<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 29, 1996
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 29, 1996
------------------- -----------------
Common stock, par value
$.01 per share 10,323,179
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 29, March 31,
1996 1995
------- -------
(amounts in thousands
except per share data)
<S> <C> <C>
Revenue $90,005 $82,226
Direct costs 65,160 60,325
Selling, general and administrative expenses 21,147 18,960
------- -------
Operating income 3,698 2,941
Interest and other income 268 127
Interest and other expense 278 410
------- -------
Income before income taxes 3,688 2,658
Provision for income taxes 1,475 1,064
------- -------
Net income $ 2,213 $ 1,594
======= =======
Net income per share $ 0.25 $ 0.19
======= =======
Weighted average shares outstanding 8,736 8,473
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 3
2
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 29, December 31,
1996 1995
--------- ---------
ASSETS (Audited)
(amounts in thousands)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 21,925 $ 16,545
Accounts receivable, net of allowance for
doubtful accounts of $859,000 and $862,000 65,365 58,546
Prepaids and other 2,428 1,621
Deferred income taxes 2,053 2,057
--------- ---------
Total current assets 91,771 78,769
Property and equipment, net of
accumulated depreciation and amortization 17,332 17,981
Acquired intangibles, net of accumulated
amortization of $5,764,000 and $5,568,000 5,244 5,526
Deferred income taxes 2,015 1,969
Other assets 468 521
--------- ---------
Total assets $ 116,830 $ 104,766
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 2,273 $ 2,289
Accounts payable 12,633 9,365
Accrued compensation 16,512 9,961
Income taxes payable 3,369 2,080
Advance billings on contracts 1,628 2,168
Other current liabilities 3,500 3,397
--------- ---------
Total current liabilities 39,915 29,260
Long-term debt 3,115 3,640
Deferred compensation benefits 8,846 8,739
Other long-term liabilities 1,651 1,651
--------- ---------
Total liabilities 53,527 43,290
Shareholders' Equity
Common stock, par value $.01 per share, 25,000,000 shares
authorized; 13,363,265 and 13,306,594 shares issued 134 133
Capital in excess of par value 116,382 114,446
Retained earnings 17,900 15,687
Foreign currency adjustment (2,252) (1,735)
Less: Treasury stock of 3,040,086 and 3,008,456 shares, at cost (29,243) (28,594)
Loans to employees (371) (371)
Stock Employee Compensation Trust of
1,830,618 shares, at market (37,299) (36,170)
Minimum pension liability adjustment (1,948) (1,920)
--------- ---------
Total shareholders' equity 63,303 61,476
--------- ---------
Total liabilities and shareholders' equity $ 116,830 $ 104,766
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 4
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 29, March 31,
1996 1995
-------- --------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,213 $ 1,594
Adjustments:
Depreciation and amortization expense 1,505 1,569
Deferred compensation expense 79 133
Changes in assets and liabilities net of assets sold:
Increase in accounts receivable (7,142) (16,722)
Increase in prepaids and other (854) (957)
(Increase) decrease in deferred income taxes (42) 466
Decrease in other assets 53 62
Increase (decrease) in accounts payable 3,307 (532)
Increase in accrued compensation 6,431 7,128
Increase in income taxes payable 1,303 4,498
Increase (decrease) in advance billings on contracts (555) 1,287
Increase (decrease) in other current liabilities 132 (1,123)
Decrease in other long-term liabilities -- (41)
-------- --------
Net cash provided by (used in) operating activities 6,430 (2,638)
Cash flows from investing activities -
Additions to property and equipment (691) (579)
-------- --------
Cash flows from financing activities:
Net increase in short-term borrowings -- 2,200
Principal payments on long-term debt (541) (540)
Proceeds from Employee Stock Purchase Plan 134 86
Purchase of treasury stock (649) --
Proceeds from other stock plans 674 190
-------- --------
Net cash provided by (used in) financing activities (382) 1,936
Effect of exchange rate changes on cash and temporary cash investments 23 (8)
-------- --------
Net increase (decrease) in cash and temporary cash investments 5,380 (1,289)
Cash and temporary cash investments at beginning of year 16,545 5,112
-------- --------
Cash and temporary cash investments at end of quarter $ 21,925 $ 3,823
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated 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 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.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 29, 1996
Results of Operations
- ---------------------
The Company reported first quarter revenue of $90.0 million, the highest
quarterly revenue in its history, and net income of $2.2 million, an increase of
38.8 percent over 1995 first quarter net income of $1.6 million.
First quarter 1996 revenue was $7.8 million or 9.5 percent greater than
first quarter 1995 revenue of $82.2 million. The majority of the 9.5 percent
increase is due to a $7.0 million or 9.5 percent increase in revenue from North
American operations. The North American increase is primarily attributable to an
increase in billable staff of 8.2 percent from the first quarter of 1995 to the
first quarter of 1996. European revenue increased by $.8 million or 9.0 percent,
also primarily due to increases in billable staff. IBM continues to be the
Company's largest customer, accounting for $24.0 million or 26.7 percent of
first quarter 1996 revenue compared to 22.7 percent of first quarter 1995
revenue.
Direct costs, defined as costs for billable staff, were $65.2 million or
72.4 percent of revenue compared to $60.3 million or 73.4 percent of revenue in
the first quarter of 1995, and 73.4 percent of revenue for the full year in
1995. The decrease in direct costs as a percentage of revenue compared to the
first quarter of 1995, and 1995 as a full year, is consistent with the Company's
focus to reduce direct costs as a percentage of revenue.
Selling, general and administrative expenses were $21.1 million or 23.4
percent of revenue in the first quarter of 1996 compared to $19.0 million or
23.1 percent of revenue in the first quarter of 1995. The increase as a
percentage of revenue is due to the timing of certain expenditures.
Operating income was $3.7 million or 4.1 percent of revenue in the first
quarter of 1996 compared to $2.9 million or 3.6 percent of revenue in the first
quarter of 1995. The increase is primarily due to an increase in revenue and
billable headcount. Operating income from North American operations increased
$.7 million or 27 percent. European operations recorded a profit of $.4 million
in the first quarter of 1996 versus $.3 million profit in the first quarter of
1995.
Interest and other income increased $141,000 or 110 percent for the
first quarter of 1996 as compared to the first quarter of 1995, primarily due to
amounts invested from cash generated from operations. Interest and other expense
decreased $132,000 or 32 percent for the same time period as the Company had no
short-term bank borrowings at March 29, 1996 as compared to $6.7 million of such
borrowings at March 31, 1995. There were no material gains or losses from
foreign exchange on currency.
Income before income taxes increased by $1.0 million from $2.7 million
or 3.6 percent of revenue in the first quarter of 1995 to $3.7 million or 4.1
percent of revenue in the first quarter of 1996. The provision for income taxes
for the first quarter of 1996, as in 1995, was 40 percent. Net income for the
quarter was $2.2 million or $0.25 per share, compared to $1.6 million or $0.19
per share for the first quarter of 1995.
6
<PAGE> 7
The Company's goal is 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 and contain selling, general and administrative expenses as the
Company grows.
Financial Condition
- -------------------
Cash provided by operations was $6.4 million for the quarter. Net income
totaled $2.2 million and non-cash adjustments for depreciation and amortization
expense and deferred compensation expense totaled $1.6 million. The $7.1 million
or 11.6 percent increase in accounts receivable is primarily a result of the
increase in revenue. Prepaid assets increased $.9 million due to the prepayment
of items that will be expensed in the remainder of the year. The $3.3 million
increase in accounts payable is primarily due to the timing of payments at
quarter end versus the prior year end. Accrued compensation increased $6.4
million as the quarter ended in the middle of the Company's U.S. biweekly
payroll cycle, rather than at the end as it did at year end. Income taxes
payable increased $1.3 million due to the accrual of tax due on current year
earnings. Advance billings on contracts decreased $.6 million due to the timing
of billings in accordance with terms of contractual agreements.
Net property and equipment decreased $.6 million. Additions to property
and equipment were $.7 million offset by year-to-date depreciation of $1.3
million. The Company has no material commitments for capital expenditures at
March 29, 1996. Net acquired intangibles decreased $.3 million, caused by $.1
million in translation adjustments and year-to-date amortization of $.2 million.
Financing activities used $.4 million of cash for the quarter. The
Company repaid $.5 million of long-term debt in accordance with its various loan
agreements. 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. At March 29, 1996,
the Company's current ratio is 2.3 to 1.
During the first quarter, the Company received $.1 million from
employees for 7,000 shares of stock purchased under the Employee Stock Purchase
Plan. The Company also received $.6 million for the exercise of stock options.
Payments totaling $.6 million were made for the purchase of stock for treasury.
The Company has approximately $54 million in aggregate lines of credit
which are renewable annually at various times throughout the year.
7
<PAGE> 8
PART II. OTHER INFORMATION
--------------------------
Item 4 - Submission of Matters To A Vote of Security Holders
---------------------------------------------------
The annual meeting of shareholders was held on April 24, 1996 at
the Company's Headquarters, 800 Delaware Avenue, Buffalo, New
York at 10:00 a.m.
The Company submitted for shareholder approval the election of
Class II directors and an amendment of the Company's 1991
Employee Stock Option Plan.
Election of Directors
- Three Class II directors (George B. Beitzel, Richard L.
Crandall and Barbara Z. Shattuck) were elected to hold office
for two years until the 1998 annual meeting of shareholders
and until their successors are elected and qualified. The
results of the voting are as follows:
<TABLE>
<CAPTION>
Total Vote Total Vote
For Against
--- -------
<S> <C> <C>
George B. Beitzel 9,026,050 61,131
Richard L. Crandall 9,033,570 53,611
Barbara Z. Shattuck 9,032,857 54,324
</TABLE>
- The Class I directors of the Company, whose terms of
office extend until the 1997 annual meeting of
shareholders and until their successors are elected
and qualified are Gale S. Fitzgerald, Chairman and Chief
Executive Officer, Paul W. Joy and Randolph A. Marks.
Amendment of the Company's 1991 Employee Stock Option Plan
- An amendment to the Company 1991 Employee Stock Option Plan
was approved by a majority of Company shareholders to provide
for an automatic grant of 30,000 stock options subject to
incremental vesting to non-employee directors every three
years in lieu of other cash compensation and to increase the
number of shares of the Company's Common Stock available for
options under the plan by an additional 750,000 shares. The
total vote for the amendment was 6,176,746, the total vote
against was 1,202,566 and broker non-votes totaled 1,707,869.
-The total number of the Company's common shares issued and
outstanding and entitled to be voted at the annual meeting of
shareholders was 10,316,830. The total number of shares voted
at the annual meeting was 9,087,181 or 88.1 percent of the
total issued and outstanding.
8
<PAGE> 9
Item 6 - Exhibits And Reports On Form 8-K
--------------------------------
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
11. Statement re: computation of earnings per share 10
27. Financial Data Schedule 12
</TABLE>
* * * * * * *
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/ James R. Boldt
------------------------
James R. Boldt
Principal Accounting and
Financial Officer
Title: Vice President - Finance
Date: May 10, 1996
9
<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.
10
<PAGE> 2
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)
<TABLE>
<CAPTION>
Quarter Ended
March 29, March 31,
1996 1995
-------- ------
<S> <C> <C>
Average number of shares outstanding
during period 10,308 9,997
Adjusted for:Shares under stock
options plans 259 246
Shares held by Stock
Employee Compensation Trust (1,831) (1,770)
-------- ------
Number of shares on which primary
earnings per share is based 8,736 8,473
======== ======
Net income for the period $ 2,213 1,594
Primary earnings per share $ 0.25 $ 0.19
Fully diluted earnings per share $ 0.25 $ 0.19
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-06-1996
<PERIOD-END> MAR-29-1996
<CASH> 21,925,000
<SECURITIES> 0
<RECEIVABLES> 66,224,000
<ALLOWANCES> 859,000
<INVENTORY> 0
<CURRENT-ASSETS> 91,771,000
<PP&E> 52,519,000
<DEPRECIATION> 35,187,000
<TOTAL-ASSETS> 116,830,000
<CURRENT-LIABILITIES> 39,915,000
<BONDS> 5,388,000
<COMMON> 134,000
0
0
<OTHER-SE> 63,169,000
<TOTAL-LIABILITY-AND-EQUITY> 116,830,000
<SALES> 0
<TOTAL-REVENUES> 90,005,000
<CGS> 0
<TOTAL-COSTS> 65,160,000
<OTHER-EXPENSES> 21,147,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278,000
<INCOME-PRETAX> 3,688,000
<INCOME-TAX> 1,475,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,213,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
