content services.

CIBER’s Enterprise Integration services integrate data and applications for companies and organizations to deliver fully functional business solutions.  We blend our proprietary tools, standardized processes and skilled resources in enterprise architecture, enterprise application integration, business intelligence/data warehousing, business continuity/disaster recovery and network security to help our clients leverage information for optimal business value.

CIBER offers a comprehensive scope of IT-related outsourcing services.  Our Application Management Outsourcing service assumes responsibility for a client’s specific IT operation and provides on-going application support, which we categorize as Tier 1-Application Specific Help Desk, Tier 2-Production Support or Tier 3-Routine Maintenance.  We also provide infrastructure and IT operations outsourcing in the areas of technology solutions (including networks, servers, storage, security and desktops) and service desk solutions (including help desk and call center, data center hosting, monitoring and management, and maintenance and systems support).

CIBER’s Global Security services provide assessment and remediation services, as well as managed services that include intrusion monitoring and incident response.

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Our Custom Solutions group also has two branch offices that resell certain third party IT hardware and software products, primarily network equipment, including switches and routers, fileservers, application and database servers and related software, data storage systems, security appliances and security software.

In addition, our Company introduced and expanded its global delivery capability with its CIBERsites^TM offering in 2005.  CIBERsites are development centers strategically located both domestically and offshore, to take advantage of lower-cost labor in under utilized technology markets and provide an alternative for low-cost application development, outsourcing and support functions.  In the U.S., CIBER launched CIBERsites in Oklahoma City, Oklahoma and Tampa, Florida in the first quarter of 2005.  Additionally, to fulfill the needs of those clients seeking an offshore alternative solution, CIBER acquired Bangalore, India-based Knowledge Systems Pvt. Ltd. (“Knowledge Systems”) in July 2005.  CIBERsites leverage the communication skills, technical proficiency, education and ingenuity of our employees to offer a solution that is fully secure and compliant with U.S. business laws and practices.

We have segmented our Custom Solutions branch offices around their designated client focus category (Commercial, Federal Government or State & Local Government).  However, an individual office may also have clients that fall into another category.  For example, a Commercial office may also provide services to a government client.

Commercial Solutions

With approximately 2,750 consultants, our Commercial Solutions segment is our largest operating group and targets large commercial clients across most major industries, including manufacturing, high-technology, services, banking/financial services and retail.  This segment also includes our India-based operations.

Federal Government Solutions

Our Federal Government Solutions segment, comprised of approximately 1,650 consultants, primarily provides custom solutions to defense and civilian agencies of the U.S. Federal Government.  In the aggregate, the various agencies of the U.S. Federal Government represent our largest client and accounted for approximately 15% of our total revenue in 2005.  Areas of focus include defense and aerospace, energy, accounting and financial, port security, training solutions and homeland security.

State & Local Government Solutions

Our State & Local Government Solutions segment, comprised of approximately 1,050 consultants, primarily provides custom solutions to over 600 state and local government agencies, in more than 45 states.  Areas of focus include health and human services, transportation, homeland security, labor and workforce development and finance and administration.

U.S. Package Solutions

Our U.S. Package Solutions segment operates as the CIBER Enterprise Solutions (“CES”) division.  CES’s approximately 450 consultants provide consulting services to support software from enterprise solutions vendors including Oracle, SAP and Lawson, as well as several supply chain management products.  Our services include package software assessment, selection, planning and implementation.  We have vertical expertise in the public sector, higher education, healthcare, retail, manufacturing and supply chain, among others.  The division’s Technology Solutions Practice helps clients select, configure and design IT platform-related solutions, and we are an authorized reseller of certain technology products, primarily from IBM.

We are a Gold-level SAP America Partner, an Oracle Certified Advantage Partner, and a Lawson Consulting Partner.  Our partner relationships are a key component of our Package Solutions segment.  These alliance or partner relationships allow us access to various sales and marketing opportunities.  In some cases, it allows us to jointly propose our services along with the software vendor’s proposal for software.  We believe that prospective package software implementation customers often have a preference to only consider purchasing services from a software

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vendor partner.  Also, software vendors with whom we partner typically give us a license to their software applications, as well as access to their most recent research and development findings and training programs.

European Operations

Our CIBER Europe operations provide a broad range of business and technical consulting services that include package implementation, application development, systems integration and support services, as well as our own Customer Relationship Management software products.  CIBER Europe has approximately 1,150 consultants in more than 10 European countries and several Asian countries.  Our partner relationships in Europe include SAP, Sage, Microsoft and Oracle.  With our acquisitions of Novasoft and Ascent in 2004, we now provide SAP-related services from 13 countries.  We have re-branded our SAP business as “CIBER Novasoft” to continue the recognition established in Europe by Novasoft.  We are an SAP Alliance Partner, as well as a Special Expertise Partner for SAP Industry Solutions in Automotive, Retail and Chemicals.

Clients

Our clients consist primarily of Fortune 500 and middle market companies across most major industries, as well as governmental agencies.  These organizations typically have significant IT budgets and frequently depend on outside consultants to help achieve their business and IT objectives.

In 2005, we estimate our approximate percentage of total revenue by client industry was:

Certain clients account for a significant portion of our revenue.  Our largest client, the various agencies of the U.S. Federal Government, accounted for approximately 10%, 16% and 15% of total revenue in 2003, 2004 and 2005, respectively.  No other client accounted for more than 4% of our total revenue in 2005.  In addition, our five largest clients accounted for, in the aggregate, approximately 25% of our total revenue in 2005.  Also in 2005, our largest client in each segment, as a percentage of that segment’s total revenue was: Commercial - 9%; Federal - 90%; State & Local - 17%; Package - 7% and European Operations - 6%.  Additionally, only our State & Local segment had a second client that also accounted for more than 10% of its total segment revenue.

Client retention and turnover is highly dependent upon whether we are providing a custom solution or a package software solution.  Many of our client relationships have continued for many years.  Most of our U.S. Custom Services revenue each year comes from clients for whom we have previously provided services.  With services related to package software solutions, which includes all of our Package Solutions segment, as well as a large part of our European Operations, client engagements most typically involve a large enterprise software implementation over a period of six to 18 months.  Typically, once package software implementations are completed, future services revenue from that client is minimal and, as a result, client turnover is high, and we are generally selling services to new customers.

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

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Acquisitions/Business Combinations

We began operations in 1974 as a professional services staffing organization to assist companies in need of computer programming support.  In the late-1980s, we initiated a growth strategy that included expanding our range of IT-related services, developing a professional sales force and selectively acquiring established complementary companies.  Since our initial public offering in March of 1994, we have completed over 50 business combinations.  Our acquisition strategy has been central to our ability to expand our business model.  Our acquisitions have allowed us to effectively expand our business model in the following areas:

•                                          Increased project-based capabilities - We have expanded our project-based delivery capabilities by adding expertise around SAP, PeopleSoft (now part of Oracle), and other enterprise resource planning (“ERP”) packages.  In addition to acquiring project-based ERP capabilities, we have organically developed project level expertise in delivery of custom software applications, application maintenance and technology outsourcing services.  This combination of acquired and organically developed project delivery capabilities has resulted in a shift in our mix of business to project-based work from staff supplementation services.

•                                          Established significant public sector presence - Our acquisitions have enabled us to become an established firm in the public sector, providing services to over 600 state and local government agencies, in more than 45 states, as well as to several agencies of the U.S. Federal government.  Our public sector clients, including Europe, accounted for approximately 31% of our total revenue in 2005.

•                                          Expanded geographic presence - Acquisitions have also allowed us to expand our geographic footprint to include a significant European presence.  Beginning with our late 1999 acquisition of Netherlands based Solution Partners BV, and most recently our 2004 acquisition of Novasoft; we have expanded our European operations to include 25 foreign offices located in 14 countries, including Asia/Pacific.

In 2005, we acquired two small entities, including a single office operation specializing in SAP implementations and an India-based professional services firm specializing in custom application development.

From January 2003 to December 2005, we completed the following significant business combinations:

Novasoft AG (“Novasoft”) – In late 2004, we acquired approximately 94% of the net outstanding shares of Novasoft, headquartered in Heidelberg, Germany.  In 2005, we increased our ownership of Novasoft to approximately 95% and we expect to acquire the remaining shares in 2006.  Novasoft is a provider of implementation and other consulting services related to SAP software products.  Novasoft is an SAP Alliance Partner and implements all of SAP’s ERP products including mySAP.com products and industry specific applications.  At the time of the acquisition, Novasoft had approximately 425 consultants, located mainly in Germany, the U.K. and Spain.  We acquired Novasoft to expand our international presence, as well as our capacity to deliver SAP-related services.

Ascent Technology Group Limited (“Ascent”) - Based in Hinckley, Leicestershire, U.K., Ascent provides IT services to medium-sized enterprises with a particular focus on software implementation and sales, including both SAP and Sage ERP solutions and Microsoft.Net software services.  Ascent has also developed and sells its own proprietary customer relationship management software.

SCB Computer Technology, Inc. (“SCB”) -  Based in Memphis, Tennessee, SCB provided IT services similar to CIBER, including consulting, outsourcing and professional staffing, with a particular focus on federal and state government clients.  This acquisition expanded our Federal Government Solutions and State & Local Government Solutions segments and added beneficial customer relationships to our Commercial Solutions business.  We acquired SCB so that a combined CIBER and SCB would be able to compete more effectively for larger public sector contracts.  We believe the acquisition provided an opportunity to realize operational efficiencies in the form

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of lower combined selling, general and administrative costs, primarily by reducing SCB’s corporate administrative costs.

ECsoft Group plc. (“ECsoft”), now named CIBER Europe Limited, is based in London.  ECsoft operates in Denmark, the Netherlands, Norway, Sweden and the U.K. and provides IT consulting services similar to services provided by CIBER.  We acquired ECsoft to increase the size of our European operations and add depth to our European management team.

Due to our numerous historical acquisitions, we have recorded a significant amount of goodwill.  Goodwill represents the excess of the purchase price over the fair value of the net assets of the acquired business.  Many of our acquisitions have involved a relatively small amount of acquired net assets, and thus, a large portion of the purchase price has been assigned to goodwill.  Not all of our acquisitions have been successful.  Acquired businesses may perform significantly worse than we had expected for a variety of reasons, including decreased customer demand for a particular service offering or the loss of a significant customer, among others.  Such factors could lead to a future goodwill impairment charge.

Our Competitive Strengths

We believe that our corporate strengths, identified below, position us to respond to the long-term trends, changing demands and competition within our principal markets.

•                                          Balanced Business Model - We have developed a business model that allows us to provide superior, leading-edge services that are routinely updated to meet the current needs of our clients.  We have developed a reputation for thought leadership in industry verticals such as state government and higher education and in technology verticals such as wireless and security applications, including homeland security.

•                                          Competitive Pricing Model - Our pricing structure is very competitive relative to the level of our service offerings.  Because of the efficient overhead structure of our branch office operations and the high utilization of our billable consulting staff, we are able to offer our clients a pricing model that is very competitive.  We believe that, on average, our hourly billing rates are significantly lower than the rates of national competitors for similar services.

•                                          Scale of Operations - The competitive landscape for the delivery of IT services is highly fragmented.  In almost every major market we compete with larger national and international publicly-held firms, as well as a host of smaller regional and local privately-held firms.  For the past several years, large clients have attempted to consolidate the purchasing of IT services and work with fewer firms.  Because of the relatively large scale of our operations, we have been able to compete effectively to remain a vendor to these large clients.  Our success has come at the expense of local and regional competitors that currently lack the scale to compete successfully for this work.

•                                          Breadth of Service Offering -  We offer a broad range of services to our clients including staff supplementation services, custom application development services, implementation of ERP packages, application maintenance outsourcing services, resale of certain hardware and software products, managed hosting and call center support.  We believe that having this broad delivery capacity is often a competitive advantage, particularly when competing against smaller local and regional firms.

•                                          Long-term Client Relationships - We have been in business since 1974 and a prominent first-year client, Ford Motor Company, remains one of our top five clients today in terms of annual revenue.  This relationship exemplifies the kind of long-term commitment that we have toward our clients and speaks to the quality and breadth of the services that we provide.

•                                          Optimized Delivery Methodology - Our proprietary Optimized Delivery Model ™ (“ODM”) is designed to determine the right mix of 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 a diverse and distributed team.  Our approach minimizes resource costs and maximizes delivery effectiveness for the benefit of the client.

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The approach consists of a series of steps to profile the customer’s business drivers and capabilities, create alternative resource scenarios, and formalize governance around delivering the work.  The output of these efforts is a recommended delivery model that is optimized to balance the client’s resource costs with the risks and constraints of distributed delivery teams.  The overall ODM process has been effective in our pursuit of project engagements, and use of the methodology has become a distinct competitive advantage.

•                                          Disciplined Pursuit and Efficient Integration of Strategic Acquisitions - We have completed over 50 business combinations since our initial public offering in March of 1994.  During this time, through experience and process, we have developed expertise in effectively valuing and successfully integrating firms with which we combine.  We view this skill and expertise as a distinct advantage, especially in the current economic environment.

Competition

The IT services industry is extremely competitive and characterized by continuous changes in customer requirements and improvements in technologies.  Our competition varies significantly from city to city, as well as by the type of service provided.  Our principal competitors include Accenture, Atos Origin, BearingPoint, Cap Gemini, CACI, CGI Group, Deloitte & Touche, EDS, IBM Global Services, Keane, Logica/CMG, Maximus and Xansa.  Many large consulting firms also offer services that overlap with some of our services.  Many of our competitors are larger than we are and have greater financial, technical, sales and marketing resources than we do.  In addition, we must frequently compete with a client’s own internal IT staff.  We also compete with Internet professional services firms, as well as the service divisions of various software developers.  Our industry is being impacted by the growing use of lower-cost offshore delivery capabilities (primarily India).  There can be no assurance that we will be able to continue to compete successfully with existing or future competitors or that competition will not have a material adverse effect on our results of operations and financial condition.

Employees

As of December 31, 2005, we had approximately 8,000 employees and consultants.  We routinely supplement our employee consulting staff with the use of contractors.  At December 31, 2005, we had approximately 7,050 billable consultants, of which approximately 1,200 were contractors.  None of our employees are subject to a collective bargaining arrangement.  We have employment agreements with our executive officers and certain other employees.  We believe our relations with our employees are good.

Our future success depends in part on our ability to hire and retain adequately trained personnel who can address the changing and increasingly sophisticated IT needs of our clients.  Our ongoing personnel needs arise from turnover, which is generally high in the industry, and client needs for consultants trained in the newest software and hardware technologies.  Historically, competition for personnel in the IT services industry has been significant.  We have had in the past, and expect at some point in the future, to have difficulty attracting and retaining an optimal level of qualified consultants.  There can be no assurance that we will be successful in attracting and retaining the personnel we require to conduct and expand our operations successfully.  Because of this, the recruitment of skilled consultants is a critical element to our success.  We have an internal staff of recruiters devoted to meeting our personnel requirements.

Seasonality

We experience a moderate amount of seasonality.  Typically, our billable hours, which directly affect our revenue and profitability, are reduced in the second half of the year, especially during the fourth quarter, due to the large number of holidays and vacation time taken by our billable consultants.  As a result, our operating income as a percentage of revenue is generally the lowest in the fourth quarter of each calendar year.

Available Information

The Internet address of our website is http://www.ciber.com.  Through our website, we make available, free of charge, access to all reports filed with the Securities and Exchange Commission (“SEC”) including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, and any amendments to

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those reports, as soon as reasonably practical after they are electronically filed or furnished to the SEC.  Copies of any materials we file with, or furnish to, the SEC can also be obtained free of charge through the SEC’s website at http://www.sec.gov or at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Item 1A.  Risk Factors

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties.  The following section describes some, but not all, of the risks and uncertainties that may have a material adverse affect on our business, financial condition, results of operations and the market price of our common stock and could cause our actual results to differ materially from those expressed or implied in our forward-looking statements.

Our quarterly revenues, operating results and profitability will vary from quarter to quarter, which may result in increased volatility of our share price.

Our quarterly revenues, operating results and profitability have varied in the past and are likely to vary significantly from quarter to quarter, making them difficult to predict.  This may lead to volatility in our share price.  Some of the factors that are likely to cause these variations are:

•                  the business decisions of our clients regarding the use of our services;

•                  the stage of completion of existing projects and/or their termination;

•                  our ability to maintain our profit margins and manage costs, including those for personnel, support services and severance;

•                  acquisition and integration costs related to possible acquisitions of other businesses;

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

•                  currency exchange rate fluctuations;

•                  changes in estimates, accruals or payments of variable compensation to our employees; and

•                  global, regional and local economic and political conditions and related risks.

Our profit margin, and therefore our profitability, is largely a function of the rates we charge for our services and the utilization rate, or chargeability, of our consultants.  Accordingly, if we are not able to maintain the rates we charge for our services or an appropriate utilization rate for our consultants, we will not be able to sustain our profit margin 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 add value through our services;

•                  changes in our pricing policies or those of our competitors;

•                  the introduction of new products or services by us or our competitors;

•                  the use of globally-sourced, lower-cost service delivery capabilities by our competitors and our clients; and

•                  general economic conditions.

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

•                  seasonality, including number of workdays and holiday and summer vacations;

•                  our ability to transition consultants quickly from completed projects to new engagements;

•                  our ability to forecast demand for our services and thereby maintain an appropriately balanced and sized workforce; and

•                  our ability to manage employee turnover.

Economic conditions and levels of client spending materially affect our results of operations.

Our results of operations are affected by the level of business activity of our clients, which in turn is affected by regional and global economic conditions.  We continue to operate in a challenging economic environment in the United States and abroad, particularly in Europe.  Due to the current economic environment, some clients have cancelled, reduced or deferred expenditures for IT products and services.  We have implemented cost management

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programs to manage our expenses as a percentage of revenue.  Current and future cost management efforts may not be sufficient, however, to maintain our margins if the current economic environment continues.  In addition, our business tends to lag behind economic cycles and, consequently, the benefits of any economic recovery to our business may take longer to realize.

If we are not able to anticipate and keep pace with rapid changes in technology, our business will be negatively affected.

Our market is characterized by rapidly changing technologies, such as the evolution of the Internet, frequent new product and service introductions and evolving industry standards.  Our success depends, in part, on our ability to develop and implement technology services and solutions that anticipate and keep pace with rapid and continuing changes in technology, industry standards and client preferences.  We may not be successful in anticipating or responding to these developments on a timely basis and our offerings may not be successful in the marketplace.  In addition, services, solutions and technologies developed by our competitors may make our service or solution offerings uncompetitive or obsolete.  Any one of these circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.

We may face damage to our professional reputation and/or legal liability if our clients are not satisfied with our services.

As a professional services firm, we depend largely on our relationships with our clients and our reputation for high-quality professional services and integrity to attract and retain clients and employees.  Additionally, many of our engagements involve projects that are critical to the operations of our clients’ businesses.  If a client is not satisfied with our services and/or we do not meet our contractual obligations to a client, it could subject us to legal liability and may be very damaging to our reputation, business, operating results and financial condition.  Our contracts typically include provisions to limit our exposure to legal claims relating to our services and the applications we develop; however, these provisions may not protect us, or may not be enforceable under some circumstances or under the laws of some jurisdictions.  It is possible, due to the nature of our business, that we will be sued in the future.  Although we maintain professional liability insurance, the policy limits may not be adequate to provide protection against all potential liabilities.

Termination of a contract by a significant client and/or cancellation with short notice could reduce our revenue and profitability and adversely affect our financial condition.

Our five largest clients accounted for 25% of our revenue in 2005.  The various agencies of the U.S. Federal Government represent our largest client, accounting for 15% of total revenue in 2005, while no other client accounted for more than 4% of our total revenue.  Our clients typically retain us on a non-exclusive, engagement-by-engagement basis.  Most individual client assignments are from three to twelve months; however, many of our client relationships have continued for many years.  Although they may be subject to penalty provisions, clients may generally cancel a contract at any time with short notice.  Under many contracts, clients may reduce or delay their use of our services without penalty.  These terminations, reductions or delays could result from factors unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client, changes in client strategies or the economy generally.  When contracts are terminated, we lose the associated revenues and we may not be able to eliminate associated costs in a timely manner.  Consequently, our profit margins may be adversely affected.

We may experience declines in revenue and profitability if we do not accurately estimate the cost of a large engagement conducted on a fixed-price basis.

We estimate that approximately 10-15% of our total revenue in 2005 is from engagements performed in accordance with fixed-price contracts.  Revenue for these types of engagements is recognized based on the estimated percentage of completion determined generally by costs incurred relative to total estimated costs.  When making a proposal or managing a fixed-price engagement, we rely on our estimates of costs and timing for completing the project.  These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to apply them to the project.  The cumulative impact of any adjustments in estimated revenue and cost are recognized as necessary in the period during which the facts causing the adjustment become known.  Losses, if any, on fixed-price

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contracts are recognized when the loss is determined.  Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-price contracts, including delays caused by factors outside of our control, could make these contracts less profitable or unprofitable and may affect the amount of revenue reported in any period.

Financial and operational risks of our international operations could result in a decline in revenue and profitability.

We have continued to expand our international operations and estimate that our foreign operations currently represent approximately 23% of our total revenue.  We presently have offices in 16 foreign countries.  Due to our international operations, we are subject to a number of financial and operational risks that may adversely affect our revenue and profitability, including:

•                  the costs and difficulties relating to managing geographically diverse operations;

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

•                  differences in, and uncertainties arising from changes in, foreign business culture and practices;

•                  restrictions on the movement of cash and the repatriation of earnings;

•                  multiple and possibly overlapping or conflicting tax laws;

•                  the costs of complying with a wide variety of national and local laws;

•                  operating losses incurred in certain countries and the non-deductibility of those losses for tax purposes; and

•                  differences in, and uncertainties arising from changes in legal, labor, political and economic conditions, as well as international trade regulations and restrictions, and tariffs.

The revenues and expenses of our international operations generally are denominated in local currencies.  Accordingly, we are subject to exchange rate fluctuations between such local currencies and the U.S. dollar.  These exchange rate fluctuations subject us to currency translation risk with respect to the reported results of our international operations and the cost of potential acquisitions.  There can be no assurance that we will not experience fluctuations in financial results from our operations outside 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 our international operations.  We manage our exposure to changes in foreign currency exchange rates through our normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.  There is no assurance that we will continue to use such financial instruments in the future or that any such use will be successful in managing or controlling foreign currency risks.

We depend on contracts with various federal, state and local government agencies for a significant portion of our revenue, and if the spending policies or budget priorities of these agencies change, we could lose revenue.

In 2005, approximately 31% of our revenue was from public sector clients, including federal, state, local and foreign governments and agencies.  The market for our services depends largely on federal and state legislative programs and the budgetary capability to support programs, including the continuance of existing programs.  These programs can be modified or amended at any time by acts of federal and state governments.  Many government budgets have been adversely impacted by the economic slowdown.  All but one state must operate under a balanced budget.  In addition, changes in federal initiatives or in the level of federal spending due to budgetary or deficit considerations may have a significant impact on our future financial performance, as may curtailment of the federal government’s use of consulting and technology services firms, the adoption of new laws or regulations that affect companies providing services to the federal government and potential delays in the government appropriation process.

Additionally, federal government contracts contain provisions and are subject to laws and regulations that provide government clients with rights and remedies not typically found in commercial contracts.  Among other things, governments may terminate contracts with short notice for convenience, as well as for default, and cancel multi-year contracts if funds become unavailable.

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Unfavorable government audits could require us to adjust previously reported operating results, to forego anticipated revenue and could subject us to penalties and sanctions.

The government agencies we contract with generally have the authority to audit and review our contracts with them.  As part of that process, the government agency reviews our performance on the contract, our pricing practices, our cost structure and our compliance with applicable laws, regulations and standards.  An audit of our work, including an audit of work performed by companies we have acquired or may acquire, could result in a substantial adjustment to our previously reported operating results.  For example, any costs that were originally reimbursed could be subsequently disallowed.  In this case, cash we have already collected may have to be refunded and operating margins may be reduced.

If a government audit uncovers improper or illegal activities by us, or we otherwise determine that these activities have occurred, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or disqualification from doing business with the government.  Any unfavorable determination could adversely affect our ability to bid for new work with one or more jurisdictions.

We may have difficulty integrating or managing those businesses we have acquired or may acquire in the future, which may have a material adverse impact on our financial results.

Since January 1, 2003, we have made four significant acquisitions, only one of which was based in the U.S.  The other three were European companies.  These acquisitions included ECsoft Group, plc, SCB Computer Technology, Inc., Ascent Technology Group Limited, and Novasoft AG.  Each of these acquisitions involved the integration of separate companies that had previously operated independently and had different corporate cultures.  We may not succeed at integrating or managing acquired businesses or in managing the larger company that results from these acquisitions.  The process of combining these companies may be disruptive to their business and our business and could have an adverse impact on our reputation and/or our financial results as a result of the following difficulties, among others:

•                  loss of key clients or management and technical personnel;

•                  additional costs and delays from difficulties in the integration of the acquired business with our existing business activities;

•                  assumption of unanticipated legal or other financial liabilities;

•                  impairment charges for acquired intangible assets, including goodwill, that decline in value;

•                  inconsistencies in standards, controls, procedures and policies among the companies being combined, making it more difficult to implement and harmonize company-wide financial, accounting, billing, information and other systems;

•                  coordination of geographically diverse organizations;

•                  diversion of management’s attention from the day-to-day business of our Company;

•                  becoming significantly leveraged as a result of debt incurred to finance acquisitions; and

•                  dilution to our earnings per share as a result of issuing shares of our stock to finance acquisitions.

Difficulties with integration or management may also affect client satisfaction or create problems with the quality of client service, which could have an adverse impact on the reputation of our Company.

If we are unable to integrate our acquisitions in a timely manner, or at all, or if we experience difficulty integrating or managing the acquired businesses, we may not achieve the desired level of benefits in connection with the transactions.  In addition, the costs of achieving those benefits may be greater than we anticipate.  In the course of acquiring companies, we have recorded a significant amount of goodwill.  Historically, we have not always achieved the level of benefits that we expected from our acquisitions, nor have the acquired businesses always achieved the revenue and profitability we anticipated.  Such experiences could lead to a subsequent goodwill impairment charge.

We will continue to evaluate from time to time, on a selective basis, other strategic acquisitions if we believe they will help us obtain well-trained, high-quality consultants, new service offerings, additional industry expertise, a broader client base or an expanded geographic presence.  There can be no assurance that we will be successful in

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identifying candidates or consummating acquisitions on terms that are acceptable or favorable to us.  In addition, there can be no assurance that financing for acquisitions will be available on terms that are acceptable or favorable to us, if at all.  We may issue shares of our common stock as part of the purchase price for some or all of these acquisitions.  Future issuances of our common stock in connection with acquisitions also may dilute our earnings per share.

Our future success depends on our ability to continue to retain and attract qualified employees.

Our business involves the delivery of professional services and is highly labor intensive.  Our future success depends upon our ability to continue to attract, train, effectively motivate and retain highly skilled technical, managerial, sales and marketing personnel.  Although we invest significant resources in recruiting and retaining employees, there is often considerable competition for certain personnel in the IT services industry, as a result, employee turnover is generally high.  From time to time, we have trouble locating enough highly qualified candidates in desired geographic locations or with required specific expertise.  The inability to attract and retain qualified employees in sufficient numbers could have a serious negative effect on us, including our ability to obtain and successfully complete important client engagements and thus, maintain or increase our revenues.

In addition, we believe that there are certain key employees within the organization, primarily in the senior management team, who are important for us to meet our objectives.  Due to the competitive employment nature of our industry, there is a risk that we will not be able to retain these key employees.  The loss of one or more key employees could adversely affect our continued growth.  In addition, uncertainty created by turnover of key employees could result in reduced confidence in our financial performance, which could cause fluctuations in our stock price and result in further turnover of our employees.

Our current indebtedness, and any future indebtedness, could adversely affect our business, our operating flexibility and our ability to make full payment on the Debentures.

Our aggregate level of indebtedness increased in December 2003 in connection with our issuance of $175 million of Convertible Senior Subordinated Debentures (“Debentures”) due 2023.  The terms of the Debentures permit us to incur additional debt, including secured debt, and to repurchase our common stock.  Additionally, the limited covenants applicable to the Debentures do not require us to achieve or maintain any minimum financial results relating to our financial position or results of operations.  We also have a $60 million bank revolving line of credit that expires on September 30, 2007.  We have used borrowings under our line of credit to finance some of our acquisitions.  This credit facility contains specific limitations on additional indebtedness, liens and merger activity and prohibits the payment of dividends.  Additionally, it requires CIBER to maintain specified financial covenants, including an asset coverage ratio, a leverage ratio, a senior leverage ratio, and a fixed charges coverage ratio.  We have experienced, from time to time, instances of covenant non-compliance under our line of credit that have been waived by our lender.  If we fail to comply with any covenants in the future, however, we may not be able to obtain a waiver and could be in default under our credit agreement.

In the past, we have been successful in generating cash flow from operations to reduce our indebtedness.  As of December 31, 2005, we had approximately $219.6 million of outstanding indebtedness and had the ability to incur approximately $9 million of additional debt under our revolving credit facility.  We may obtain additional long-term debt and working capital lines of credit to meet our future financing needs, which would have the effect of increasing our total leverage.

An increase in our leverage could have significant negative consequences, including:

•                  limiting our cash flow available for general corporate purposes, such as acquisitions, due to the ongoing cash flow requirements for debt service;

•                  limiting our ability to obtain, or obtain on favorable terms, future additional debt financing for working capital or acquisitions;

•                  limiting our flexibility to react to competitive and other changes in our industry and economic conditions generally;

•                  exposing us to a risk that a substantial decrease in net operating cash flows due to economic or adverse developments in our business could make it difficult to meet debt service requirements;

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•                  increasing our vulnerability to adverse economic and industry conditions; and

•                  exposing us to risks inherent in interest rate fluctuations due to variable interest rates, which could result in higher interest expense.

Our ability to repay or to refinance our indebtedness will depend upon our future operating performance and on economic, financial, competitive, regulatory, business and other factors beyond our control.  If we are unable to service our indebtedness or maintain covenant compliance, whether in the ordinary course of business or upon acceleration of such indebtedness, we may be forced to pursue one or more alternative strategies, such as restructuring or refinancing our indebtedness, selling assets, reducing or delaying capital expenditures or seeking additional equity capital.  Any additional capital raised through the sale of equity may dilute shareholders’ ownership interest.  There can be no assurances that any of these strategies could be undertaken on satisfactory terms, if at all.

We may be unable to repurchase our outstanding Debentures for cash on specific dates or following a designated event.

Debenture holders may require us to repurchase their Debentures at a repurchase price of 100% of the principal amount plus accrued interest on December 15, 2008, 2010, 2013 and 2018, or at any time prior to their maturity in the case of certain events as described in the indenture.  Additionally, the Debentures are convertible at the option of the holder into shares of our common stock under certain circumstances.  CIBER has made an irrevocable election to settle in cash and not in shares 100% of the principal amount of the Debentures under these circumstances.  We may not have sufficient funds to pay the repurchase price for all tendered Debentures in cash at such time or the ability to arrange necessary financing on acceptable terms.  We may be subject to limitations under our bank line of credit related to the repurchase of our indebtedness.  We may be prohibited under future indebtedness from repurchasing any Debentures prior to their stated maturity.  In addition, if we fail to repurchase the Debentures as required by the indenture, it would constitute an event of default under the indenture, which, in turn, would be expected to constitute an event of default under any agreement relating to indebtedness, including our bank line of credit.  Important corporate events, such as takeovers, recapitalizations, or similar transactions, may not constitute a designated event under the indenture governing the Debentures, and thus may not permit the Debenture holders to require us to repurchase or redeem the Debentures.

We may be unable to obtain surety bonds or letters of credit in support of client engagements on acceptable terms, if available, which could affect our ability to obtain additional client engagements that require them.

Some of our government clients, largely in the state and local market, may require us to provide surety bonds or letters of credit as a condition of being awarded a new engagement.  We cannot be certain that surety bonds or letters of credit will be available to us on acceptable terms, if at all.  If we cannot obtain surety bonds or letters of credit on acceptable terms, we may be unable to obtain additional client engagements that require them, which could negatively impact our ability to grow our business and adversely affect our business, financial condition and results of operations.  As of December 31, 2005, we had approximately $13.6 million of outstanding surety bonds supporting client engagements for which we may be required to make future payment.  The issuer of our outstanding surety bonds requires that we post a letter of credit as collateral to support these possible obligations.  We have a $6.0 million letter of credit outstanding to support our current surety program.  The surety company, at its discretion, may require us to provide additional collateral as a condition for future surety bond issuances.  We cannot be certain that such collateral will be available if needed.

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

We operate in a highly competitive industry that includes a large number of participants.  We believe that we currently compete principally with other IT professional services firms, technology vendors and the internal information systems groups of our clients.  Many of the companies that provide services in our industry have significantly greater financial, technical and marketing resources than we do.  Our marketplace is experiencing rapid changes in its competitive landscape.  Some of our competitors have sought access to public and private capital and others have merged or consolidated with better-capitalized partners.  Larger and better-capitalized competitors have enhanced abilities to compete for market share generally and our clients specifically, in some cases, through

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significant economic incentives to clients to secure contracts.  These competitors may also be better able to compete for skilled professionals by offering them large compensation incentives.

One or more of our competitors may develop and implement methodologies that result in superior productivity and price reductions without adversely affecting their profit margins.  In addition, there are relatively few barriers to entry into our industry.  As a result, we have faced and expect to continue to face, competition from new entrants into our market.  We may be unable to compete successfully with current or future competitors and our revenue and profitability may be adversely affected.

We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of CIBER or limit the price investors might be willing to pay for our stock, thus affecting the market price of our stock.

Our certificate of incorporation and bylaws each contain provisions that may make the acquisition of our Company more difficult without the approval of our board of directors.  These provisions include adoption of a Preferred Stock Purchase Rights Agreement, commonly known as a “poison pill” that gives our board of directors the ability to issue preferred stock and determine the rights and designations of the preferred stock at any time without stockholder approval.  The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future.  The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the outstanding voting stock of CIBER.  In addition, the staggered terms of our board of directors could have the effect of delaying or deferring a change in control.  These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock, and as a result, the price of our common stock could decline.

The above factors and certain provisions of the Delaware General Corporation Law may have the effect of deterring hostile takeovers or otherwise delaying or preventing changes in the control or management of CIBER; this could adversely affect transactions in which our shareholders might otherwise receive a premium over the then-current market price for their shares of CIBER common stock.

Item 1B. Unresolved Staff Comments

None.

Item 2.  Properties

Our corporate office is located at 5251 DTC Parkway, Suite 1400, Greenwood Village, Colorado 80111, where we occupy approximately 69,000 square feet under a lease that expires in December 2008.  Approximately 13,000 square feet of this office space is used by our Denver area operations.  Generally, we provide our services at client locations and, therefore, our office locations are primarily used for sales and other administrative functions.  At December 31, 2005, we had lease obligations for approximately 840,000 square feet of office space in approximately 105 locations.

We believe our facilities are adequate for our current level of operations.

Item 3.  Legal Proceedings

The Company is involved in legal proceedings, audits, claims and litigation arising in 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 our financial condition, results of operations or cash flows.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our shareholders during the fourth quarter of 2005.

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Part II

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

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

The closing price of our common stock on February 15, 2006 was $5.62.  As of February 16, 2006, there were 3,284 registered holders of record of our common stock.  We estimate there are approximately 16,000 beneficial owners of our common stock.

Our policy is to retain our earnings to support the growth of our business.  Accordingly, we have never paid cash dividends on our common stock and have no present plans to do so.  In addition, pursuant to the terms of our line of credit agreement with Wells Fargo Bank, we are prohibited from paying dividends on our stock.

Recent Sales of Unregistered Securities: None

Information regarding securities authorized for issuance under our equity compensation plans can be found under “Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Purchases of Equity Securities by the Issuer – The following table sets forth the information required regarding repurchases of our common stock made during the three months ended December 31, 2005.

(1) Calendar month

(2) As of end of month indicated

(3) On June 22, 1999, CIBER announced its common stock share repurchase program. The program has been amended from time to time by our Board of Directors to increase the authorized shares available for repurchase. In total, 11,479,154 shares have been repurchased under this program since its inception. In December 2005, the Board of Directors revised the Company’s share repurchase program to authorize the Company’s management to repurchase up to $7.5 million of either common shares or convertible debt, whichever is determined to be more advantageous. Through December 31, 2005, the Company had repurchased only common stock.

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Item 6.  Selected Financial Data

We have derived the selected consolidated financial data presented below from our consolidated financial statements and the related notes.  This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related Notes, included elsewhere in this report.

(1)          We have completed various acquisitions during the periods presented. The revenue and operating results of acquired companies are included from the respective acquisition dates (see Note 3 to the Consolidated Financial Statements included herein).

(2)          Effective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, whereby goodwill is no longer amortized.

(3)          In December 2003, we issued $175 million of Convertible Senior Subordinated Debentures (See Note 10 to the Consolidated Financial Statements included herein).

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

The following discussion of the results of operations and financial condition should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this report.  This section also contains forward-looking statements and should be read in conjunction with the section of this report titled “Disclosure Regarding Forward-Looking Statements.”  In the following discussion and analysis of results of operations and financial condition, certain financial measures may be considered “non-GAAP” financial measures under Securities and Exchange Commission rules.  These rules require supplemental explanation and reconciliation, which is provided in Exhibit 99.1 to this Annual Report on Form 10-K, and is incorporated by reference herein.

Business and Industry Overview

CIBER provides information technology (“IT”) system integration consulting and other IT services primarily to governmental agencies and Fortune 500 and middle market companies, across most major industries.  From offices located throughout the United States and Europe, 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 five operating segments, Commercial Solutions, Federal Government Solutions, State & Local Government Solutions, Package Solutions and European Operations, are organized internally primarily by the nature of their services, client base and geography.  Our Commercial Solutions, Federal Government Solutions and State & Local Government Solutions segments comprise our U.S. based CIBER branch offices that provide IT services and products in custom-developed software environments.  These offices are classified into a segment based on their primary client focus category (Commercial, Federal or State & Local); however, they also may have clients that fall into another category.  For example, a Commercial office may also provide services to a government client.  Our India operations are considered part of our Commercial Solutions segment.  Our Package Solutions segment is comprised of our CIBER Enterprise Solutions division that primarily provides enterprise software implementation services, including ERP and supply chain management software from software vendors such as Oracle, Lawson and SAP.  Our European Operations segment represents our offices in Europe, Eastern Asia and Australia that provide a broad range of IT consulting services, including package software implementation, application development, systems integration and support services.

The majority of our services revenue is recognized under time-and-material contracts as hours and costs are incurred.  Under fixed-price contracts, which make up approximately 10%-15% of our services revenue, our revenue is fixed under the contract while our costs to complete our obligations under the contract are variable.  As a result, our profitability on fixed-price contracts can vary significantly and occasionally can even be a loss.  Changes in our services revenue is primarily a function of hours worked on revenue-generating activities and, to a lesser extent, changes in our average rate per hour.  Hours worked on revenue-producing activities vary with the number of consultants employed and their utilization level.  Utilization represents the percentage of time worked on revenue-producing engagements divided by the standard hours available (i.e. 40 hours per week).  Our average utilization rates are higher in our Commercial, Federal and State & Local Government Solutions segments (typically around 85% to 90%) as compared to our Package Solutions and European Operations segments (typically around 70% to 75%).  We actively manage both our number of consultants and our overall utilization levels.  If we determine we have excess available resources that we cannot place on billable assignments in the near future, we consider reducing those resources.  As a result, during the last three years, most of our consultant turnover has been from involuntary termination of employment.

The hourly rate we charge for our services varies based on the level of the consultant involved, the particular expertise of the consultant and the geographic area.  Our overall average rate per hour is also influenced by the results of our fixed-price engagements, which can vary.  Our effective average hourly billing rates are highest in our Package Solutions segment (approximately $145 per hour) as compared to our European Operations segment (approximately $100 to $120 per hour) and to our Commercial, Federal and State & Local Government Solutions segments (approximately $50 to $75 per hour).  Success or overruns on fixed-price contracts can also influence our effective average rate per hour.  In addition, our foreign revenue is also impacted by changes in currency exchange rates.

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Other revenue includes resale of third-party IT hardware and software products, sales of proprietary software and commissions on sales of IT products.  Our sales of IT hardware and software generally involve IT network infrastructure.  Gross profit percentage on other revenues is approximately 40%.  This is a blend of low-margin product sales (typically 5% to 15%) and higher-margin product commissions and proprietary software sales.  Depending on the mix of these business activities, gross profit percentage on other revenue will fluctuate.

The market demand for CIBER’s services is heavily dependent on IT spending by major corporations, organizations and government entities in the markets and regions that we serve.  The pace of technology change and changes in business requirements and practices of our clients all have a significant impact on the demand for the services that we provide.  In addition, the recent economic downturn has negatively affected the operations of many of our clients and prospective clients and has negatively impacted their IT spending.  As a result, competition for new engagements and pricing pressure has been strong.  We have responded to these challenging business conditions by closely monitoring the utilization of our billable personnel, through continuing evaluation of the size of our workforce and required office space and by managing our selling, general and administrative costs as a percentage of revenue.

Business Combinations

In 2005, we acquired two small entities, including a single office operation specializing in SAP implementations and an India-based professional services firm specializing in custom application development.  During 2003 and 2004, we completed the following significant business combinations:

Novasoft AG (“Novasoft”) – In late 2004, we acquired approximately 94% of the net outstanding shares of Novasoft, headquartered in Heidelberg, Germany, for total consideration of approximately $61.0 million in cash and $16.0 million of CIBER common stock.  In 2005, we increased our ownership of Novasoft to approximately 95% for an additional $1.8 million for consideration and expenses and we expect to acquire the remaining shares in 2006.  The cash portion of the payment consideration was primarily funded by borrowing under our bank revolving line of credit.  Novasoft is a provider of implementation and other consulting services related to SAP software products.  Novasoft is an SAP Alliance Partner and implements all of SAP’s ERP products, including mySAP.com products and industry specific applications.  At the time of the acquisition, Novasoft had approximately 425 consultants, located mainly in Germany, the U.K. and Spain.  We acquired Novasoft to expand both our international presence and our capacity to deliver SAP-related services.  When combined with our existing European operations, we now provide SAP related consulting services from 10 European countries.  At the time of the acquisition, we expected Novasoft to contribute approximately $78 million in annualized revenue.  For 2005, Novasoft recognized revenue of approximately $84 million.

Ascent Technology Group Limited (“Ascent”) - Based in Hinckley, U.K., Ascent provides IT services to medium-sized enterprises with a particular focus on software implementation and sales, including both SAP and Sage ERP solutions and Microsoft.Net software services.  Ascent has also developed and sells its own proprietary customer relationship management software.  The aggregate purchase consideration for Ascent included $20.2 million in cash and $1.5 million of CIBER common stock.  In addition, Ascent had certain debt obligations, totaling approximately $19.5 million, which we repaid shortly after closing the acquisition.  We primarily used a portion of the cash raised from our Convertible Senior Subordinated Debentures (“Debentures”) to fund the cash portion of the purchase consideration and to repay Ascent’s debt.  At the time of the acquisition, we expected Ascent to contribute approximately $40 million in annualized revenue.  For 2005, Ascent recognized revenue of approximately $38 million.

SCB Computer Technology, Inc. (“SCB”) -  Based in Memphis, Tennessee, SCB provided IT services similar to CIBER, including consulting, outsourcing and professional staffing, with a particular focus on federal and state government clients.  The aggregate purchase price included $44.3 million in cash and $12.7 million in CIBER common stock.  In addition, SCB had certain debt obligations, totaling approximately $33.1 million that we repaid

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shortly after closing the acquisition.  We used a portion of the cash raised from our Debentures to fund the cash portion of the purchase consideration and to repay SCB’s debt.  This acquisition expanded our Federal Government Solutions and State & Local Government Solutions segments and added beneficial customer relationships to our Commercial Solutions business.  We acquired SCB so that a combined CIBER and SCB would be able to compete more effectively for larger public sector contracts.   At the time of the acquisition, we expected SCB to contribute approximately $120 million in annualized revenue; however, SCB’s operations generally had lower average billing rates and slightly lower gross margins than our historical averages, which lower our measurements in these areas.  It is difficult to measure the incremental revenue recognized in 2005 from our 2004 acquisition of SCB since many of the SCB offices were combined with existing CIBER offices.  However, each of the CIBER reporting segments to which SCB contributed, Commercial Solutions, State & Local Government Solutions, and Federal Government Solutions, all realized organic revenue growth during 2005.  Our Commercial Solutions segment, which received approximately 15% of SCB’s revenue, realized organic growth of approximately 1% in 2005.  Our State & Local Government Solutions segment, which received approximately 35% of SCB’s revenue, realized organic growth of approximately 4% in 2005.  Finally, our Federal Government Solutions segment, which received approximately 50% of SCB’s revenue, realized organic growth of approximately 2% in 2005.  We believe the acquisition provided an opportunity to realize operational efficiencies in the form of lower combined selling, general and administrative costs, primarily by reducing SCB’s corporate administrative costs.

ECsoft Group plc. (now named CIBER Europe Limited) is based in London.  At the time of the acquisition, ECsoft had operations in Denmark, the Netherlands, Norway, Sweden and the U.K. that provided IT consulting services similar to services provided by CIBER.  We acquired ECsoft to increase the size of our European operations and add depth to our European management team.  At the time of the acquisition, we expected ECsoft to add approximately $55 million in annual revenue.  For 2005, CIBER Europe Limited recognized revenue from prior ECsoft operations totaling approximately $50 million.  These revenue results include our Denmark operation which incurred significant cost overruns on two fixed-price projects that constrained revenue and operating income results in that operation by approximately $4.5 million during 2005.  See our European Operations segment discussion under “Results of Operations” for additional discussion on these projects.

The results of operations of these acquired businesses have been included in our Consolidated Financial Statements since the closing date of the respective acquisition.

Results of Operations

Consolidated

The following table sets forth certain consolidated statement of operations data, expressed as a percentage of revenue:

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The following table sets forth certain operating data for our reportable segments:

Year Ended December 31, 2005 as compared to Year Ended December 31, 2004

Total revenue increased 13% to $956.0 million in 2005 from $843.0 million in 2004.  The 2005 revenue growth primarily resulted from our 2004 acquisitions of SCB, Ascent and Novasoft along with the 2005 acquisition of a small, single office SAP practice, and was offset by the August 2005 sale of the staffing component of our IBM operation.  Collectively, these acquisitions, offset by the divestiture of our IBM staffing operation, added approximately $90 million in incremental revenue to 2005 as compared to 2004.  Excluding the revenue associated with the 2004 and 2005 acquisitions and divestiture from both periods, 2005 revenue would have increased by approximately 3% compared to 2004.  Revenue in 2005 was positively impacted by organic revenue growth in all five of our reporting segments, ranging from approximately 1% in our Commercial segment to approximately 10% in our Package segment.  Our average number of billable consultants working during the year increased 10% to approximately 7,065 in 2005 from approximately 6,450 in 2004.  Other revenue increased to $38.6 million in 2005 from $33.9 million in 2004 due to our acquisition of Ascent and sales of their proprietary software product.  The Ascent increase was partially offset by an approximate $4.6 million decrease in domestic hardware and software sales, due in part to a decrease in sales to a large State & Local Solutions segment client.  Our average billing rate increased to $76 per hour in 2005 compared to $73 per hour in 2004.  Higher billing rates in our European Operations segment, now a larger percentage of the overall revenue total, plus higher billing rates in our Commercial Solutions segment, accounted for the majority of the increase.  Consultant utilization was 87% in 2005 as compared to 88% in 2004.

In total, our gross profit percentage decreased to 26.9% of revenue in 2005 from 27.5% of revenue in 2004.  The overall decline represents a mix of higher margins on other revenue, which improved by 570 basis points combined with a decline in services margins which fell by 90 basis points.  The other revenue margin improvement is primarily due to a full year of high margin product sales from our Ascent acquisition combined with improved margins within the Technology Solutions practice in our Package Solutions segment.  The 90 basis point year over year services margin decline is attributed primarily to execution issues in our European Operations and State & Local Solutions segments.  In our European Operations segment, cost overruns on two fixed-price Danish projects, along with poor performance in the first half of the year in one of our U.K. offices accounted for approximately 70

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basis points in overall services margin decline.  In our State & Local Solutions segment, project cost overruns and a fourth quarter project cancellation and project delay negatively impacted overall services gross margins by approximately 20 basis points.  Positively impacting services gross margins in 2005 was the full year benefit of Ascent and Novasoft, which combined, incrementally contributed approximately $60 million of services revenue.  This incremental revenue yielded a gross margin of approximately 32.5%, positively impacting CIBER’s overall services gross margin by approximately 40 basis points.  The balance of the services gross profit percentage decline, about 40 basis points, was the result of higher labor costs in our Commercial Solutions and State & Local Solutions segments, and investments in our onshore and offshore CIBERsites locations.

Selling, general and administrative expenses (“SG&A”) increased to $204.6 million in 2005 from $176.7 million in 2004, primarily due to our 2004 acquisitions.  As a percentage of sales, SG&A increased to 21.4% in 2005 from 20.9% in 2004.  The increase is due primarily to expected higher SG&A costs in our European Operations segment, now a larger percentage of our overall business due to our acquisitions of Ascent and Novasoft.  Excluding Europe, SG&A as a percentage of revenue actually decreased by approximately 20 basis points.

Amortization of intangible assets increased to $6.0 million in 2005 from $4.2 million in 2004 due to additional amortizable intangible assets, primarily customer relationships, resulting from our recent acquisitions.

Interest income and expense fluctuate based on our average cash balance invested or amounts borrowed.  In addition to our outstanding Debentures, our average line of credit balance was approximately $43 million during 2005 as compared to $16 million during 2004.  Interest income is primarily from cash held in our European subsidiaries.  Net interest expense totaled approximately $7.9 million in 2005 compared to $6.1 million in the prior year.

Other expense, net was $143,000 in 2005 as compared to other income, net of $2.2 million in 2004.  The 2005 amount was primarily comprised of a $1.0 million gain on the sale of our IBM staffing operation during the third quarter and gains on foreign currency forward contracts of $748,000, offset by foreign currency losses of $1.2 million and minority interest expense of $341,000.  Other income in 2004 included foreign currency gains of $1.2 million, $376,000 of gains on foreign currency forward contracts and minority interest income of $70,000.  Our effective tax rate was 36.0% in 2005 compared to 37.3% in 2004.  Our effective tax rates in both 2005 and 2004 were favorably impacted by a Federal research credit.  The lower rate in 2005 was due to an adjustment to the expected benefit of the research and experimentation credit that CIBER first recognized at the end of 2004.  Absent the adjustment to the expected benefit of this tax credit, CIBER’s effective tax rate for 2005 would have been approximately 39%.

Year Ended December 31, 2004 as compared to Year Ended December 31, 2003

Total revenue increased 22% to $843.0 million in 2004 from $692.0 million in 2003.  The 2004 revenue growth primarily resulted from our 2004 acquisitions of SCB, Ascent and Novasoft, plus the full year benefit of our 2003 acquisitions of ECsoft and AlphaNet.  Our 2004 acquisitions added approximately $165 million in incremental revenue to 2004 and the full year benefit of our 2003 acquisitions added another $13 million in incremental revenue to 2004.  Excluding the incremental revenue contributed by the 2003 and 2004 acquisitions, 2004 revenues would have decreased by approximately 4% from the prior year.  Approximately one fourth of the decrease was due to a reduction in services from a large telecommunications client in September of 2003, which negatively impacted revenue on a year over year basis by approximately $8 million.  Revenue in 2004 was positively impacted by organic revenue growth in our Federal Government Solutions and European Operations segments that was offset by decreased sales in our Commercial Solutions, State & Local Government Solutions and Package Solutions segments.  Our average number of billable consultants working during the year increased 26% to approximately 6,450 in 2004 from approximately 5,100 in 2003.  Other revenues increased to $33.9 million in 2004 from $28.0 million in 2003 due to our acquisition of Ascent and sales of their proprietary software product.  The Ascent increase was partially offset by decreased domestic hardware and software sales.  Our average billing rate was $73 per hour in 2004 compared to $72 per hour in 2003.

In total, our gross profit percentage decreased to 27.5% of revenue in 2004 from 27.9% of revenue in 2003.  This decrease is due to lower gross margins on services revenue, partially offset by increased gross margins on other revenue.  The decline in gross profit on services revenue was primarily due to expected lower margins on the incremental revenue contributed by SCB, as well as lower profitability on three projects that experienced cost

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overruns.  Our gross profit percentage on other revenue increased to 36.6% in 2004 from 27.3% in 2003 due to increased sales of higher-margin proprietary software products contributed by Ascent.  In addition, consultant utilization in 2004 was 88% compared to utilization of 89% in 2003.

SG&A increased to $176.7 million in 2004 from $158.2 million in 2003, due to the incremental costs associated with our 2004 acquisitions.  As a percentage of sales, SG&A decreased to 20.9% in 2004 from 22.8% in 2003, as we continued efforts to contain costs and leverage our existing overhead infrastructure.  Contributing to this was a combined $2.0 million decrease in office rent and SG&A depreciation expense in 2004.

Amortization of intangible assets increased to $4.2 million in 2004 from $2.7 million in 2003 due to additional amortizable intangible assets, primarily customer relationships, resulting from our recent acquisitions.

Interest income and expense fluctuates based on our average cash balance invested or amounts borrowed.  Interest expense increased to $7.0 million in 2004 from $2.1 million in 2003 primarily due to the December 2003 sale of $175 million of 2.875% Convertible Senior Subordinated Debentures.  Interest income is primarily from cash held in our European subsidiaries.

Other income, net was $2.2 million in 2004 as compared to $162,000 in 2003.  Other income in 2004 included foreign currency transaction gains of $1.2 million, $376,000 of gains on foreign currency forward contracts and minority interest income of $70,000.

Our effective tax rate was 37.3% in 2004 compared to 36.4% in 2003.  Our effective tax rate in 2004 was favorably impacted by a Federal research credit while 2003 was largely impacted by tax benefits resulting from the closure of certain subsidiary operations.  Our acquisition of Novasoft in late 2004 has also slightly increased our effective tax rates, as Novasoft operates in foreign countries with higher tax rates.

Segments

Commercial Solutions

Commercial Solutions (“Commercial”) revenue increased slightly in 2005 despite the negative impact from the August 2005 sale of our IBM staffing operation.  The sale negatively affected services revenue by approximately $5 million in 2005 compared to 2004.  Incremental revenue contributed by our 2004 acquisitions totaled approximately $4 million.  Absent the acquisition and divestiture activity, organic growth was approximately 1% during 2005 and was achieved mainly because of our continued shift away from IT staffing and toward more project-based work.  Commercial revenue was negatively impacted in 2003 and 2004 because of a large telecommunications client that significantly reduced the use of our services in September of 2003.  This client reduction negatively impacted

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revenue by approximately $7 million in 2003 and by $8 million in 2004.  Other revenue for our Commercial segment represents the resale of third-party hardware and software products.  In 2004, the substantial decrease in other revenue as compared to 2003 was the result of continued downward pricing pressure on hardware and software, resulting from increased competition from the direct sales channels of hardware and software manufacturers.

Gross profit percentage on services revenue decreased by 60 basis points to 25.7% in 2005 as compared to 26.3% in 2004 due to higher employee wage and benefit costs combined with an increased reliance on higher cost subcontractors.  Gross profit percentage on services revenue improved by 50 basis points in 2004 to 26.3% compared to 25.8% in 2003 due to our continued shift away from IT staffing toward higher-margin project-based work.  Our gross profit percentage on other revenue increased by 280 basis points in 2005 compared to 2004, which was due to the mix of products sold and our focus on the sale of higher margin products.  In 2004, we experienced a 170 basis point decline in our gross profit percentage on other revenue as compared to 2003, which was due to the pricing pressures and increased competition mentioned above.

The Commercial segment’s operating income percentage declined to 7.2% in 2005 from 8.3% in 2004 due to the previously discussed gross profit decline combined with higher SG&A costs.  The higher SG&A costs are primarily due to the investment we are making in CIBERsites, our low-cost application development and support centers.

Federal Government Solutions

Federal Government Solutions (“Federal”) revenue increased significantly in 2004 and continued the upward trend in 2005, though at a much slower pace.  Our acquisition of SCB in March of 2004 contributed to both the 2004 and 2005 revenue increases, adding incremental revenue of approximately $50 million in 2004 and approximately $10 million in 2005.  Excluding the impact of the SCB acquisition, Federal revenue grew organically by approximately 28% in 2004 and 2% in 2005 compared to the prior years.  The 2004 organic revenue increase is primarily due to increased spending, particularly in the areas of defense and homeland security within existing government agency clients, as well as the successful penetration of new agency accounts resulting in new contract wins.  In 2005, while revenue grew organically for the year compared to 2004, during 2005 revenue declined by approximately 10% in the last half of the year compared to the first half.  The decrease is due primarily to the loss of revenue from an outsourcing contract where CIBER was a subcontractor to a larger prime vendor.  The term of the outsourcing contract ended, and it was required by the Federal agency for which the work was being performed that the contract be re-bid.  CIBER and the prime vendor with whom we partnered were unsuccessful in our effort to continue providing services under the contract.  Loss of this contract resulted in a revenue decrease of approximately $8 million in the second half of 2005.  In addition, the Federal segment recognized approximately $2 million less revenue in the last six months of 2005 compared to the first six months on a telecommunications outsourcing arrangement where we provide maintenance services on a time and materials basis.  This contract remains in place,

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and the maintenance services associated with it will continue to fluctuate up and down based on demand.  Revenue for the remaining Federal operations grew by approximately 1% in the last six months of 2005 compared to the first six months.

Federal gross profit percentage decreased by 50 basis points in 2005 compared to 2004 and by 300 basis points in 2004 compared to 2003.  Federal gross profit percentages were 23.4% in 2005, 23.9% in 2004 and 26.9% in 2003.  Revenue and gross profit contributed by our March 2004 acquisition of SCB accounted for the entire decline.   The average gross profit percentage associated with the revenue contributed by SCB for ten months of 2004 and a full year in 2005 was approximately 18%.  This compares to gross profit margins associated with “non-SCB” Federal segment revenue of approximately 28% over that same two-year period.  The majority of the Federal revenue contributed by SCB consists of long-term contracts with low bill rates and low gross margins.  Although gross margins are low on these contracts, the SG&A overhead structure is also low.  As a result, in 2004, operating income as a percentage of revenue declined by only 160 basis points compared to a 300 basis point decline in gross margin.  In 2005, operating income declined by 60 basis points to 12.7% from 13.3% in 2004, which is a combination of the lower SCB gross margins throughout the year combined with lower operating margins in the last six months resulting from the decline in revenue previously discussed.

State & Local Government Solutions

State & Local Government Solutions (“State & Local”) revenue in 2004 and 2005 significantly benefited from our March 2004 acquisition of SCB.  Excluding the impact of that acquisition, total revenue for 2005 increased on an organic basis by approximately 4% compared to 2004, and 2004 total revenue decreased organically by approximately 8% compared to 2003.  2005 consulting services revenue grew organically by approximately 10%, while other revenue, which in the State & Local segment consists of low margin, third-party hardware and software product re-selling activity, fell by over 50%.  The organic growth in 2005 services revenue was attributed to growth in our security practice, as well as our ability to leverage our expertise in certain State & Local verticals.  The decrease in 2004 organic total revenue was due primarily to IT budget constraints in the state and local government marketplace resulting from overall state and local budget deficits.

The consulting services gross profit percentage in our State & Local segment decreased in 2005 to 24.1% from 28.3% in 2004.  Several factors were responsible: first, the Company put a heavy dependence on high-priced subcontractors, particularly for the work associated with the Hurricane Katrina relief efforts in New Orleans; second, we experienced lower average billing rates and lower utilization elsewhere in the segment; and third, we experienced a project cost overrun and a fourth quarter project cancellation and delay that negatively impacted our service growth profit percentage by approximately 170 basis points.

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Operating income as a percentage of revenue decreased by 320 basis points in 2005 as compared to 2004.  The lower gross profit percentage on services revenue in 2005, explained above, partially offset by lower SG&A costs as a percentage of revenue, accounted for the operating income percentage decrease.   SG&A as a percentage of revenue was relatively flat between 2003 and 2004, and thus the improvement in 2004 operating income percentage over 2003 was due entirely to improvement in the overall gross profit percentage.

Package Solutions

Package Solutions (“Package”) 2005 revenue increased by approximately 17% compared to 2004, and 2004 revenue decreased approximately 6% compared to 2003.  The 2005 increase was due to organic growth of approximately 10%, resulting from continued improved demand following the completion of the acquisition of PeopleSoft by Oracle.  The decrease in 2004 revenues was primarily due to a decrease in PeopleSoft-related services offset in part by an increase in Oracle-related services.  The market for PeopleSoft implementation services was hindered in 2004 due to the uncertainty around Oracle Corporation’s bid to acquire PeopleSoft.  Firms that had purchased PeopleSoft software licenses were reluctant to engage firms like CIBER to implement that software until there was clarity around the outcome of Oracle’s takeover attempt.  In addition to organic growth in the Package segment, 2005 revenues also benefited from our first quarter acquisition of a single office operation specializing in SAP implementations.  This acquisition closed at the beginning of January 2005 and contributed revenue of approximately $6.5 million in 2005.  Other revenue is derived from our Technology Solutions practice and represents commissions on the resale of third party IT hardware products.  In 2005, other revenue increased by approximately 30% to $13.0 million compared to $10.1 million in 2004.  Heavy fourth quarter demand for IT hardware sold to customers for their enterprise package software implementations along with successful cross selling efforts accounted for much of the increase.

Gross profit as a percentage of services revenue in the Package Solutions segment declined by 50 basis points in 2005 to 29.4% compared to 29.9% in 2004.  Higher labor costs accounted for the majority of the services gross profit percentage decline.  The 400 basis point decrease in 2004 in gross profit percentage on services revenue was due to constrained demand because of the Oracle takeover attempt of PeopleSoft previously mentioned, which caused billing rates to compress slightly.  In addition, cost overruns on a PeopleSoft project in the first half of 2004 also negatively impacted gross profit margins on services revenue.  Gross profit on other revenue, which consists of commission dollars earned on the resale of certain hardware products, increased by 480 basis points in 2005 over 2004 related to higher commission rates on higher revenue volumes.  Overall, gross profit percentage, after suffering a 350 basis point decline in 2004 related to the PeopleSoft takeover and surrounding uncertainty, improved by 40 basis points in 2005.  The improvement was constrained by the higher labor costs mentioned above.

The 2005 revenue increase, which caused SG&A expenses to decrease as a percentage of revenue to 21.9% in 2005 from 23.6% in 2004, combined with improved gross profit on other revenue, had a positive impact on operating

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income margins.  Operating income as a percentage of revenue improved to 11.1% in 2005 compared to 9.1% in 2004.

European Operations

Our European Operations (“European”) segment revenue increased dramatically in 2003, 2004 and 2005.  Our acquisition of ECsoft in January 2003 and our acquisitions of Ascent in May 2004 and Novasoft in September 2004 contributed significantly to the increase.  ECsoft (now named CIBER Europe Limited) contributed revenue of approximately $55 million in 2003, $60 million in 2004, and $50 million in 2005.  The 2005 ECsoft revenue results include our Denmark operation which incurred significant losses on two fixed-price projects that constrained revenue and operating income results in that operation by approximately $4.5 million.  The two Denmark fixed-price projects are for a public sector client and are still ongoing.  The cost overruns are the result of poor price estimating during the bidding phase, an initial poor technical design on one of the projects, resulting in a re-write of the application, poor project management and resource allocation and an inefficient change control process resulting in an expansion of the project scope without any incremental increase to the fixed price.  We currently anticipate that both of these projects will be complete early in the second quarter of 2006.  Ascent and Novasoft contributed approximately $25 million and $27 million in 2004, respectively, and $38 million and $84 million in 2005, respectively.  Excluding acquisition related revenue, organic increases in European segment revenue were 33% in 2004 and 6% in 2005.  The 2004 organic revenue increase includes the impact of favorable changes in foreign currency rates vs. the U.S. Dollar, which we estimate contributed approximately $3 million.  In 2005, however, the U.S. Dollar was relatively neutral for the year against the foreign currencies that impact our European operations, though the U.S. Dollar did strengthen in the last six months of 2005.  Excluding the impact of foreign exchange rate changes, our European Operations had organic revenue growth of approximately 17% in 2004 and 6% in 2005.  The 2004 organic growth rate is somewhat distorted by the large percentage of overall revenue contributed by acquisitions in 2003 and 2004.  Other revenue in 2004 and 2005 represents Ascent’s sales of proprietary and third party software products.

Gross profit percentage on services decreased 160 basis points in 2004 and 70 basis points in 2005.  Approximately 70 basis points of the 2004 decrease were due to a project overrun in our Denmark operation.  In 2005, continued project cost overruns on the two fixed-price projects in our Denmark operation mentioned above, along with poor performance in the first half of the year in one of our U.K. offices negatively impacted services gross profit by approximately 250 basis points.  Positively impacting European services gross profit in 2005 was the full year benefit of Ascent and Novasoft which combined, added approximately $60 million of incremental services revenue yielding gross margins of approximately 32.5%; positively impacting services gross profit percentage by approximately 140 basis points.  The remainder of the 2005 fluctuation in services gross margin, approximately 40 basis points, is due to an approximate 400 basis point improvement in gross margins in our Netherlands operation.  The remainder of the fluctuation in gross profit percentage for both 2003 and 2004 was due to a change in the mix of

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our business resulting from our various acquisitions during those years of companies that operated at more traditional industry levels.  The gross profit percentage on Europe’s other revenue decreased from 56.2% in 2004 to 46.9% in 2005 due to unusually high gross profit on Ascent software sales in 2004 related to Ascent’s proprietary CRM product, whereas the majority of other revenue in 2005 related to lower margin re-selling activity of other non-proprietary products.

Europe’s operating income percentage improved in 2004 compared to 2003 due to the acquisitions of Ascent and Novasoft, both higher operating margin businesses, and reductions in SG&A payroll costs and office rent.  In 2005, Europe’s operating income percentage decreased by approximately 240 basis points to 4.0% in 2005 compared to 6.4% in 2004.  The decrease in gross profit, explained above, combined with expected higher SG&A expenses from Ascent and Novasoft, accounted for the decrease.

Liquidity and Capital Resources

At December 31, 2005, we had $147.4 million of working capital and a current ratio of 2.15: 1.  Historically, we have used our operating cash flow, borrowings under our line of credit, periodic sales of our common stock, as well as the sale of Debentures, to finance ongoing operations as well as business combinations.  We believe that our cash and cash equivalents, our operating cash flow and our available line of credit will be sufficient to finance our working capital needs through at least the next year.

Our balance of cash and cash equivalents was $40.7 million at December 31, 2005, compared to a balance of $44.4 million as of December 31, 2004.  At both December 31, 2005 and 2004, substantially all of our cash balance was maintained by our European subsidiaries, of which, approximately $27.1 million at December 31, 2005 was held by our Novasoft subsidiary.  Until we acquire 100% ownership of Novasoft, our use of Novasoft’s cash, outside of their business opportunities or needs, is limited under German corporations law.

Total accounts receivable increased slightly to $212.1 million at December 31, 2005, from $206.1 million at December 31, 2004.  Total accounts receivable day’s sales outstanding (“DSO”) was 76 days at December 31, 2005, as compared to 75 days at December 31, 2004.  Changes in accounts receivable have a significant effect on our cash flow.  Items that can affect our accounts receivable DSO include: contractual payment terms, client payment patterns (including approval or processing delays and cash management), client mix (public vs. private), fluctuations in the level of IT product sales and the effectiveness of our collection efforts.  Many of the individual reasons are outside of our control, and, as a result, it is normal for our DSO to fluctuate from period to period, affecting our liquidity.

Accrued compensation and related liabilities were $44.4 million at December 31, 2005, and $46.5 million at December 31, 2004.  These balances are subject to the effects from the timing of our normal bi-weekly U.S. payroll cycle.  At both December 31, 2005 and 2004, there were 5 days of unpaid wages.

Accounts payable and other accrued liabilities typically fluctuate based on when we receive actual vendor invoices and when they are paid.  The largest of such items typically relates to vendor payments for IT hardware and software products that we resell and payments to services-related contractors.

Investing activities are primarily comprised of cash paid for acquisitions and purchases of property and equipment.  We used only $9.6 million of our cash for acquisitions in 2005, as compared to $120.3 million for acquisitions in

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2004.  Spending on property and equipment increased to $10.8 million in 2005 from $7.4 million in 2004, as we made investments in our CIBERsites locations, and purchased client project-related assets.

In 2005 and 2004, our financing activities were primarily comprised of cash used for the repayment of our line of credit and the purchase of treasury stock and cash provided by sales of stock under our employee stock purchase plan and the exercise of employee stock options.  In 2004, we also used our cash to repay $52.6 million of debt acquired in connection with our SCB and Ascent acquisitions.  We purchased $10.5 million of treasury stock during 2005, as compared to $11.2 million in 2004.  At December 31, 2005, we had authorization for the repurchase of an additional $6.9 million of common stock or convertible debt under our current repurchase plan.  We may continue to use cash to repurchase our common stock or our convertible debt, whichever is more advantageous.  The cash provided by sales of stock under our employee stock purchase plan and options exercised decreased to $5.7 million in 2005, as compared to $8.6 million in 2004.

In early 2005, we increased our ownership in Novasoft to 95%, and we announced our intentions to attempt to acquire all of the remaining Novasoft minority interest shares.  We anticipate the remaining costs to acquire all of the minority interest shares will be approximately $4-5 million which, subject to government approval, we expect to complete in 2006.

Convertible Senior Subordinated Debentures - In a private placement on December 2, 2003, we issued $175 million of 2.875% Convertible Senior Subordinated Debentures (“Debentures”) due to mature in December 2023.  The Debentures are general unsecured obligations and are subordinated in right of payment to all of our indebtedness and other liabilities.  Interest is payable semi-annually in arrears on June 15 and December 15 of each year.

The Debentures are convertible at the option of the holder into shares of our common stock at an initial conversion rate of 73.3138 shares per $1,000 principal amount of Debentures, which is equivalent to an initial conversion price of approximately $13.64 per share, subject to adjustments, prior to the close of business on the final maturity date only under the following circumstances: (1) during any fiscal quarter commencing after December 31, 2003, if the closing sale price of our common stock exceeds 120% of the conversion price for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding fiscal quarter; (2) during the five business days after any ten consecutive trading day period in which the trading price per $1,000 principal amount of Debentures for each day of such period was less than 98% of the product of the closing sale price of our common stock and the number of shares issuable upon conversion of $1,000 principal amount of the Debentures; (3) if the Debentures have been called for redemption; or (4) upon the occurrence of certain specified corporate transactions.  The conversion price is subject to adjustment in certain circumstances.  On January 4, 2005, CIBER made an irrevocable election to settle in cash and not in shares, not less than 30% of the principal amount of the Debentures surrendered for conversion.  On July 20, 2005, we increased our irrevocable election to settle in cash and not in shares 100% of the principal amount of the Debentures surrendered for conversion.  As a result, upon conversion we will deliver cash in lieu of our common stock.

Debenture holders may require us to repurchase their Debentures on December 15, 2008, 2010, 2013 and 2018, or at any time prior to their maturity in the case of certain events, at a repurchase price of 100% of their principal amount plus accrued interest.  From December 20, 2008, to, but not including December 15, 2010, we may redeem any of the Debentures if the closing price of our common stock exceeds 130% of the conversion price for at least 20 trading days in any 30 consecutive trading day period.  Beginning December 15, 2010, we may, by providing at least 30-days’ notice to the holders, redeem any of the Debentures at a redemption price of 100% of their principal amount, plus accrued interest.

Bank Line of Credit – We have a $60 million revolving line of credit with Wells Fargo Bank, N.A. that expires on September 30, 2007.  As of December 31, 2005, we had $42.6 million of outstanding borrowings under this line of credit.  The line of credit will remain unsecured, unless borrowings exceed $40 million for two consecutive fiscal quarters or if certain financial covenant thresholds are exceeded, in which case, substantially all of CIBER’s assets would secure the line of credit.  The interest rate charged on borrowings under the agreement ranges from the prime rate of interest (“prime”) less 1.00% to prime less 0.30%, depending on CIBER’s Pricing Ratio and changes, as required, on the first day of each quarter.  CIBER’s Pricing Ratio is defined as the ratio of CIBER’s Senior Funded Indebtedness at the end of each quarter divided by CIBER’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the prior four fiscal quarters then ended.  On December 31, 2005, the bank’s prime rate was 7.25% and our rate for borrowing was 6.45%.  We are also required to pay a fee per annum on

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the unused portion of the line of credit.  This fee ranges from 0.25% to 0.50%, depending on CIBER’s Pricing Ratio and changes, as required, on the first day of each quarter.

The terms of the credit agreement contain, among other provisions, specific limitations on additional indebtedness, liens and merger activity and prohibit the payment of any dividends.  The line of credit agreement also contains certain financial covenants including a maximum asset coverage ratio (Senior Funded Indebtedness, excluding amounts due to IBM Credit under the wholesale financing agreement, divided by net accounts receivable, excluding foreign accounts and accounts securing our wholesale finance agreement with IBM Credit) of 50%; a maximum leverage ratio (a ratio of Total Funded Indebtedness divided by EBITDA) of 5.0 to 1.0; a maximum senior leverage ratio (the ratio of Senior Funded Indebtedness divided by EBITDA) of 1.5 to 1.0; and a minimum fixed charges coverage ratio (the ratio of EBITDAR to Total Fixed Charges) of 1.75 to 1.0.  We are required to satisfy the financial covenants at the end of each quarter.  We were in compliance with these financial covenants as of December 31, 2005.  Certain elements of these ratios are defined below.

•                  Senior Funded Indebtedness includes borrowings under our line of credit and our term loan with Wells Fargo plus the face amount of any outstanding Letters of Credit and any liabilities under our Wholesale Financing Agreement with IBM Credit.  It does not include our Debentures or any liabilities under any Swap Contract.

•                  Total Funded Indebtedness includes all Senior Funded Indebtedness plus all subordinated indebtedness.  This includes our Debentures, but does not include any liabilities under any Swap Contract.

•                  EBITDA represents net income from continuing operations plus:  interest expense, income tax expense, depreciation expense and amortization expense, measured over the prior four quarters.

•                  EBITDAR represents net income plus:  interest expense, income tax expense, depreciation expense, amortization expense and rent payments, measured over the prior four quarters.

•                  Total Fixed Charges represents the sum of capital expenditures, plus interest expense and rent payments, measured over the prior four quarters.

Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2005:

(1)          Our Debentures of $175 million are due 2023, and we presently pay approximately $5 million annually in interest related to the Debentures. However, pursuant to their terms, they may be redeemed for cash at various times prior to maturity beginning in 2008. Since we cannot predict any such redemption of the Debentures, their full value is reflected in this table based upon their scheduled maturity date. See Note 10 to the Consolidated Financial Statements included herein for additional information.

(2)          We believe the future interest obligation on our line of credit is not estimable, primarily because the balance is not predictable and because the interest rate is a variable rate determined quarterly. Assuming neither the balance nor the rate changes in 2006, we would pay less than $2.8 million for interest expense in 2006 related to the line of credit.

(3)          Includes operating leases for all office locations and office equipment.

Seasonality

We experience a moderate amount of seasonality.  Our consulting revenue and profitability are affected by the number of workdays in a quarter.  Typically, our billable hours are reduced in the second half of the year, especially during the fourth quarter, due to the large number of holidays and vacation time taken by our billable consultants.  As a result, our operating income as a percentage of revenue is generally the lowest in the fourth quarter of each calendar year.

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Recently Issued Accounting Standard

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.”  SFAS 123R supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance, and amends SFAS No. 95, “Statement of Cash Flows.”  The Company will adopt SFAS 123R effective January 1, 2006, at which time, the Company must calculate and record in the income statement the cost of equity instruments, such as stock options, awarded to employees for services received.  The cost of the equity instruments is to be measured based on the grant-date fair value of the instruments, and is required to be recognized over the period during which employees are required to provide services.  Under the “modified prospective” transition method that we expect to apply upon adoption, compensation cost will be recognized for all awards granted subsequent to the effective date of SFAS 123R, as well as for the unvested portion of the awards outstanding as of the effective date.  The implementation of the provisions of SFAS 123R will reduce our reported net income and earnings per share.  We estimate that the adoption of SFAS 123R will reduce our 2006 net income by approximately $1.3 million to $1.5 million; however, actual results may vary depending on our future stock price, number of options issued and any future changes to our employee stock option programs.  In the fourth quarter of 2004, CIBER’s Board of Directors authorized the Company to accelerate the vesting of certain outstanding stock options in order to minimize the future expense anticipated upon adoption of SFAS 123R.  During 2004 and 2005, the Company accelerated the vesting on the majority of its outstanding stock options and, in total, decreased CIBER’s future option expense by approximately $6.0 million.

Critical Accounting Policies and Estimates