<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 27, 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 September 27, 1996
------------------- ------------------
Common stock, par value
$.01 per share 10,327,276
<PAGE> 2
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue $ 89,410 $ 85,609 $ 270,735 $ 252,448
Direct costs 63,295 62,358 193,797 184,414
Selling, general and
administrative expenses 21,255 20,000 63,696 58,711
----------- ---------- ---------- -----------
Operating income 4,860 3,251 13,242 9,323
Interest and other income 210 131 930 346
Interest and other expense (47) (212) (1,062) (1,001)
----------- ---------- ---------- -----------
Income before income taxes 5,023 3,170 13,110 8,668
Income tax expense (benefit) 2,009 (1,988) 5,244 17
----------- --------- ---------- -----------
Net income $ 3,014 $ 5,158 $ 7,866 $ 8,651
=========== ========== ========== ===========
Net income per share $ 0.34 $ 0.59 $ 0.89 $ 1.00
=========== ========== ========== ===========
Weighted average shares outstanding 8,839 8,685 8,820 8,655
Cash dividend per share $ - $ - $ 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>
September 27, December 31,
1996 1995
---------- -----------
(Unaudited) (Audited)
(amounts in thousands)
<S> <C> <C>
ASSETS
Current Assets:
Cash and temporary cash investments $ 33,069 $ 16,545
Accounts receivable, net of allowance for
doubtful accounts of $859,000 58,993 58,546
Prepaids and other 1,891 1,621
Deferred income taxes 2,058 2,057
---------- -----------
Total current assets 96,011 78,769
Property and equipment, net of
accumulated depreciation and amortization 14,561 17,981
Acquired intangibles, net of accumulated
amortization of $6,152,000 and $5,568,000 4,756 5,526
Deferred income taxes 919 1,969
Other assets 620 521
---------- -----------
Total assets $ 116,867 $ 104,766
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ - $ 2,289
Accounts payable 11,230 9,365
Accrued compensation 19,416 9,961
Income taxes payable 1,429 2,080
Advance billings on contracts 1,258 2,168
Other current liabilities 6,003 3,397
---------- -----------
Total current liabilities 39,336 29,260
Long-term debt - 3,640
Deferred compensation benefits 9,000 8,739
Other long-term liabilities 1,651 1,651
---------- -----------
Total liabilities 49,987 43,290
Shareholders' Equity
Common stock, par value $.01 per share, 25,000,000 shares
authorized; 13,458,129 and 13,306,594 shares issued 135 133
Capital in excess of par value 137,181 114,446
Retained earnings 22,700 15,687
Foreign currency adjustment (2,474) (1,735)
Less: Treasury stock of 3,130,853 and 3,008,456 shares, at cost (31,629) (28,594)
Loans to employees (336) (371)
Stock Employee Compensation Trust of
1,830,618 shares, at market value (56,749) (36,170)
Minimum pension liability adjustment (1,948) (1,920)
---------- -----------
Total shareholders' equity 66,880 61,476
---------- -----------
Total liabilities and shareholders' equity $ 116,867 $ 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>
Three Quarters Ended
September 27, September 29,
1996 1995
--------- --------
(Amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,866 $ 8,651
Adjustments:
Depreciation and amortization expense 4,280 4,575
Loss on disposal of property and equipment 406 -
Deferred compensation expense 233 373
Changes in assets and liabilities:
Increase in accounts receivable (959) (6,972)
Increase in prepaids and other (349) (642)
Decrease in deferred income taxes 1,049 2,724
(Increase) decrease in other assets (99) 353
Increase (decrease) in accounts payable 1,920 (1,837)
Increase in accrued compensation 9,340 9,814
Increase (decrease) in income taxes payable (644) 206
Increase (decrease) in advance billings on contracts (925) 565
Increase (decrease) in other current liabilities 2,684 (2,132)
Decrease in other long-term liabilities - (8)
--------- --------
Net cash provided by operating activities 24,802 15,670
Cash flows from investing activities:
Additions to property and equipment (2,196) (3,374)
Proceeds from disposal of property and equipment 1,474 -
--------- --------
Net cash used in investing activities (722) (3,374)
Cash flows from financing activities:
Net proceeds from short-term borrowings - (4,500)
Principal payments on long-term debt (5,929) (1,643)
Proceeds from Employee Stock Purchase Plan 490 371
Purchase of treasury stock (3,035) (3,150)
Purchase of stock by the Stock Employee Compensation Trust - (734)
Proceeds from other stock plans 1,703 4,976
Dividends paid (853) (823)
---------- --------
Net cash used in financing activities (7,624) (5,503)
Effect of exchange rate changes on cash and temporary cash investments 68 420
--------- --------
Net increase in cash and temporary cash investments 16,524 7,213
Cash and temporary cash investments at beginning of year 16,545 5,112
--------- --------
Cash and temporary cash investments at end of quarter $ 33,069 $ 12,325
========= ========
</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 THREE QUARTERS ENDED SEPTEMBER 27, 1996
Results of Operations
- ---------------------
This document may contain certain forward looking statements concerning
the Company's current expectations as to future results. Such statements are
made by the Company based upon current assumptions as to the anticipated growth
of the industry, price and wage inflation, and the availability of qualified
professional staff, and involve a number of risks and uncertainties. As such,
actual results may differ materially.
The Company reported third quarter revenue of $89.4 million and net
income of $3.0 million and year-to-date revenue of $270.7 million and net income
of $7.9 million. Third quarter 1996 revenue of $89.4 million was 4.4 percent
greater than third quarter 1995 revenue of $85.6 million. $2.1 million of the
increase results from a 2.7 percent increase in revenue from North American
operations. The North American increase is primarily attributable to an increase
in billable rates from the third quarter of 1995 to the third quarter of 1996.
European revenue increased by $1.7 million or 21.5 percent, due to an increase
in billable staff of 31.7 percent from the third quarter of 1995 to the third
quarter of 1996. IBM continues to be the Company's largest customer, accounting
for $26.8 million or 30.0 percent of third quarter 1996 revenue and $76.7
million or 28.3 percent of year-to-date revenue. Revenue from IBM accounted for
24.0 percent and 22.0 percent, respectively, of third quarter and year-to-date
1995 revenue.
Direct costs, defined as costs for billable staff, in the third quarter
were $63.3 million or 70.8 percent of revenue compared to $62.4 million or 72.9
percent of revenue in the third quarter of 1995. Direct costs for the 1996
year-to-date period were 71.6 percent of revenue, as compared to 73.1 percent
for the 1995 year-to-date period. The decrease in direct costs as a percentage
of revenue compared to the third quarter of 1995 and for 1995 year-to-date is
primarily due to an increase in billing rates, and an increase in the
utilization of professional staff.
Selling, general and administrative expenses were $21.3 million or 23.8
percent of revenue in the third quarter of 1996 compared to $20.0 million or
23.4 percent of revenue in the third quarter of 1995. Selling, general and
administrative expenses were $63.7 million or 23.5 percent of revenue for the
1996 year-to-date period as compared to $58.7 or 23.3 percent of revenue for the
1995 year-to-date period.
Operating income was $4.9 million or 5.4 percent of revenue in the third
quarter of 1996 compared to $3.3 million or 3.8 percent of revenue in the third
quarter of 1995. Operating income was $13.2 million or 4.9 percent of revenue
for the 1996 year-to-date period as compared to $9.3 million or 3.7 percent of
revenue for the 1995 year-to-date period. The increase is primarily due to the
factors discussed above. Operating income from North American operations
increased $.7 million or 21.4 percent for the third quarter of 1996 and $2.0
million or 21.7 percent for the 1996 year-to-date period. European operations
recorded operating income of $.8 million and $2.2 million, respectively, in the
third quarter of 1996 and the 1996 year-to-date period, compared to an operating
loss of $.1 million and operating income of $.2 million, respectively, in the
third quarter of 1995 and the 1995 year-to-date period.
Income before income taxes increased by $1.8 million from $3.2 million
or 3.7 percent of revenue in the third quarter of 1995 to $5.0 million or 5.6
percent of revenue in the third quarter of 1996, and by $4.4 million from $8.7
million or 3.4 percent of revenue for the 1995 year-to-date period to $13.1
million or 4.8 percent of revenue for the 1996 year-to-date period. The
provision for income taxes for the third quarter of 1996 was 40 percent,
compared to a benefit for the third quarter of 1995. The 1995 benefit was a
result of the Company recording a tax benefit of $3.2 million related to losses
associated with the Company's European operations. During the third quarter of
1995, 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 have approximated 37 percent.
6
<PAGE> 7
The 1995 rate was reduced primarily due to a decrease in the Company's reserve
for potential income tax assessments taken in the third 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 $24.8 million for the first three
quarters of 1996. Net income totaled $7.9 million and non-cash adjustments for
depreciation and amortization expense and deferred compensation expense totaled
$4.5 million. The $1.0 million or 1.7 percent increase in accounts receivable is
primarily a result of the increase in revenue offset by improved accounts
receivable turnover. Prepaid assets increased $.3 million due to the prepayment
of items that will be expensed throughout the remainder of the year. The $1.9
million increase in accounts payable is primarily due to the timing of payments
at quarter end versus the prior year end. Accrued compensation and other current
liabilities increased $12.0 million as a result of the timing of the Company's
U.S. bi-weekly payroll and due to an increase in the usage of outside
contractors by the Company during 1996.
Net property and equipment decreased $3.4 million. Additions to property
and equipment were $2.2 million offset by year-to-date depreciation of $3.7
million and disposals of $1.9 million. The Company has no material commitments
for capital expenditures at September 27, 1996. Net acquired intangibles
decreased $.8 million, caused by year-to-date amortization of $.6 million and
$.2 million in translation adjustments.
Financing activities used $7.6 million of cash for the first three
quarters of 1996. The Company repaid $5.9 million of long-term debt to reduce
its outstanding balances at September 27, 1996 to zero. At September 27, 1996,
the Company's current ratio is 2.4 to 1.
During the first three quarters of 1996, the Company received $.5
million from employees for 20,800 shares of stock purchased under the Employee
Stock Purchase Plan. The Company also received $1.7 million for the exercise of
stock options. Payments totaling $3.0 million were made for the purchase of
stock for treasury. The Company paid an annual dividend of $.10 per share
totaling $853,000 in May 1996.
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 6 - Exhibits
--------
Exhibit Description Page
------- ----------- ----
11. Statement re: computation of earnings per share 9
27. Financial Data Schedule 11
* * * * * * *
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: November 11, 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 Three Quarters Ended
September 27, September 29, September 27, September 29,
1996 1995 1996 1995
---------------- --------------- --------------- -----------
<S> <C> <C> <C> <C>
Average number of shares outstanding
during period 10,300 10,009 10,317 9,890
Adjusted for: Shares under stock
options plans 370 306 334 368
Shares held by
Stock Employee
Compensation Trust (1,831) (1,630) (1,831) (1,603)
----------- ---------- ----------- ----------
Number of shares on which primary
earnings per share is based 8,839 8,685 8,820 8,655
=========== ========== =========== ==========
Net income for the period $ 3,014 $ 5,158 $ 7,866 $ 8,651
Primary earnings per share $ 0.34 $ 0.59 $ 0.89 $ 1.00
Fully diluted earnings per share* $ 0.34 $ 0.59 $ 0.89 $ 1.00
<FN>
* The number of shares on which fully diluted earnings per share is based is
substantially equal to the number of shares on which primary earnings per
share is based.
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-27-1996
<CASH> 33,069,000
<SECURITIES> 0
<RECEIVABLES> 59,852,000
<ALLOWANCES> 859,000
<INVENTORY> 0
<CURRENT-ASSETS> 96,011,000
<PP&E> 50,550,000
<DEPRECIATION> 35,989,000
<TOTAL-ASSETS> 116,867,000
<CURRENT-LIABILITIES> 39,336,000
<BONDS> 0
<COMMON> 135,000
0
0
<OTHER-SE> 66,745,000
<TOTAL-LIABILITY-AND-EQUITY> 116,867,000
<SALES> 0
<TOTAL-REVENUES> 270,735,000
<CGS> 0
<TOTAL-COSTS> 193,797,000
<OTHER-EXPENSES> 63,696,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 636,000
<INCOME-PRETAX> 13,110,000
<INCOME-TAX> 5,244,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,866,000
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
</TABLE>
