<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 JUNE 28, 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:
<TABLE>
<CAPTION>
Shares outstanding
Title of each class June 28, 1996
------------------- -----------------
<S> <C>
Common stock, par value
$.01 per share 10,344,140
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue $91,320 $84,613 $181,325 $166,839
Direct costs 65,342 61,731 130,502 122,056
Selling, general and
administrative expenses 21,294 19,751 42,441 38,711
------- ------- -------- --------
Operating income 4,684 3,131 8,382 6,072
Interest and other income 452 88 720 215
Interest and other expense 737 379 1,015 789
------- ------- -------- --------
Income before income taxes 4,399 2,840 8,087 5,498
Provision for income taxes 1,760 941 3,235 2,005
------- ------- -------- --------
Net income $ 2,639 $ 1,899 $ 4,852 $ 3,493
======= ======= ======== ========
Net income per share $ 0.30 $ 0.22 $ 0.55 $ 0.41
======= ======= ======== ========
Weighted average shares outstanding 8,886 8,608 8,811 8,608
Cash dividend per share $ 0.10 $ 0.10 $ 0.10 $ 0.10
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 28, December 31,
1996 1995
---------- ----------
ASSETS (Unaudited) (Audited)
(amounts in thousands)
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 16,493 $ 16,545
Accounts receivable, net of allowance for
doubtful accounts of $859,000 65,381 58,546
Prepaids and other 1,974 1,621
Deferred income taxes 2,049 2,057
--------- ---------
Total current assets 85,897 78,769
Property and equipment, net of
accumulated depreciation and amortization 15,060 17,981
Acquired intangibles, net of accumulated
amortization of $5,964,000 and $5,568,000 4,953 5,526
Deferred income taxes 2,061 1,969
Other assets 805 521
--------- ---------
Total assets $ 108,776 $ 104,766
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ -- $ 2,289
Accounts payable 11,535 9,365
Accrued compensation 14,188 9,961
Income taxes payable 2,141 2,080
Advance billings on contracts 2,191 2,168
Other current liabilities 3,518 3,397
--------- ---------
Total current liabilities 33,573 29,260
Long-term debt -- 3,640
Deferred compensation benefits 8,916 8,739
Other long-term liabilities 1,651 1,651
--------- ---------
Total liabilities 44,140 43,290
Shareholders' Equity
Common stock, par value $.01 per share, 25,000,000 shares
authorized; 13,418,493 and 13,306,594 shares issued 134 133
Capital in excess of par value 131,528 114,446
Retained earnings 19,686 15,687
Foreign currency adjustment (2,482) (1,735)
Less: Treasury stock of 3,074,353 and 3,008,456 shares, at cost (30,184) (28,594)
Loans to employees (351) (371)
Stock Employee Compensation Trust of
1,830,618 shares, at market (51,747) (36,170)
Minimum pension liability adjustment (1,948) (1,920)
--------- ---------
Total shareholders' equity 64,636 61,476
--------- ---------
Total liabilities and shareholders' equity $ 108,776 $ 104,766
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Two Quarters Ended
June 28, June 30,
1996 1995
-------- --------
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,852 $ 3,493
Adjustments:
Depreciation and amortization expense 2,935 2,880
Loss on disposal of property and equipment 398 --
Deferred compensation expense 149 261
Changes in assets and liabilities:
Increase in accounts receivable (7,355) (12,631)
Increase in prepaids and other (436) (939)
(Increase) decrease in deferred income taxes (84) 787
(Increase) decrease in other assets (284) 144
Increase (decrease) in accounts payable 2,228 (869)
Increase in accrued compensation 4,154 4,433
Increase in income taxes payable 68 4,829
Increase in advance billings on contracts 8 457
Increase (decrease) in other current liabilities 177 (2,098)
Increase in other long-term liabilities -- 53
-------- --------
Net cash provided by operating activities 6,810 800
Cash flows from investing activities:
Additions to property and equipment (1,535) (1,630)
Proceeds from disposal of property and equipment 1,474 --
-------- --------
Net cash used in investing activities (61) (1,630)
Cash flows from financing activities:
Net proceeds from short-term borrowings -- 1,000
Principal payments on long-term debt (5,929) (1,095)
Proceeds from Employee Stock Purchase Plan 319 259
Purchase of treasury stock (1,590) --
Purchase of stock by the Stock
Employee Compensation Trust -- (734)
Proceeds from other stock plans 1,207 1,285
Dividends paid (853) (823)
-------- --------
Net cash used in financing activities (6,846) (108)
Effect of exchange rate changes on cash
and temporary cash investments 45 49
-------- --------
Net decrease in cash and temporary cash investments (52) (889)
Cash and temporary cash investments at beginning of year 16,545 5,112
-------- --------
Cash and temporary cash investments at end of quarter $ 16,493 $ 4,223
======== ========
</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 AND TWO QUARTERS ENDED JUNE 28, 1996
Results of Operations
- ---------------------
The Company reported second quarter revenue of $91.3 million, the
highest quarterly revenue in its history, and net income of $2.6 million, an
increase of 39.0 percent over 1995 second quarter net income of $1.9 million.
The Company reported year-to-date revenue of $181.3 million and net income of
$4.9 million, an increase of 38.9 percent over 1995 year-to-date net income of
$3.5 million.
Second quarter 1996 revenue of $91.3 million was 7.9 percent greater
than second quarter 1995 revenue of $84.6 million. The majority of the 7.9
percent increase is due to a $4.9 million or 6.4 percent increase in revenue
from North American operations. The North American increase is primarily
attributable to an increase in billable staff of 4.0 percent from the second
quarter of 1995 to the second quarter of 1996. European revenue increased by
$1.8 million or 21.9 percent, also due to an increase in billable staff of 24.4
percent from the second quarter of 1995 to the second quarter of 1996. IBM
continues to be the Company's largest customer, accounting for $25.9 million or
28.4 percent of second quarter 1996 revenue and $49.9 million or 27.5 percent of
year-to-date revenue. Revenue from IBM accounted for 21.0 percent and 20.7
percent, respectively, of second quarter and year-to-date 1995 revenue.
Direct costs, defined as costs for billable staff, in the second
quarter were $65.3 million or 71.5 percent of revenue compared to $61.7 million
or 73.0 percent of revenue in the second quarter of 1995. Direct costs for the
1996 year-to-date period were 72.0 percent of revenue, as compared to 73.2
percent for the 1995 year-to-date period. The decrease in direct costs as a
percentage of revenue compared to the second quarter of 1995 and for 1995
year-to-date is primarily due to an increased focus on key accounts, an
increase in billing rates and an increase in the utilization of professional
staff.
Selling, general and administrative expenses were $21.3 million or 23.3
percent of revenue in the second quarter of 1996 compared to $19.8 million or
23.4 percent of revenue in the second quarter of 1995. Selling, general and
administrative expenses were $42.4 million or 23.4 percent of revenue for the
1996 year-to-date period as compared to $38.7 or 23.2 percent of revenue for the
1995 year-to-date period.
Operating income was $4.7 million or 5.1 percent of revenue in the
second quarter of 1996 compared to $3.1 million or 3.7 percent of revenue in the
second quarter of 1995. Operating income was $8.4 million or 4.6 percent of
revenue for the 1996 year-to-date period as compared to $6.1 million or 3.6
percent of revenue for the 1995 year-to-date period. The increase is primarily
due to the reduction of direct costs as a percentage of revenue and the increase
in European revenue. Operating income from North American operations increased
$.6 million or 20.2 percent for the second quarter of 1996 and $1.3 million or
21.8 percent for the 1996 year-to-date period. European operations recorded
operating income of $1.0 million and $1.4 million, respectively, in the second
quarter of 1996 and 1996 year-to-date period, compared to operating income of
$.1 million and $.3 million, respectively, in the second quarter of 1995 and the
1995 year-to-date period.
Interest and other expense, net amounted to $.3 million for the second
quarter of 1996 and 1995. There were no material gains or losses from foreign
exchange on currency.
6
<PAGE> 7
Income before income taxes increased by $1.6 million from $2.8 million
or 3.3 percent of revenue in the second quarter of 1995 to $4.4 million or 4.8
percent of revenue in the second quarter of 1996, and by $2.6 million from $5.5
million or 3.3 percent of revenue for the 1995 year-to-date period to $8.1
million or 4.5 percent of revenue for the 1996 year-to-date period. The
provision for income taxes for the second quarter of 1996 was 40 percent, as
compared to 33 percent for the second quarter of 1995. The second quarter 1996
income tax rate is typical for the Company. The 1995 rate was reduced primarily
due to a decrease in the Company's reserve for potential income tax assessments
taken in the second quarter of 1995.
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 $6.8 million for the first half of
1996. Net income totaled $4.9 million and non-cash adjustments for depreciation
and amortization expense and deferred compensation expense totaled $3.1 million.
The $7.4 million or 12.6 percent increase in accounts receivable is primarily a
result of the increase in revenue. Prepaid assets increased $.4 million due to
the prepayment of items that will be expensed throughout the remainder of the
year. The $2.2 million increase in accounts payable is primarily due to the
timing of payments at quarter end versus the prior year end. Accrued
compensation increased $4.2 million primarily due to an increase in the usage of
outside consultants by the Company during 1996.
Net property and equipment decreased $2.9 million. Additions to
property and equipment were $1.5 million offset by year-to-date depreciation of
$2.5 million and disposals of $1.9 million. The Company has no material
commitments for capital expenditures at June 28, 1996. Net acquired intangibles
decreased $.6 million, caused by year-to-date amortization of $.4 million and
$.2 million in translation adjustments.
Financing activities used $6.8 million of cash for the first half of
1996. The Company repaid $5.9 million of long-term debt to reduce its
outstanding balances at June 28, 1996 to zero. At June 28, 1996, the Company's
current ratio is 2.6 to 1.
During the first half of 1996, the Company received $.3 million from
employees for 14,700 shares of stock purchased under the Employee Stock Purchase
Plan. The Company also received $1.2 million for the exercise of stock options.
Payments totaling $1.6 million were made for the purchase of stock for treasury.
The Company paid an annual dividend of $853,000 to shareholders on a $.10 per
share dividend.
The Company has approximately $54 million in aggregate lines of credit
which are renewable annually at various times throughout the year.
7
<PAGE> 8
<TABLE>
<CAPTION>
PART II. OTHER INFORMATION
--------------------------
<S> <C> <C>
Item 6 - Exhibits And Reports On Form 8-K
--------------------------------
Exhibit Description Page
------- ----------- ----
11. Statement re: computation of earnings per share 9
27. Financial Data Schedule 11
* * * * * * *
</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: August 9, 1996
8
<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.
9
<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)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Two Quarters Ended
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Average number of shares outstanding
during period 10,345 10,008 10,326 9,996
Adjusted for: Shares under stock
options plans 372 410 316 402
Shares held by Stock
Employee Compensation Trust (1,831) (1,810) (1,831) (1,790)
-------- -------- -------- -------
Number of shares on which primary
earnings per share is based 8,886 8,608 8,811 8,608
======== ======== ======== =======
Net income for the period $ 2,639 $ 1,899 $ 4,852 $ 3,493
Primary earnings per share $ 0.30 $ 0.22 $ 0.55 $ 0.41
Fully diluted earnings per share $ 0.30 $ 0.22 $ 0.55 $ 0.41
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-28-1996
<CASH> 16,493,000
<SECURITIES> 0
<RECEIVABLES> 66,240,00
<ALLOWANCES> 859,000
<INVENTORY> 0
<CURRENT-ASSETS> 85,897,000
<PP&E> 49,867,000
<DEPRECIATION> 34,807,000
<TOTAL-ASSETS> 108,776,000
<CURRENT-LIABILITIES> 33,573,000
<BONDS> 0
<COMMON> 134,000
0
0
<OTHER-SE> 64,502,000
<TOTAL-LIABILITY-AND-EQUITY> 108,776,000
<SALES> 0
<TOTAL-REVENUES> 181,325,000
<CGS> 0
<TOTAL-COSTS> 130,502,000
<OTHER-EXPENSES> 42,441,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,015,000
<INCOME-PRETAX> 8,087,000
<INCOME-TAX> 3,235,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,852,000
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
