<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995
Commission file number 1-9410
------
Computer Task Group, Incorporated
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-0912632
- ---------------------------------------- ------------------------------------
(State of incorporation) (I.R.S.Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 882-8000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ -------
<TABLE>
Number of shares of common stock outstanding:
<CAPTION>
Shares outstanding
Title of each class September 29, 1995
------------------- ------------------
<S> <C>
Common stock, par value
$.01 per share 10,236,011
</TABLE>
<PAGE> 2
<TABLE>
PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
(amounts in thousands, except per share data)
Quarter Ended Three Quarters Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 85,609 $68,995 $252,448 $223,951
Direct costs 62,358 53,173 184,414 166,551
Selling, general and
administrative expenses 20,000 23,955 58,711 61,664
-------- -------- --------- ---------
Total operating expenses 82,358 77,128 243,125 228,215
-------- -------- --------- ---------
Operating income (loss) 3,251 (8,133) 9,323 (4,264)
Interest and other income 131 66 346 461
Interest and other expense 212 647 1,001 1,281
Gains on sales of assets - 10,710 - 11,348
-------- -------- --------- ---------
Income before income taxes 3,170 1,996 8,668 6,264
Income tax expense (benefit) (1,988) 879 17 2,756
-------- -------- --------- ---------
Net income $ 5,158 $ 1,117 $ 8,651 $ 3,508
======== ======== ========= =========
Net income per share $ 0.59 $ 0.13 $ 1.00 $ 0.37
========= ======== ========= =========
Weighted average shares outstanding 8,685 8,696 8,655 9,523
Cash dividend per share $ - $ - $ 0.10 $ 0.10
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
<TABLE>
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
<CAPTION>
September 29, December 31,
1995 1994
------------ -------------
(Unaudited) (Audited)
ASSETS (Amounts in thousands)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 12,325 $ 5,112
Accounts receivable, net of allowance for doubtful accounts 62,714 55,373
Prepaid and other 2,759 2,004
Deferred income taxes 2,430 2,809
Income taxes receivable 2,702 2,895
---------- ----------
Total Current Assets 82,930 68,193
Property and equipment, net of
accumulated depreciation and amortization 17,305 17,790
Acquired intangibles, net of accumulated amortization 5,813 6,267
Deferred income taxes - 2,345
Other assets 549 895
---------- ----------
Total Assets $ 106,597 $ 95,490
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,296 $ 2,296
Accounts payable 7,642 9,287
Accrued compensation 15,879 5,999
Short-term borrowings - 4,500
Advance billings on contracts 2,282 1,717
Other current liabilities 3,602 5,547
---------- ----------
Total Current Liabilities 31,701 29,346
Long-term debt 4,471 6,114
Deferred compensation benefits 7,031 6,626
Other long-term liabilities 2,568 2,746
Deferred income taxes 114 -
---------- ----------
Total Liabilities 45,885 44,832
Shareholders' Equity
Common stock, par value $.01 per share 132 127
Capital in excess of par value 92,582 87,327
Retained earnings 13,562 5,734
Foreign currency adjustment (1,702) (2,441)
Less: Treasury stock, at cost (27,563) (24,413)
Less: Loans to employees (470) (557)
Less: Stock Employee Compensation Trust (15,615) (14,881)
Less: Minimum pension liability adjustment (214) (238)
---------- ----------
Total Shareholders' Equity 60,712 50,658
---------- ----------
Total Liabilities and Shareholders' Equity $ 106,597 $ 95,490
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
<TABLE>
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Quarters Ended
Sept. 29, Sept. 30,
1995 1994
---------- -----------
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,651 $ 3,508
Adjustments:
Depreciation and amortization expense 4,575 4,204
Net loss on securities - 267
Gains on sales of assets - (11,348)
Deferred compensation expense 373 800
Changes in assets and liabilities:
Increase in accounts receivable (6,972) (2,995)
Increase in prepaids and other (642) (1,343)
Decrease in deferred income taxes 2,724 2,197
Decrease in other assets 353 317
(Decrease) increase in accounts payable (1,837) 2,106
Increase in accrued compensation 9,814 5,849
Decrease in income taxes receivable/payable 206 (5,452)
Increase in advance billings on contracts 565 1,444
Decrease in other current liabilities (2,132) (2,015)
Increase (decrease) in other long-term liabilities (8) 1,184
---------- ----------
Net cash provided by (used in) operating activities 15,670 (1,277)
Cash flows from investing activities:
Additions to property and equipment (3,374) (3,845)
Purchases of marketable securities - (1,026)
Sales of marketable securities - 7,240
Proceeds from sales of assets - 16,705
---------- ----------
Net cash provided by (used in) investing activities (3,374) 19,074
Cash flows from financing activities:
Principal payments on short-term borrowings (4,500) (875)
Principal payments on long-term debt (1,643) (1,638)
Proceeds from Employee Stock Purchase Plan 371 681
Purchase of treasury stock (3,150) (3,515)
Purchase of stock held by the Stock Employee Compensation Trust (734) (13,400)
Proceeds from other stock plans, net of tax benefits 4,976 534
Dividends paid (823) (855)
---------- ----------
Net cash used in financing activities (5,503) (19,068)
Effect of exchange rate changes on cash and temporary cash investments 420 (107)
---------- ----------
Net increase (decrease) in cash and temporary cash investments 7,213 (1,378)
Cash and temporary cash investments at beginning of year 5,112 5,355
---------- ----------
Cash and temporary cash investments at end of quarter $ 12,325 $ 3,977
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
COMPUTER TASK GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Financial Statements
The consolidated financial statements included herein reflect, in the
opinion of the management of Computer Task Group, Incorporated (the Company),
all normal recurring adjustments necessary to present fairly the financial
position, results of operations and cash flows for the periods presented.
2. Basis of Presentation
The consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC rules and
regulations. Management believes that the information and disclosures provided
herein are adequate to present fairly the financial position, results of
operations and of cash flows of the Company. It is suggested that these
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's latest Annual Report on
Form 10-K filed with the SEC.
Certain amounts in the prior year's consolidated statements of income
and cash flows have been reclassified to conform with the current year
presentation.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER AND THREE QUARTERS ENDED SEPTEMBER 29, 1995
Results of Operations
- ---------------------
The Company reported third quarter net income of $5.2 million or $0.59
per share, which included a one-time income tax benefit related to its foreign
operations of $3.2 million or $0.36 per share. Revenues were $85.6 million, up
24 percent from the $69.0 million reported in the third quarter last year.
Quarterly revenue was at its highest level in the Company's history for
the third quarter in a row. The number of CTG employees surpassed 5,000 for the
first time in the third quarter. The majority of the increase in revenue is
from North American operations, which increased $15.0 million or 24 percent for
the quarter. On a year-to-date basis, North American revenue from ongoing
operations increased $39.8 million or 21 percent. The Company sold several
businesses during 1994 and the 1994 figures include revenue generated by these
business of $.4 million in the third quarter and $16.7 million for the
year-to-date period. During the quarter, CTG was named one of IBM's eight
national technical service providers. The Company is a primary provider of
services in all IBM regions. IBM continues to be the Company's largest
customer, accounting for $20.3 million or 24 percent of third quarter revenue
and $54.9 million or 22 percent of 1995 year-to-date revenue, compared to 21
percent for the 1994 third quarter and 22 percent for the 1994 year-to-date
period. The IBM national contract applies to approximately 60 percent of the
services provided to IBM by the Company and the Company expects to increase the
volume of its revenue from IBM over the duration of the two year contract.
European revenue increased by $1.5 million or 23 percent for the quarter
and $5.4 million or 28 percent over year-to-date 1994. This increase is a
result of revenue growth and foreign currency exchange due to the weaker U.S.
dollar. In local currency, European revenue increased 27 percent in the
Netherlands and 16 percent in Belgium and remained the same in the United
Kingdom compared to year-to-date 1994.
Direct costs (defined as costs for billable staff) were 73 percent of
revenue in the third quarter and also for the year-to-date. This compares to
77 percent in the third quarter of 1994 and 74 percent for 1994 year-to-date.
The third quarter of 1994 included a $3.0 million adjustment for fixed price
projects which caused the higher percentage.
Selling, general and administrative expenses were $20.0 million or 23
percent of revenue for the third quarter and $58.7 million or 23 percent of
revenue for year-to-date 1995. For the third quarter of 1994, selling, general
and administrative expenses were $24.0 million or 35 percent of revenue. This
included $4.0 million of charges related to severance costs and other overhead
costs. For year-to-date 1994, selling, general, and administrative expenses
were $61.7 million or 28 percent of revenue, reflecting the third quarter
charges. During the third quarter of 1995, the Company consolidated several
locations as the Company continues to focus efforts on reducing overall
selling, general, and administrative costs. The Company will continue
assessing the strategic contribution of each location and may consolidate more
locations if appropriate.
6
<PAGE> 7
Operating income was $3.2 million in the third quarter of 1995, compared
to a loss of $8.1 million last year. Year-to-date 1995 operating income was
$9.3 million, compared to a loss of $4.3 million last year. The 1994 figures
reflect the $7.0 million of adjustments taken in the third quarter, as
discussed above. Operating income was 3.8 percent of income in the third
quarter and 3.7 percent of income on a year-to-date basis. The Company's
operating income is primarily generated from its North American operations.
European operations broke even for the third quarter and showed a $.3 million
profit on a year-to-date basis. The operating income from European operations
was also break even during 1994's third quarter and year-to-date.
Interest and other income increased by $65,000 or 99 percent to $131,000
for the quarter and decreased by $115,000 or 25 percent to $346,000 for the
year to date. Quarterly interest grew because the Company started generating
more cash for investment during the third quarter. Year-to-date interest and
other income declined because the Company liquidated its investment portfolio
during the first half of 1994. The Company realized $11.3 million gains on the
sale of assets during 1994, primarily from the sale of its Profimatics, Inc.
subsidiary.
Interest and other expense decreased $435,000 or 67 percent to $212,000
from the third quarter of 1994 and decreased $280,000 or 22 percent to
$1,001,000 for the year-to-date. The Company's average debt balances have
declined compared to 1994, and 1994 included $380,000 in realized and
unrealized losses on marketable securities. There were no material gains or
losses due to foreign exchange on currency.
The provision for income taxes for the third quarter includes a tax
benefit of $3.2 million related to losses associated with the Company's
European operations. During the third quarter, the Company completed an
assessment of its alternatives for its European operations, including a
determination of the value of these operations. Based on this assessment, the
Company recorded tax benefits for these losses which were previously recognized
for financial reporting purposes. Without this benefit, the tax rate would
approximate 37 percent for the quarter and year-to-date, compared to 44
percent last year. The reduction versus the prior year, excluding the effect
of the one-time benefit discussed above, is due to losses in 1994 in European
operations for which no tax benefit was provided.
Net income for the third quarter was $0.59 per share, including the tax
benefit which represents $0.36 per share. Without the tax benefit, net income
increased 76 percent for the third quarter compared to last year and 56 percent
year-to-date. The increase in net income per share (exclusive of the tax
benefit) was 77 percent for the third quarter and 73 percent on a year-to-date
basis. Weighted average shares outstanding for the year decreased from 9.5
million to 8.7 million in 1995 because of share purchases during 1994 by the
Company and its Stock Employee Compensation Trust. These shares are not
considered outstanding for purposes of calculating earnings per share.
The Company expects to continue to increase billable headcount to meet
market demand. So far this year, it is exceeding its goal to increase annual
revenue by 10 percent in 1995 compared to 1994 revenue from ongoing operations.
It is the Company's goal to reduce direct costs as a percentage of revenue.
The Company continues to review its operations and may dispose of any
businesses that are not strategic.
Financial Condition
The Company's working capital increased $12.4 million from $38.8 million
at December 31, 1994 to $51.2 million at September 30, 1995. Cash and
temporary cash investments increased $7.2 million resulting from the timing of
customer cash receipts, and accounts receivable increased $7.0 million
resulting from the increase in revenue. Such increases were offset by a $9.8
million increase in accrued compensation resulting from the increase in the
Company's headcount and the timing of quarter-end payroll payments. The Company
had no short-term borrowings outstanding at September 30, 1995, reflecting a
$4.5 million decrease from December 31, 1994.
7
<PAGE> 8
Cash provided from operations during the first three quarters of 1995
was $15.7 million. Net accounts receivable increased $7.0 million or 13%,
resulting from the 24% increase in third quarter revenues. The $.6 million
increase in prepaids and other current assets represents various prepayment
items, such as insurance and maintenance expenses, that will be expensed during
subsequent periods. The $2.7 million decrease in current and non-current
deferred income tax assets resulted from payments previously accrued for
restructuring expenses and other items. The change in current income taxes
receivable is due to the net effect of the $2.9 million tax refund payments
received during the first quarter of 1995 on tax refund receivables at December
31, 1994, offset by the $2.7 million income tax receivable resulting primarily
from the one-time tax benefit relating to the European operation losses.
The increase in company headcount, normal fluctuations in quarter-end
payroll payments, and a higher accrued vacation balance resulted in the $9.8
million increase in accrued compensation. The $.6 million increase in advance
billings on contracts is due to the timing of billings in accordance with
contractual agreements. The $2.1 million decrease in other current liabilities
is primarily due to payments for restructuring expenses and severance costs of
$1.6 million. Amounts remaining accrued for restructuring expenses and
severance and other costs at the end of the third quarter of 1995 were $.2
million and $.4 million, respectively, and $.6 million and $1.6 million,
respectively, at December 31, 1994. The remaining decrease is a result of
normal operating activities of the Company. The $1.8 million decrease in
accounts payable is due to timing of payments and normal operating activities
of the Company.
Net property decreased $.5 million representing the offsetting effects
of normal property and equipment purchasing activity of $3.4 million and
year-to-date depreciation and amortization of $3.9 million. Net acquired
intangibles decreased $.5 million due to year-to-date amortization of $.7
million, offset by a $.2 million increase from translation adjustments
resulting from the weakening of the U.S. dollar during 1995.
Financing activities of the Company during the three quarters used $5.5
million of cash. The company repaid $1.6 million of long-term debt in
accordance with the terms of the loan agreements and net payments of $4.5
million were made on short-term borrowings. The Company is in compliance with
all applicable debt agreement financial ratios and covenants, the most
restrictive being the maintenance of a minimum current ratio of 1.5 to 1.
Approximately 32,000 shares of common stock were issued to employee
participants of the Company's Employee Stock Purchase Plan during the first
nine months of 1995, which generated funds of $.4 million. During the quarter,
the Company repurchased approximately 229,000 shares from a shareholder for
$3.1 million. Proceeds from other stock plans include $4.3 million from the
exercise of stock options, $.6 million in tax benefits related to stock options
and net repayments from the Management Stock Purchase Plan of $.1 million. In
May 1995, the Company's Stock Employee Compensation Trust repurchased
approximately 60,000 shares of the Company's common stock for $.7 million for
purposes of providing funding for existing employee stock plans and benefit
programs. The Company paid a $.10 per share dividend to shareholders during
the second quarter, totalling $.8 million.
The Company has approximately $54 million in aggregate lines of credit,
of which $4.3 million was borrowed at the end of the quarter.
8
<PAGE> 9
<TABLE>
PART II. OTHER INFORMATION
---------------------------
<CAPTION>
ITEM 6. EXHIBITS
--------
<S> <C> <C>
Exhibit Description Page
------- ----------- ----
11. Statement re: computation of earnings per share 11
27. Financial Data Schedule 12
</TABLE>
Reports on Form 8-K
-------------------
Filing, on Form 8-K was made October 20, 1995 in
regards to changes in the Registrant's Certifying Accountant.
* * * * * * * *
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER TASK GROUP, INCORPORATED
By: /s/ Samuel D. Horgan
--------------------------------
Samuel D Horgan
Principal Accounting and
Financial Officer
Title: Vice President - Finance
Date: November 10, 1995
<PAGE> 10
EXHIBIT 11
----------
COMPUTER TASK GROUP, INCORPORATED
---------------------------------
Computation of fully diluted earnings per share under treasury stock
method set forth in Accounting Principles Board Opinion No. 15.
<PAGE> 11
<TABLE>
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN
ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Quarter Ended Three Quarters Ended
Sept. 29, Sept. 30, Sept. 29, Sept. 30,
1995 1994 1995 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Average number of shares outstanding
during period 10,009 10,128 9,890 10,288
Add -- Incremental shares under
stock options plans 306 138 368 98
Less -- Incremental shares held by
Stock Employee Compensation
Trust 1,630 1,570 1,603 863
------ ------ ------ -------
Number of shares on which fully diluted
earnings per share based 8,685 8,696 8,655 9,523
====== ====== ====== ======
Net income for the period $5,158 $1,117 $8,651 $3,508
Primary earnings per share $ 0.59 $ 0.13 $ 1.00 $ 0.37
Fully diluted earnings per share $ 0.59 $ 0.13 $ 1.00 $ 0.37
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-29-1995
<CASH> 12,325,000
<SECURITIES> 0
<RECEIVABLES> 63,684,000
<ALLOWANCES> 970,000
<INVENTORY> 0
<CURRENT-ASSETS> 82,930,000
<PP&E> 51,713,000
<DEPRECIATION> 34,408,000
<TOTAL-ASSETS> 106,597,000
<CURRENT-LIABILITIES> 31,701,000
<BONDS> 6,767,000
<COMMON> 132,000
0
0
<OTHER-SE> 60,580,000
<TOTAL-LIABILITY-AND-EQUITY> 106,597,000
<SALES> 0
<TOTAL-REVENUES> 252,448,000
<CGS> 0
<TOTAL-COSTS> 184,414,000
<OTHER-EXPENSES> 58,711,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,001,000
<INCOME-PRETAX> 8,668,000
<INCOME-TAX> 17,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,651,000
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
</TABLE>
