<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 MARCH 31, 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
------- -------
Number of shares of common stock outstanding:
Shares outstanding
Title of each class at March 31, 1995
------------------- ------------------
Common stock, par value
$.01 per share 10,012,926
<PAGE> 2
<TABLE>
PART I. FINANCIAL INFORMATION
-------------------------------
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
Quarter Ended
March 31, April 1,
1995 1994
---------- ----------
(Amounts in thousands
except per share data)
<S> <C> <C>
Revenue $ 82,226 $ 77,006
Direct costs 60,325 55,750
Selling, general and
administrative expenses 18,960 19,081
--------- ---------
Operating income 2,941 2,175
Interest and other income 127 277
Interest and other expense 410 224
--------- ---------
Income before income taxes 2,658 2,228
Provision for income taxes 1,064 980
--------- ---------
Net income $ 1,594 $ 1,248
========= =========
Net income per share $ 0.19 $ 0.12
========= =========
Weighted average shares outstanding 8,473 10,643
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE> 3
<TABLE>
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
<CAPTION>
March 31, December 31,
1995 1994
---------- --------------
(Audited)
(Amounts in thousands)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 3,823 $ 5,112
Accounts receivable, net of allowance for doubtful accounts 72,693 55,373
Prepaids and other 3,111 2,004
Deferred income taxes 2,418 2,809
Income taxes receivable - 2,895
-------- --------
Total Current Assets 82,045 68,193
Property and equipment, net of
accumulated depreciation and amortization 17,120 17,790
Acquired intangibles, net of accumulated amortization 6,436 6,267
Deferred income taxes 2,270 2,345
Other assets 840 895
-------- --------
Total Assets $108,711 $ 95,490
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,296 $ 2,296
Accounts payable 9,076 9,287
Accrued compensation 13,336 5,999
Short-term borrowings 6,700 4,500
Income taxes payable 1,585 -
Advance billings on contracts 3,004 1,717
Other current liabilities 4,672 5,547
-------- --------
Total Current Liabilities 40,669 29,346
Long-term debt 5,574 6,114
Deferred compensation benefits 6,807 6,626
Other long-term liabilities 2,649 2,746
-------- --------
Total Liabilities 55,699 44,832
Shareholders' Equity:
Common stock, par value $.01 per share 127 127
Capital in excess of par value 87,542 87,327
Retained earnings 7,328 5,734
Foreign currency adjustment (1,966) (2,441)
Less: Treasury stock, at cost (24,413) (24,413)
Less: Loans to employees (495) (557)
Less: Stock Employee Compensation Trust (14,881) (14,881)
Less: Minimum pension liability adjustment (230) (238)
-------- --------
Total Shareholders' Equity 53,012 50,658
-------- --------
Total Liabilities and Shareholders' Equity $108,711 $ 95,490
======== ========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE> 4
<TABLE>
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Quarter Ended
March 31, April 1,
1995 1994
--------- ---------
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,594 $ 1,248
Adjustments:
Depreciation and amortization expense 1,569 1,315
Realized and unrealized net gain on securities - (89)
Deferred compensation expense 133 306
Changes in assets and liabilities:
Increase in accounts receivable (16,722) (2,043)
Increase in prepaids and other (957) (794)
Decrease in deferred income taxes 466 275
Increase (decrease) in income taxes receivable/payable 4,498 (78)
Decrease in other assets 62 61
Decrease in accounts payable (532) (273)
Increase in accrued compensation 7,128 5,386
Increase in advance billings on contracts 1,287 499
Increase (decrease) in other current liabilities (1,123) 958
Decrease in other long term liabilities (41) (409)
------- -------
Net cash (used in) provided by operating activities (2,638) 6,362
Cash flows from investing activities:
Additions to property and equipment (579) (1,019)
Purchases of marketable securities - (1,026)
Proceeds from sales of marketable securities - 4,567
------- -------
Net cash (used in) provided by investing activities (579) 2,522
Cash flows from financing activities:
Net increase in short-term borrowings 2,200 443
Principal payments on long-term debt (540) (545)
Proceeds from Employee Stock Purchase Plan 86 316
Purchase of treasury stock - (3,515)
Proceeds from other stock plans 190 50
------- -------
Net cash (used in) provided by financing activities 1,936 (3,251)
Effect of exchange rate changes on cash and temporary cash investments (8) (30)
------- -------
Net (decrease) increase in cash and temporary cash investments (1,289) 5,603
Cash and temporary cash investments at beginning of year 5,112 5,355
------- -------
Cash and temporary cash investments at end of quarter $ 3,823 $10,958
======= =======
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 of 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 of 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 ENDED MARCH 31, 1995
Results of Operations
- ---------------------
The Company reported first quarter revenues of $82.2 million, the highest
quarterly revenues in its history, and net income of $1.6 million, an increase
of 28 percent over 1994 first quarter net income of $1.2 million.
First quarter 1995 revenue was 7 percent or $5.2 million greater than first
quarter 1994 revenue of $77.0 million. Included in first quarter 1994 revenue
is $7.6 million of revenue from businesses that were sold during the second
half of 1994. Revenue from ongoing operations increased $12.8 million or 18
percent over the comparable period in 1994. The majority of the increase is
from North American operations. The North American increase is primarily
attributable to an increase in billable staff. The Company's billable staff
increased 21 percent from the first quarter of 1994 to the first quarter of
1995, and increased by 124 or 3.4 percent from the end of 1994 to the end of
the first quarter. European revenue increased by $1.9 million or 30 percent.
In local currency, European revenue increased 22 percent in the Netherlands, 17
percent in Belgium and 7 percent in the United Kingdom, which accounts for
approximately $1.1 million of the increase. The remaining $.8 million of the
increase is due to foreign exchange as the U. S. dollar weakened against other
currencies in the first quarter. IBM continues to be the Company's largest
customer, accounting for $16.8 million or 22.7 percent of first quarter
revenue. Revenue from IBM accounted for 24.4 percent of first quarter 1994
revenue. It is the Company's goal to increase annual revenue by 10 percent in
1995 as compared to 1994 revenue from ongoing operations and the results in the
first quarter are in line with this objective.
Direct costs (defined as costs for billable staff) were 73.4 percent of revenue
compared to 72.4 percent of revenue in the first quarter of 1994 and 74.2
percent of revenue for the full year in 1994. The increase in direct costs
compared to the first quarter of 1994 as a percentage of revenues is a result
of the continued competitive pricing pressures within the marketplace from both
clients and competitors. The Company has also continued to increase the
percentage of billable hours on software support projects as a result of
increased opportunities in that area. These projects typically command lower
rates than other professional software business.
Selling, general and administrative expenses were $19.0 million in the first
quarter of 1995 and $19.1 million in the first quarter of 1994. The Company is
focused on containing these expenses and reducing them as a percentage of
revenue. Although the decrease was $ 0.1 million or .5 percent, selling,
general and administrative expenses decreased from 24.8 percent to 23.1 percent
as a percentage of revenue. This decrease is primarily attributed to increased
revenues.
Operating income was $2.9 million in the first quarter of 1995 compared to $2.2
million in the first quarter of 1994. It increased as a percentage of revenue
from 2.8 percent to 3.6 percent , due to the reduction in SG&A expenses as a
percentage of revenue. Operating income from ongoing operations in North
America increased $.7 million or 33 percent. European operations showed a $.3
million profit versus break-even in the first quarter of 1994.
6
<PAGE> 7
Interest and other income decreased $150,000 or 54 percent. The Company
liquidated its investment portfolio during the first half of 1994, resulting in
a decrease in investment income in 1995. The Company also reported net
realized and unrealized gains on securities of $89,000 in the first quarter of
1994. Interest and other expense increased $186,000 or 83 percent. The
Company's average daily bank borrowings increased during the first quarter due
to increased accounts receivable and the repurchase of the Company's stock
during 1994 to establish its Stock Employee Compensation Trust. There were no
material gains or losses due to foreign exchange on currency.
Income before income taxes increased by $.4 million from $2.2 million or 2.9
percent of revenue in the first quarter of 1994 to $2.6 million or 3.2 percent
of revenue in the first quarter of 1995. The provision for income taxes for
the first quarter of 1995 was 40 percent compared to 44 percent in the first
quarter of 1994. The reduction in the income tax rate is primarily due to the
earnings in Europe, because there were annual losses in the prior year for
which no tax benefit was provided.
Net income for the quarter was $1.6 million or $0.19 per share, compared to
$1.2 million or $0.12 per share for the first quarter of 1994. Although net
income increased 28 percent, earnings per share increased 58 percent because
weighted average shares outstanding decreased from 10.6 million to 8.5 million.
During 1994, the Company and its Stock Employee Compensation Trust purchased
approximately 2.5 million of its common shares. 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. 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
- -------------------
During the quarter, the Company's working capital increased by $2.5 million to
$41.4 million. Accounts receivable increased $16.7 million, offset by a $7.1
million increase in accrued compensation and a $4.5 million decrease in income
taxes recoverable. Cash and temporary cash investments also decreased $1.3
million and the Company borrowed a net additional $2.2 million in short-term
borrowings.
Cash used in operations was $2.6 million for the quarter. The $16.7 million
increase in accounts receivable is a result of the increase in revenue and
issues related to installing a new billing system and shifting responsibility
for collections within the Company. Accrued compensation increased $7.1
million because the quarter ended in the middle of the Company's payroll cycle,
rather than at the end as it did at year end. Prepaid assets increased $1.0
million due to the prepayment of items that will be expensed in the remainder
of the year. At year end, the Company was due net tax refunds of $2.9 million
and these were received during the first quarter. At the end of the first
quarter, the Company has income taxes payable of $1.6 million. Current and
noncurrent deferred income taxes decreased by $.5 million as a result of the
payment of restructuring expenses which are deductible for tax purposes when
paid. Advance billings on contracts increased $1.3 million due to the timing
of billings in accordance with terms of contractual agreements.
Other current liabilities decreased $1.1 million, primarily attributable to
payments of restructuring expenses and severance costs. Amounts accrued for
restructuring and severance and other costs were $.6 million and $1.6 million,
respectively, at the end of 1994 and $.4 million and $1.2 million,
respectively, at the end of the first quarter of 1995. Severance costs
related to the 1993 restructuring plan of $.2 million were charged against the
restructuring accrual in the first quarter. Severance costs of $.4 million
related to
7
<PAGE> 8
terminations which occurred during 1994 were paid during the first quarter.
The remaining $.5 million decrease in other current liabilities is a result of
foreign currency translation and normal operating activities of the Company.
Net property and equipment decreased $.7 million. Additions to property and
equipment were $.6 million offset by year-to-date depreciation of $1.2 million.
Additions decreased by $.4 million compared to the first quarter of 1994
because the Company was equipping its recruiting centers during the beginning
of 1994. Net acquired intangibles increased $.2 million, caused by $.5 million
in translation adjustments reflecting the weakening of the U.S. dollar during
the quarter offset by year-to-date amortization of $.3 million.
Financing activities provided $1.9 million of cash for the quarter. The
Company repaid $.5 million of long-term debt in accordance with its various
loan agreements and borrowed an additional $2.2 million of short-term
borrowings to fund working-capital requirements. As of the end of the quarter,
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.
During the first quarter, the Company received $.1 million from employees for
13,000 shares of stock purchased under the Employee Stock Purchase Plan. The
Company also received $62,000 in proceeds from the repayment of loans under its
Management Stock Purchase Plan and $128,000 for the exercise of stock options.
The Company has $53.8 million in aggregate lines of credit, $11.4 million of
which was borrowed at the end of the quarter.
8
<PAGE> 9
PART II. OTHER INFORMATION
---------------------------
Item 4 - Submission Of Matters To A Vote Of Security Holders
---------------------------------------------------
The annual meeting of shareholders was held on April 26, 1995
at the Company's Headquarters, 800 Delaware Avenue, Buffalo,
New York at 10:00 a.m.
Election of Directors
- Three Class I directors (Gale S. Fitzgerald, Chairman and Chief
Executive Officer, Paul W. Joy and Randolph A. Marks) were
elected to hold office for two years until the 1997 annual
meeting of shareholders and until their successors are elected
and qualified. The results of the voting are as follows:
Total Vote Total Vote
For Withheld
---------- ----------
Gale S. Fitzgerald 7,212,208 509,277
Paul W. Joy 7,267,678 453,807
Randolph A. Marks 7,219,710 501,775
- The Class I directors of the Company, whose terms of office
extend until the 1996 annual meeting of shareholders and until
their successors are elected and qualified are G. David Baer,
Executive Vice President, George B. Beitzel and Richard F.
Crandall.
Amendment of the Company's 1991 Employee Stock Option Plan
- An amendment to the Company 1991 Employee Stock Option Plan
to increase the number of shares available under the Plan by
500,000 including a provision for a one-time grant of 5,000
stock options to new outside members of the Board of Directors
was approved by shareholders. The total vote for the amendment
was 5,445,454 and the total vote withheld was 2,276,031.
- The total number of the Company's common shares issued and
outstanding and entitled to be voted at the annual meeting of
shareholders was 10,008,824. The total number of shares voted
at the annual meeting was 7,721,485 or 77.1 percent of the
total issued and outstanding.
9
<PAGE> 10
Item 6 - Exhibits And Reports On Form 8-K
--------------------------------
Exhibit Description Page
------- ----------- ----
11. Statement re: computation of earnings per share 11
27 Financial Data Schedule
* * * * * * * *
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: May 12, 1995
10
<PAGE> 1
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.
11
<PAGE> 2
<TABLE>
COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE
UNDER TREASURY STOCK METHOD SET FORTH IN
ACCOUNTING PRINCIPLES BOARD OPINION NO. 15
(amounts in thousands)
<CAPTION>
Quarter Ended
March 31, April 1,
1995 1994
--------- --------
<S> <C> <C>
Average number of shares outstanding
during period 9,997 10,630
Add -- Incremental shares under
stock options plans 246 13
Less -- Incremental shares held by
Stock Employee Compensation
Trust 1,770 -
------- -------
Number of shares on which fully diluted
earnings per share based 8,473 10,643
------- -------
Net income for the period $ 1,594 $ 1,248
Primary earnings per share $ 0.19 $ 0.12
Fully diluted earnings per share $ 0.19 $ 0.12
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> Computer Task Group
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,823,000
<SECURITIES> 0
<RECEIVABLES> 73,710,000
<ALLOWANCES> 1,017,000
<INVENTORY> 0
<CURRENT-ASSETS> 82,045,000
<PP&E> 49,336,000
<DEPRECIATION> 32,216,000
<TOTAL-ASSETS> 108,711,000
<CURRENT-LIABILITIES> 40,669,000
<BONDS> 7,870,000
<COMMON> 127,000
0
0
<OTHER-SE> 52,885,000
<TOTAL-LIABILITY-AND-EQUITY> 108,711,000
<SALES> 0
<TOTAL-REVENUES> 82,226,000
<CGS> 0
<TOTAL-COSTS> 60,325,000
<OTHER-EXPENSES> 18,960,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 410,000
<INCOME-PRETAX> 2,658,000
<INCOME-TAX> 1,064,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,594,000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
