<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
-----------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Transition period from _______ to _______
Commission File No. 1-9410
COMPUTER TASK GROUP, INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
State of 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
--------------
</TABLE>
<TABLE>
<CAPTION>
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
-------------------- -----------------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange
Rights to Purchase Series A
Participating Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
</TABLE>
None
----
(Title of class)
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
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 13, 1996 was $158,407,919. Solely for the purposes of
this calculation, all persons who are or may be executive officers or directors
of the Registrant and all persons who have filed a Schedule 13D with respect to
the Registrant's stock have deemed to be affiliates.
The total number of shares of Common Stock of the Registrant outstanding at
March 13, 1996 was 10,316,830.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this report: Parts I, II and IV--the Registrant's 1995
Annual Report to Shareholders; Part III--the Registrant's definitive Proxy
Statement as filed with the Securities and Exchange Commission and as used in
connection with the solicitation of proxies for the Registrant's annual meeting
of shareholders to be held on April 24, 1996.
<PAGE> 2
PART I
------
ITEM 1. BUSINESS
---------
Computer Task Group, Incorporated (Company or CTG or Registrant) was
incorporated in Buffalo, New York on March 11, 1966, and its corporate
headquarters are located at 800 Delaware Avenue, Buffalo, New York 14209
(716-882-8000). CTG is an information technology services company. CTG employs
approximately 5,000 people and serves customers through an international
network of offices in North America and Europe. The Company has four operating
subsidiaries: Computer Task Group of Canada, Inc.; Computer Task Group (U.K.)
Ltd.; Computer Task Group Nederland B.V.; and Computer Task Group Belgium N.V.
As of July 1, 1994, the Company sold its petroleum industry subsidiaries,
Profimatics, Inc. and Profimatics & Co., GmbH.
BACKGROUND
- ----------
The Company operates in one area of the computer industry -- providing
information technology services. A typical customer is a Fortune 500-size
organization with large, complex information and data processing requirements.
CTG's customer base is large and diverse, consisting of approximately 900
customers. The Company serves approximately 35 percent of the Fortune 100.
CTG works with customers to develop effective business solutions
through information systems and technology. The Company's professional staff
may support a customer's software development team on a specific application or
project or may manage the project entirely for the customer. The Company's
range of services extends from flexible staffing provided on a per diem basis
to managing multi-million dollar technology projects. Approximately 51 percent
of the Company's services are provided to customers in the service sector,
followed by 23 percent in the manufacturing industry, 9 percent in the banking
and finance sector and 17 percent in other industries. Most of CTG's services
are provided on-site at the customer's facilities. CTG's network of offices
provides wide geographical coverage with the capability of servicing large
companies with multiple locations.
In 1993, the Company completed an extensive reengineering of its
operations, resulting in a new business strategy and a complementary
organization. CTG's business strategy is based upon the concept of a strategic
variable workplace, being cost competitive while being responsive in supplying
qualified staff to work on client engagements. CTG's services are sold and
delivered on a local level through its network of geographically dispersed
delivery teams made up of sales managers, resource managers and business
consultants. The Company has a staff of over 90 recruiting specialists located
in five regional locations who utilize an electronic recruiting database to
screen and qualify individuals who are available to work on CTG's clients'
information technology needs. The Company maintains a qualified database of
over 160,000 candidates available for assignments.
In the 1980's, CTG's growth strategy included expansion via geographic
acquisitions primarily in North America. The Company also completed two
acquisitions in Europe, one in 1986 and the other in 1990. In total, between
1979 and 1990, CTG acquired 21 firms ranging in size from $1 million to
approximately $30 million in revenue. CTG has not made an acquisition in the
last five years, but instead has focused on internal growth and divesting small
non-strategic businesses. Future growth will come from internal growth and
strategic investments.
International Business Machines Corporation (IBM) is CTG's largest
customer. CTG provides services to various IBM divisions in approximately 50
locations. In 1995, CTG was awarded a two year contract to be one of IBM's nine
national technical service providers. IBM accounted for $80 million or 23.7
percent of CTG's 1995 revenue, $68 million or 22.7 percent of CTG's 1994
revenue, and $80 million or 27.1 percent of CTG's 1993 revenue. The Company
expects to continue to derive a significant portion of its business from IBM in
1996 and to actively pursue new business with IBM. A significant decline in
revenues from IBM could have a material adverse impact on the Company's
revenues and profits. Because of the diversity of the projects performed for
IBM and the number of locations and divisions involved, the Company
2
<PAGE> 3
believes the simultaneous loss of all IBM business is unlikely to occur. IBM
accounted for approximately 24.2 percent of North American revenue and 7.3
percent of European revenue during 1995. In addition, the Company continues to
expand its non-IBM business, which grew 11 percent or $25.8 million in 1995
compared to 1994.
In 1989, CTG entered into an agreement with IBM where IBM purchased
1,448,276 shares of CTG Series B Preferred Stock. On February 25, 1994, IBM
converted all of its CTG Series B Preferred Stock into common stock and CTG
repurchased 500,000 of its common shares from IBM for $3,515,000. This
repurchase reduced IBM's ownership of the Company to approximately 9.2 percent.
IBM subsequently sold 550,000 CTG common shares on the open market. The Company
and its Stock Employee Compensation Trust repurchased IBM's remaining 398,276
shares in December 1994 for $2,950,000.
The Company holds no patents, trademarks, or service marks other than
its registered name and logo. It has entered into agreements with various
software and hardware vendors from time to time in the normal course of
business, none of which are material to the business.
SERVICES
- --------
CTG operates in one area of the Information Technology (IT) industry,
the services area. Segment information is included in CTG's 1995 Annual Report
to Shareholders on page 24 and is incorporated herein by reference.
Most companies follow a continuous process to create business
solutions. The business solution life cycle begins with planning, as companies
design strategies to meet overall business objectives using IT. Planning is
followed by development, in which companies develop and implement IT solutions
using their newly devised plans. Finally, managing and maintaining ensure
systems and technologies are supported to preserve their effectiveness. CTG
provides services in each of these three areas as follows:
Business Consulting. Business Consulting focuses on the planning phase
of the IT life cycle. CTG's consultants help a customer develop the plan to
reengineer its business processes, assess its technology needs, and choose the
appropriate technology.
Development & Integration. Development & Integration supports the
implementation phase of the IT life cycle, including software package
implementation, application development, and client/server development.
Managed Support. Managed Support addresses the maintenance segment of
the IT life cycle. It encompasses service offerings such as operations and
network support (running or maintaining a customer's systems), application
support (maintaining a company's programs and documentation) and setting-up and
maintaining a Help Desk.
SALES AND MARKETING
- --------------------
CTG's marketing efforts span all strata of the organization, involving
virtually all of the Company's professionals.
On the corporate and regional level, management performs strategic,
tactical and operational sales planning to assess industry and customer needs
and target markets.
Customers are served by local teams, comprised of Sales Managers,
Business Consultants and Resource Managers who work together -- the first two
focused on identifying an engagement and the latter focused on finding
appropriate, high quality professionals for an engagement. Supporting these
local teams are sourcing specialists backed by a national electronic database
of professional computer consultants and programmers -- to improve
effectiveness at locating qualified IT candidates. In addition, Project
Managers are responsible for profitability, client satisfaction and risk
management in the project delivery of consulting offerings.
3
<PAGE> 4
Sales Managers are full-time employees who receive a base salary and
are paid commissions based on objectives such as the amount and profitability
of the business they sell. Each Sales Manager is assigned a sales quota and is
paid in relationship to this quota. Sales Managers, and the professionals
serving our customers, continually seek to identify new opportunities with
existing and prospective customers. CTG publishes brochures that explain its
services, produces informative customer newsletters, advertises in trade
publications, participates in trade shows, and encourages employees to author
articles, which keeps the CTG name in front of clients.
The Internet and the World Wide Web (Web) are also key components of
the Company's communications infrastructure, called CTGNet. The Web is the
foundation of an ongoing knowledge exchange effort and the Company is currently
refining and building new Web functionality to continuously provide current
information to its customers, suppliers, investors and potential employees. The
Internet and the Web present important opportunities for new business and CTG
is currently developing Internet tools to support its clients. Internally, the
Company is at the leading edge of using the Internet to exchange knowledge. CTG
has been using the Internet and the Web for two years as a communications tool,
to connect wide-spread employees, and as a resource tool for recruiting,
marketing and service delivery.
PRICING AND BACKLOG
- -------------------
CTG provides the majority of its business on a time and materials
basis. Rates vary based on the type and level of skill required by the
customer. Consulting services are more specialized; therefore, they generally
command higher rates. Agreements for work performed on a per diem basis
generally do not specify any dollar amount because services are rendered on an
"as required" basis, and are subject to cancellation without penalty on thirty
days' notice.
The Company performs project business on either a fixed-price or time
and materials basis. These contracts generally have different terms and
conditions regarding cancellation and warranties, and are usually negotiated
based on the unique aspects of the project. Approximately 4 percent of the
Company's 1995 revenue is from fixed-price contracts accounted for under the
percentage of completion method, compared to 5 percent in 1994. Revenue from
all fixed price contracts, including those accounted for under the percentage
of completion method and managed support contracts, totaled 13 percent in 1995,
compared to 8 percent in 1994. As of December 31, 1995 and 1994, the backlog
for fixed-price and managed support contracts was approximately $51 million and
$55 million, respectively. Approximately 42 percent of the December 31, 1995
backlog is expected to be earned in 1996. Revenue is subject to seasonal
variations, with a minor downturn in months of high vacation and legal holidays
(July, August and December). The backlog is not seasonal.
COMPETITION
- -----------
The IT services market is highly competitive. The market is also
highly fragmented among many providers with no single competitor maintaining
clear market leadership. The Company's competition varies from city to city and
by the type of service provided. Competition comes from four primary channels:
a customer's internal data processing staff; small local firms or individuals
specializing in specific programming services or applications; hardware vendors
and suppliers of packaged software systems; and large national or international
vendors, including major accounting and consulting firms, which offer a variety
of development services to a broad spectrum of commercial customers. CTG
competes against all four of these for its share of the market.
Management believes the Company's customers have different buying
values. In order to compete for their business, the Company believes that it
must quickly respond to customers with high quality skills at a low cost,
utilizing CTG's strategic variable workforce. Customers demand the ability to
solve business problems, backed by a defined approach and experience. CTG's
organization is designed to allow it to compete in the IT services industry.
4
<PAGE> 5
CTG has implemented a Total Quality Management Program, with a goal to
achieve continuous, measured improvements in services and deliverables. As part
of this program, CTG has developed specific methodologies for providing value
added services which result in unique solutions and specified deliverables for
its clients. The Company believes these methodologies will enhance its ability
to compete.
MANAGEMENT AND PROFESSIONAL STAFF
- ---------------------------------
As of December 31, 1995, CTG employed 5,014 people, of which 4,402
were professional technical staff.
CTG's long-term profitability and growth depend on its ability to
attract qualified information systems professionals with the skills to fulfill
customer requirements. Qualified systems engineers and professionals with
computer-related skills are in great demand and the Company faces considerable
competition in attracting such individuals. Competing employers include not
only computer-related professional services companies, but also businesses with
internal data processing staffs.
The Company offers several employment options to enable it to attract
professional staff. The Company pays its employees on either a salaried or
hourly basis. Management has developed a professional staff resources database.
This database provides a pipeline of quality professional resources to assist
management in providing customers with responsive, dependable and
cost-effective service to fulfill the needs required.
CTG's service agreements with its customers generally state that
neither party may hire the other's personnel for the term of the project and a
stated period thereafter. The Company's employees are required to sign
non-solicitation and non-disclosure agreements which state they will not accept
employment directly or indirectly with a customer or solicit or hire another
employee, for a specified period after termination of employment. The
agreements also provide that the employee will not use or disclose Company or
client confidential information. In addition, entry level staff who attend the
Company's systems training course and more experienced staff who complete new
technology training sign agreements to reimburse the Company for the cost of
the training if they voluntarily terminate their employment within a defined
period from the date the training program starts.
No employees are covered by a collective bargaining agreement or are
represented by a labor union. CTG is an equal opportunity employer.
TECHNICAL AND MANAGEMENT TRAINING
- ---------------------------------
For a services company, amounts spent on education and training for
staff to keep abreast of technology are similar to research and development
expense. CTG recognizes that its ability to remain competitive depends on its
ability to offer customers services that make the highest and best use of
emerging new technologies. The Company provides ongoing educational programs so
that its technical staff has the skills needed to respond to today's new
demands. Classroom and distributed training, using videos and computer-based
training courses, are utilized.
CTG also offers its employees management and sales training. These
courses offer the latest marketing and management practices and serve both as
refresher courses and as training vehicles to ensure that the technical staff
has the skills necessary for promotion. They also provide a forum for imparting
Company policies to ensure consistency in the quality of services throughout
the Company's organization.
CTG believes its training and continuing education programs keep its
technical staff current and provide the Company with the necessary management
and marketing personnel to support future growth. CTG invested approximately
$4.0 million, $4.4 million and $4.5 million, on education in 1995, 1994, and
1993, respectively, including compensation paid to technical staff while in
training.
5
<PAGE> 6
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
(amounts in thousands)
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Revenue from Unaffiliated Customers
North America $ 306,156 $ 274,115 $ 266,150
European Community 33,251 27,444 29,315
----------- ----------- -----------
$ 339,407 $ 301,559 $ 295,465
=========== =========== ===========
Operating Income (Loss)
North America $ 12,300 $ (2,348) $ (14,529)
European Community 450 128 (14,838)
----------- ----------- ------------
$ 12,750 $ (2,220) $ (29,367)
=========== =========== ===========
Identifiable Assets
North America $ 61,771 $ 62,406 $ 67,088
European Community 13,280 10,510 13,202
Corporate and Other 29,715 22,574 28,281
----------- ----------- -----------
$ 104,766 $ 95,490 $ 108,571
=========== =========== ===========
</TABLE>
6
<PAGE> 7
Executive Officers of the Company
---------------------------------
<TABLE>
<CAPTION>
Term Of Period During Other Positions
Office Which Served as And Offices with
Name and Age Office Expires Executive Officer(1) Registrant
- ------------ ------- ------- -------------------- ------------------
<S> <C> <C> <C> <C>
Gale S. Fitzgerald Chairman of 4-24-96 5-6-91 to date Director
45 the Board and
Chief Executive Officer
Richard A. Ballou Vice President 4-24-96 11-2-93 to date None
44
Charles A. Barbour Vice President 4-24-96 11-2-93 to date None
44
James R. Boldt Vice President 4-24-96 2-12-96 to date Treasurer
44 and Chief
Financial Officer
Louis J.F. Boyle Vice President 4-24-96 7-1-94 to date None
44
Janice M. Cole Vice President 4-24-96 11-2-93 to date None
50
Beatrice DeRocco Vice President 4-24-96 4-26-95 to date None
51
Michael E. Grich Vice President 4-24-96 2-9-95 to date None
47
Stephen A. Hoffman Vice President 4-24-96 11-16-90 to date None
43
Joseph G. Makowski Vice President 4-24-96 9-30-89 to date Secretary
42 and General
Counsel
Nico Molenaar Vice President 4-24-96 1-2-96 to date None
40
Mark V. Megregian Vice President 4-24-96 1-21-94 to date None
53
</TABLE>
- ---------------
[FN]
(1) Business Experience
-------------------
Ms. Fitzgerald was appointed Chairman of the Board and chief executive
officer as of October 3, 1994 and President and chief operating officer as of
July 1, 1993. She joined the Company in May 1991 as Senior Vice President
responsible for the Company's Northeastern U.S. and Canadian operations. She
was previously Vice President, Professional Services at International Business
Machines Corporation (IBM), where she had worked for 18 years in various
management positions.
Mr. Ballou was promoted to Vice President in November 1993 and has
been employed by the Company for 12 years. He has held a variety of technical
and management positions and is presently responsible for the operations of the
Company's Mid-Atlantic and South regions.
7
<PAGE> 8
Mr. Barbour was promoted to Vice President in November 1993 and has
been employed by the Company for 16 years. He has held a variety of
management positions and is presently responsible for the operations of the
Company's Mid-West region.
Mr. Boldt joined the Company as a Vice President in February 1996. He
was previously Vice President of Finance, Secretary and Chief Financial Officer
of Pratt and Lambert United, Inc., where he worked for 20 years in a variety of
management positions. He is currently responsible for the Company's Finance,
Accounting and Internal Audit functions.
Mr. Boyle joined the Company as an officer in July 1994, and currently
serves as Vice President and Chief Information Officer. He was Manager,
Northern New England Consulting Practice with Coopers & Lybrand from 1992 to
June 1994 and held a variety of technical consulting and management positions
prior to that.
Ms. Cole was promoted to Vice President in November 1993 and has been
employed by the Company since 1980. She has held a variety of technical and
management positions and is presently responsible for the operations of the
Company's Northeast region.
Ms. DeRocco joined the Company as a Vice President in April 1995.
She previously held a variety of management positions at IBM and is
presently responsible for the operations of the Company's West region.
Mr. Grich was promoted to Vice President in February 1995 and has been
employed by the Company since 1991. He has held a variety of sales and
management positions and is presently responsible for the operations of the
Company's Central region. Prior to joining the Company, he was employed by Cap
Gemini as Northeastern Director for Sales and Marketing. He also spent 20 years
with IBM where his last position was Branch Manager for IBM's Hartford
Professional Services office.
Mr. Hoffman was promoted to Vice President in November 1990 and is
currently responsible for the operations of the Company's National Delivery
Team, which focuses primarily on IBM. Prior to joining the Company in March
1990, he worked 13 years at IBM where his last position was IBM's Buffalo
branch manager.
Mr. Makowski was promoted to Vice President in September 1993. He
has served as Secretary and General Counsel since September 1989. He has
served as the Company's Corporate Counsel since 1985.
Mr. Molenaar was promoted to Vice President in January 1996 and has
been employed by the Company since 1988. He has held a variety of management
positions and is presently responsible for the Company's European operations.
Mr. Megregian joined the Company as an officer in January, 1994 and
currently serves as Vice President, Offerings and Performance. Most recently,
Mr. Megregian was an independent business consultant with KWR Information
Systems for two years. Prior to that, he was with IBM for 27 years where he had
held various management and technical positions.
ITEM 2. PROPERTIES
----------
The Company occupies a headquarters building (approximately 40,000
square feet) at 800 Delaware Avenue, Buffalo, New York, under a Lease Agreement
with the Erie County Industrial Development Agency (Agency), dated as of
September 1, 1978. At the end of the term of the Lease Agreement in 1996, the
Company has the right to purchase its headquarters building and the real
property on which it is situated for $1.00. Until such time, the building and
real property are encumbered by a mortgage held by the trustee for the
purchaser of the industrial revenue bond issued by the Agency to finance its
purchase of the building and real property.
8
<PAGE> 9
The Company also occupies an office building at 700 Delaware Avenue,
Buffalo, New York under a Lease Agreement with the Agency, dated April 1, 1990.
The building consists of approximately 39,000 square feet and is occupied by
the Company's Buffalo sales office and corporate administrative operations. At
the end of the Lease Agreement in 2001, the Company has the right to purchase
the building and the real property on which it is situated for $10.00. There is
no mortgage on this building.
The Company also owns a 37,000 square foot building in Melbourne,
Florida and a 24,000 square foot office and operations facility in Pittsburgh,
Pennsylvania, which was financed by an industrial revenue bond.
Three of the four properties are currently on the market as the
Company looks for more efficient space. The buildings are still in use while
they are on the market, and the Company does not expect to incur a loss on the
sale of these buildings. The Melbourne, Florida building, with a net book value
of $1.8 million, is leased to a third party under a five year lease.
The remainder of the Company's locations are leased facilities. Most
of these facilities serve as sales and support offices and their size varies,
generally in the range of 1,000 to 12,000 square feet, with the number of
people employed at each office. The Company's lease terms generally vary from
periods of less than a year to five years and generally have flexible renewal
options. The Company believes that its present owned and leased facilities are
adequate to support its current and future needs.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable.
9
<PAGE> 10
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
--------------------------------------------------------------------
Information relating to the market and market prices of the Company's
Common Stock, the approximate number of Company shareholders and the Company's
dividend history for the past two years is included under the caption "Stock
Market Information" in the Company's Annual Report to Shareholders for the year
ended December 31, 1995, submitted herewith as an exhibit, and incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
A ten-year summary of certain financial information relating to the
financial condition and results of operations of the Company is included under
the caption "Consolidated Summary - Ten-Year Selected Financial Information" in
the Company's Annual Report to Shareholders for the year ended December 31,
1995, submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Management's discussion and analysis of financial condition and
results of operations is included in the Company's Annual Report to
Shareholders for the year ended December 31, 1995, submitted herewith as an
exhibit, and incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The consolidated financial statements of the Company and the
supplementary data information are included in the Company's Annual Report to
Shareholders for the year ended December 31, 1995, submitted herewith as an
exhibit, and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
On October 16, 1995, the Company engaged KPMG Peat Marwick LLP (KPMG)
as the principal accountants to audit the Company's financial statements for
the fiscal year ending December 31, 1995, and dismissed Price Waterhouse LLP
(Price Waterhouse). The Company did not consult with KPMG regarding accounting
advice prior to its engagement.
Price Waterhouse had been engaged since 1977 as the principal
accountants to audit the Company's financial statements. Price Waterhouse's
report on the financial statements of the Company as of December 31, 1994 and
1993 and for the years then ended contained no adverse opinion or disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. Also, during the aforementioned period, there occurred
no "reportable event" within the meaning of Item 304(a)(1)(v) of Regulation S-K
of the Commission.
The decision to change accountants was approved by the Board of
Directors of the Company. During the Company's two most recent fiscal years and
any subsequent interim period preceding the dismissal, there were no
disagreements between the Company and Price Waterhouse on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which if not resolved to the satisfaction of Price
Waterhouse would have caused Price Waterhouse to make reference to the subject
matter of the disagreement in connection with its report.
II-1 10
<PAGE> 11
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
---------------------------------------------------
The information in response to this item is incorporated herein by
reference to the information set forth on pages 2 and 5 in the Company's
definitive Proxy Statement filed pursuant to Regulation 14A and used in
connection with the Company's 1996 annual meeting of shareholders to be held on
April 24, 1996, except insofar as information with respect to executive
officers is presented in Part I, Item 1 hereof pursuant to General Instruction
G(3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information in response to this item is incorporated herein by
reference to the information under the caption "Information about Management"
presented in the Company's definitive Proxy Statement filed pursuant to
Regulation 14A and used in connection with the Company's 1996 annual meeting of
shareholders to be held on April 24, 1996, excluding the Compensation Committee
Report on Executive Compensation and the Company's Performance Graph as set
forth in the Company's definitive Proxy Statement dated March 27, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information in response to this item is incorporated herein by
reference to the information under the caption "Security Ownership of the
Company's Common Shares by Certain Beneficial Owners and by Management"
presented in the Company's definitive Proxy Statement filed pursuant to
Regulation 14A and used in connection with the Company's 1996 annual meeting of
shareholders to be held on April 24, 1996, as set forth in the Company's
definitive Proxy Statement dated March 27, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information in response to this item is incorporated herein by
reference to the information under the captions "Indebtedness of Management"
and "Compensation Committee Interlocks and Insider Participation" presented in
the Company's definitive Proxy Statement filed pursuant to Regulation 14A and
used in connection with the Company's 1996 annual meeting of shareholders to be
held on April 24, 1996, excluding the Compensation Committee Report on
Executive Compensation and the Company's Performance Graph as set forth in the
Company's definitive Proxy Statement dated March 27, 1996.
III-1 11
<PAGE> 12
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(A) Index to Financial Statements and Financial Statement Schedules
---------------------------------------------------------------
The 1995, 1994 and 1993 consolidated financial statements, and the
report of KPMG Peat Marwick LLP dated February 9, 1996, on the consolidated
balance sheet as of December 31, 1995 and the related consolidated statements
of income, shareholder's equity and cash flows for the year then ended,
appearing in the accompanying 1995 Annual Report to Shareholders, are
incorporated by reference in this Form 10-K Annual Report. With the exception
of the aforementioned information and the information incorporated in Parts I
and II, the 1995 Annual Report to Shareholders is not to be deemed filed as
part of this report. The following financial statement schedule should be read
in conjunction with the financial statements in such 1995 Annual Report to
Shareholders. All other financial statement schedules have been omitted because
they are not material or the required information is shown in the financial
statements or the notes thereto.
<TABLE>
<CAPTION>
Reference
---------
<S> <C>
Report of Independent Accountants IV-2
Report of Independent Accountants on IV-3
Financial Statement Schedule
Report of Independent Accountants on
Financial Statement Schedule IV-4
Financial statement schedule:
Valuation and Qualifying Accounts IV-5
(Schedule VIII)
</TABLE>
(B) Form 8-K
--------
Filing on Form 8-K was made October 16, 1995 in regard to the change
in certifying accountants from Price Waterhouse LLP to KPMG Peat Marwick LLP.
(C) Exhibits
--------
The Exhibits to this Form 10-K Annual Report are listed on the
attached Exhibit Index appearing on pages E-1 to E-4.
IV-1 12
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
Computer Task Group, Incorporated
In our opinion, the consolidated balance sheet and the related consolidated
statements of income, of cash flows and of changes in stockholders' equity as
of and for each of the two years in the period ended December 31, 1994
(appearing on pages 11 though 25 of the Computer Task Group, Incorporated
Annual Report to Shareholders which has been included in this Form 10-K Annual
Report) present fairly, in all material respects, the financial position,
results of operations and cash flows of Computer Task Group, Incorporated and
its subsidiaries as of and for each of the two years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Computer Task Group, Incorporated for any period subsequent to
December 31, 1994.
PRICE WATERHOUSE LLP
Buffalo, New York
February 10, 1995
IV-2 13
<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors and Stockholders of
Computer Task Group, Incorporated
Under date of February 9, 1996, we reported on the consolidated balance sheet
of Computer Task Group, Incorporated and subsidiaries as of December 31, 1995,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the year then ended, as contained in the 1995 Annual Report to
Shareholders. These consolidated financial statements and our report thereon
are incorporated by reference in the Annual Report on Form 10-K for the year
1995. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule, insofar as it relates to the year ended December 31, 1995,
as listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audit.
In our opinion, such financial statement schedule, insofar as it relates to the
year ended December 31, 1995, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Buffalo, New York
February 9, 1996
IV-3 14
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULE
----------------------------
To the Board of Directors of
Computer Task Group, Incorporated
Our audits of the consolidated financial statements referred to in our report
dated February 10, 1995 appearing on page IV-2 included in this Annual Report
on Form 10-K also included an audit of the Financial Statement Schedule for
1994 and 1993 listed in Item 14. (A) of this Form 10-K. In our opinion, this
Financial Statement Schedule for 1994 and 1993 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
Buffalo, New York
February 10, 1995
IV-4 15
<PAGE> 16
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
<TABLE>
<CAPTION>
Balance at Net Balance at
Description January 1 Change December 31
- ----------- ---------- ------ -----------
<S> <C> <C> <C> <C>
1995
Account deducted from assets
Allowance for Doubtful
Accounts $ 1,045 $ (183) (A) $ 862
Net Deferred Tax Assets
Valuation Allowance $ 1,087 $ (125) (B) $ 962
1994
Account deducted from assets
Allowance for Doubtful
Accounts $ 967 $ 78 (A) $ 1,045
Net Deferred Tax Assets
Valuation Allowance $ 1,471 $ (384) (C) $ 1,087
1993
Account deducted from assets
Allowance for Doubtful
Accounts $ 642 $ 325 (A) $ 967
Net Deferred Tax Assets
Valuation Allowance $ 737 $ 734 (D) $ 1,471
</TABLE>
- ---------------
[FN]
(A) Includes additions charged to costs and expenses less accounts written off
and translation adjustments.
(B) Utilization of foreign net operating losses that were previously offset
completely by the valuation allowance.
(C) Includes benefit of unrealized capital loss carryforward that was realized
during the year.
(D) Includes additions charged to costs and expenses for net operating loss
carryforwards that are not expected to be realized.
IV-5 16
<PAGE> 17
<TABLE>
<CAPTION>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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/ Gale S. Fitzgerald
----------------------------
Gale S. Fitzgerald, Chairman of the
Board and chief executive officer
Dated: March 22, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
<S> <C> <C> <C>
(i) Principal Executive Officer: Chairman of the March 22, 1996
Board and chief
/s/ Gale S. Fitzgerald executive officer
-------------------------------
(Gale S. Fitzgerald)
(ii) Principal Accounting and Vice President, March 22, 1996
Financial Officer chief financial
officer
/s/ James R. Boldt
------------------------------
(James R. Boldt)
(iii) Directors
/s/ G. David Baer Director March 22, 1996
-------------------------------
(G. David Baer)
/s/ George B. Beitzel Director March 22, 1996
------------------------------
(George B. Beitzel)
/s/ Richard L. Crandall Director March 22, 1996
------------------------------
(Richard L. Crandall)
/s/ Gale S. Fitzgerald Director March 22, 1996
------------------------------
(Gale S. Fitzgerald)
/s/ Paul W. Joy Director March 22, 1996
------------------------------
(Paul W. Joy)
/s/ Randolph A. Marks Director March 22, 1996
------------------------------
(Randolph A. Marks)
/s/ Barbara Z. Shattuck Director March 22, 1996
------------------------------
(Barbara Z. Shattuck)
</TABLE>
IV-6 17
<PAGE> 18
EXHIBIT INDEX
--------------
<TABLE>
<CAPTION>
Page or
Exhibit Description Reference
- ------- ----------- ---------
<S> <C> <C> <C>
2. Plan of acquisition, reorganization, arrangement, *
liquidation or succession.
3. (a) Restated Certificate of Incorporation of Registrant. (1)
(b) Form of Certificate of Amendment of the Restated (2)
Certificate of Incorporation of Registrant, under
Section 805 of the New York Business Corporation Law.
(c) Certificate of Amendment of the Certificate of (1)
Incorporation of Registrant.
(d) Restated By-laws of Registrant. (1)
(e) Certificate of Amendment of Certificate of Incorporation (2)
of Registrant.
4. (a) Specimen Common Stock Certificate. (2)
(b) Rights Agreement dated as of January 15, 1989, and (2)
amendment dated June 28, 1989, between Registrant
and The First National Bank of Boston, as Rights Agent.
(c) Form of Rights Certificate. (2)
9. Voting Trust Agreement. *
10. (a) 1981 Stock Bonus Plan. (3)
(b) Stock Purchase Agreements, dated as of February 25, (4)
1981, between Registrant and each of Randolph A. Marks,
G. David Baer and David N. Campbell.
(c) Lease Agreement, dated as of September 1, 1978, between (2)
Registrant and Erie County Industrial Development Agency.
(d) Lease Agreement Amendment, dated as of February 1, 1980, (2)
between Registrant and Erie County Industrial Development
Agency.
- ----------------------------
<FN>
* None or requirement not applicable.
(1) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992
and incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
and incorporated herein by reference.
(3) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1991,
and incorporated herein by reference.
</TABLE>
E-1 18
<PAGE> 19
EXHIBIT INDEX (Continued)
-------------
<TABLE>
<CAPTION>
Page or
Exhibit Description Reference
- ------- ----------- ---------
<S> <C> <C>
10. (e) First Employee Stock Purchase Plan (Seventh Amendment (5)
and Restatement).
(f) Description of Disability Insurance and Health (6)
Arrangements for Executive Officers.
(g) Non-Compete Agreements, dated as of March 1, 1984, (2)
between Registrant and each of Randolph A. Marks,
David N. Campbell and John P. Courtney.
(h) Description of Executive Supplemental Benefit Plan dated (2)
March 3, 1984, as restated, as of November 30, 1994.
(i) Line of Credit Agreement, dated December 21, 1987, (1)
between Registrant and Manufacturers and Traders
Trust Company.
(j) Letter of Marine Midland Bank, N.A. dated May 25, 1988, (7)
amending Line of Credit Agreement, dated December 12,
1984, between Registrant and Marine Midland Bank, N.A.
(k) Non-Compete Agreement, dated as of June 6, 1988, (7)
between Registrant and G. David Baer.
(l) Line of Credit Agreement, dated March 3, 1988, between (7)
Registrant and Chemical Bank, as amended by letter of
Chemical Bank dated September 15, 1988.
(m) Promissory Note, dated July 10, 1991, between Registrant (3)
and Manufacturers and Traders Trust Company.
(n) 1991 Employee Stock Option Plan, as Amended. (8)
(o) 1991 Restricted Stock Plan. (5)
(p) 1995 Key Employee Compensation Plans. (9)
- --------------------------
<FN>
(4) Filed as an Exhibit to the Registrant's Registration Statement No. 2- 71086 on Form S-7 filed on
February 27, 1981, and incorporated herein by reference.
(5) Filed as an Appendix to the Registrant's definitive Proxy Statement dated March 20, 1991, and incorporated
herein by reference.
(6) Filed as an Exhibit to Amendment No. 1 to Registration Statement No. 2-71086 on Form S-7 filed on
March 24, 1981, and incorporated herein by reference.
(7) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993,
and incorporated herein by reference.
</TABLE>
E-2 19
<PAGE> 20
EXHIBIT INDEX (Continued)
-------------
<TABLE>
<CAPTION>
Page or
Exhibit Description Reference
- ------- ----------- ----------
<S> <C> <C> <C>
10. (q) Management Stock Purchase Plan. (10)
(r) Executive Compensation Plans and Arrangements.
(s) Amendment and Restatement, dated September 30, 1993, (7)
of Promissory Note, dated July 10, 1991, between
Registrant and Manufacturers and Traders Trust Company.
(t) Promissory Note, dated September 30, 1993, between (7)
Registrant and Manufacturers and Traders Trust Company.
(u) Agreement, dated February 25, 1994, of Stock Conversion (7)
and Repurchase between Registrant and International
Business Machines Corporation.
(v) Nondisclosure and Nonsolicitation Agreement, dated (7)
July 1, 1993, between Registrant and Gale S. Fitzgerald.
(w) Stock Purchase Agreement between Registrant and (11)
Honeywell, Inc. dated June 13, 1994.
(x) Terms of Separation Package dated September 23, 1994, (2)
between Registrant and David N. Campbell.
(y) Stock Employee Compensation Trust Agreement, dated (2)
May 3, 1994, between Registrant and Thomas R. Beecher,
Jr., as trustee.
(z) Promissory Notes, dated May 3, 1994, and December 7, 1994, (2)
between Registrant and Thomas R. Beecher, Jr., as Trustee of
the Computer Task Group, Incorporated Stock Employee
Compensation Trust.
- --------------------------
<FN>
(8) Filed as an Appendix to the Registrant's definitive Proxy Statement dated March 27, 1995, and incorporated
herein by reference.
(9) Included in the Registrant's definitive Proxy Statement dated March 27, 1996 on page 7 under the caption
entitled "Annual Cash Incentive Compensation," and incorporated herein by reference.
(10) Filed as an Appendix to the Registrant's definitive Proxy Statement dated March 27, 1992, and incorporated
herein by reference.
(11) Filed as Exhibit 2 to the Registrant's Form 8-K Report dated July 29, 1994, and incorporated herein by
reference.
</TABLE>
E-3 20
<PAGE> 21
EXHIBIT INDEX (Continued)
-------------
<TABLE>
<CAPTION>
Page or
Exhibit Description Reference
- ------- ----------- ---------
<S> <C> <C> <C>
10. (aa) Stock Purchase Agreement, dated December 7, 1994, between (2)
Registrant and Thomas R. Beecher, Jr., as Trustee of the Computer
Task Group, Incorporated Stock Employee Compensation Trust, and
International Business Machines Corporation.
(bb) Severance Compensation Agreements dated October 31, 1994, between (2)
Registrant and Gale S. Fitzgerald and G. David Baer.
(cc) CTG Non-Qualified Key Employee Deferred Compensation Plan
11. Statement re: computation of per share earnings.
12. Statement re: computation of ratios. *
13. Annual Report to Shareholders.
18. Letter re: change in accounting principles. *
21. Subsidiaries of the Registrant.
22. Published report regarding matters submitted to a vote *
of security holders.
23. Consents of experts and counsel.
24. Power of Attorney. *
27. Financial Data Schedule. *
- --------------------------
</TABLE>
E-4 21
<PAGE> 1
EXHIBIT 10(r)
-------------
COMPUTER TASK GROUP, INCORPORATED
---------------------------------
Executive Compensation Plans and Arrangements.
<PAGE> 2
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
---------------------------------------------
The following is a list of all plans, management contracts and compensatory
arrangements in which the executive officers of the Company participate and
where they can be found:
1981 Stock Bonus Plan - Annual Report on Form 10-K for the year ended December
31, 1991, Exhibit 10(a).
Stock Purchase Agreements with David N. Campbell and G. David Baer -
Registration Statement No. 2-71086 on Form S-7 filed on February 27, 1981.
First Employee Stock Purchase Plan (Seventh Amendment and Restatement) -
definitive Proxy Statement dated March 20, 1991, Appendix B.
Disability Insurance and Health Arrangements - Amendment No. 1 to Registration
Statement No. 2-71086 on Form S-7 filed on March 24, 1981.
Non-Compete Agreements with David N. Campbell and John P. Courtney - Annual
Report on Form 10-K for the year ended December 31, 1994, Exhibit 10(g).
Non-Compete Agreement with G. David Baer - Annual Report on Form 10-K for the
year ended December 31, 1993, Exhibit 10(m).
Executive Supplemental Benefit Plan, as restated - Annual Report on Form 10-K
for the year ended December 31, 1994, Exhibit 10(h).
1991 Employee Stock Option Plan, as Amended - definitive Proxy Statement dated
March 27, 1995, Appendix A.
1991 Restricted Stock Plan - definitive Proxy Statement dated March 20, 1991,
Appendix D.
Management Stock Purchase Plan - definitive Proxy Statement dated March 27,
1992, Appendix A.
1995 Key Employee Compensation Plans - Annual Report on Form 10-K for the year
ended December 31, 1995, Exhibit 10(p).
CTG Non-Qualified Key Employee Deferred Compensation Plan.
<PAGE> 1
EXHIBIT 10(cc)
--------------
COMPUTER TASK GROUP, INCORPORATED
---------------------------------
CTG Non-Qualified Key Employee Deferred Compensation Plan.
<PAGE> 2
COMPUTER TASK GROUP, INCORPORATED
NONQUALIFIED KEY EMPLOYEE DEFERRED COMPENSATION PLAN
----------------------------------------------------
I
DEFINITIONS, BACKGROUND, PURPOSE AND EFFECTIVE DATE
----------------------------------------------------
.1 DEFINITIONS. For purposes of the Plan, the following
terms shall have the definitions stated below unless the context clearly
indicates otherwise:
(a) "BOARD" means the Board of Directors of
Computer Task Group, Incorporated.
(b) "CHAIRMAN" means the Chairman and Chief
Executive Officer of the Corporation.
(c) "CODE" means the Internal Revenue Code of 1986,
as amended.
(d) "COMMITTEE" means the Compensation Committee of
the Board.
(e) "COMPENSATION" means base salary and
bonus compensation actually earned by a
Participant in a calendar year, including
any compensation deferred by a Participant
under the Corporation's plan qualified
under 401(k) Plan and including any
Elective Deferrals under this Plan from
base salary and bonus compensation, and
excluding, without limitation, (i) any
amounts paid to a Participant under any
other qualified or nonqualified
compensation plan, including without
limitation any amounts paid pursuant to a
stock option or other stock plan and (ii)
any noncash compensation such as relocation
expenses, advances on salary and travel
advances.
(f) "CORPORATION" means Computer Task Group,
Incorporated.
(g) "CORPORATION CONTRIBUTION ACCOUNT" means a
sub-account of the Deferred Compensation Account
comprised of Corporation Contributions credited
thereto and earnings thereon.
<PAGE> 3
-2-
(h) "CORPORATION STOCK" means shares of
common stock, $.01 par value, issued by the
Corporation, or any successor securities thereto.
(i) "DEFERRED COMPENSATION ACCOUNT" means
the account maintained for each Participant to
which are credited all amounts allocated thereto
in accordance with this Plan, and adjusted for
earnings thereon.
(j) "EMPLOYEE CONTRIBUTION ACCOUNT" means a
sub-account of the Deferred Compensation Account
comprised of the Employee Contributions allocated
to such account and earnings thereon.
(k) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(l) "PARTICIPANT" means an employee selected to
participate in the Plan pursuant to Section 2.1.
(m) "PLAN" means the Computer Task Group,
Incorporated Nonqualified Key Employee
Deferred Compensation Plan as initially
approved by the Committee on February 2, 1995
and as it shall be amended from time to time.
(n) "PLAN ADMINISTRATOR" means the Committee.
(o) "PLAN YEAR" means the calendar year, unless
otherwise determined by the Committee. The first
Plan Year shall commence on January 1, 1995.
(p) "RABBI TRUST" means a trust agreement, if
established, entered into by and between the
Corporation and any trustee, to provide certain
benefits under the Plan.
(q) "401(k) PLAN" means the Computer Task Group,
Incorporated 401(k) Retirement Plan.
(r) "SEPARATION FROM SERVICE" means an employee's
termination of employment for any reason, such
that the employee is not employed by the
Corporation or any company in an affiliated group
for tax purposes with the Corporation.
<PAGE> 4
-3-
(s) "YEAR OF PARTICIPATION" means a Plan
Year during which the Participant is a
Participant for the entire Plan Year.
Notwithstanding the preceding sentence,
each employee who is selected as a
Participant at the commencement of the Plan
shall be deemed a Participant beginning on
January 1, 1995 for this purpose. Any other
employee selected as a Participant shall
become a Participant on January 1 of the
Plan Year immediately following the
employee's selection.
.2 BACKGROUND AND PURPOSE OF THE PLAN. The purpose of
the Plan is to establish an unfunded plan to provide Corporation-provided
deferred compensation commensurate with the performance of the Corporation for
a select group of highly compensated employees to retain the services of
certain of such employees and to provide an additional elective opportunity for
certain of such employees to defer a portion of their compensation, in all
events upon such terms as shall be established by the Committee.
.3 EFFECTIVE DATE. Except as otherwise provided, the
effective date of the Plan is January 1, 1995.
II
PARTICIPATION
-------------
.1 ELIGIBILITY FOR PARTICIPATION. An employee of the
Corporation shall be eligible to participate in the Plan if, with respect to
the ability to make Elective Contributions pursuant to Section 3.1 and/or to be
awarded Corporation Contributions pursuant to Section 3.2, the employee is
recommended by the Chairman to participate in the Plan and such recommendation
is approved by the Committee, in its sole discretion.
.2 CESSATION OF ELIGIBILITY. With respect to any Plan
Year, a Participant shall continue to be eligible to elect to defer
Compensation pursuant to Section 3.1 and/or to receive an award of Corporation
Contributions pursuant to Section 3.2 if the Participant's eligibility is not
terminated (with respect to the Plan Year no later than 90 days after the
beginning of such Plan Year) by recommendation of the Chairman and approval of
such recommendation by the Committee, and if the Participant remains in the
employ of the Corporation for the entire Plan Year.
III
CONTRIBUTIONS
-------------
<PAGE> 5
-4-
.1 EMPLOYEE CONTRIBUTIONS. With respect to any Plan
Year commencing after December 31, 1994, a Participant may irrevocably elect
prior to December 1 of the Plan Year preceding such Plan Year (except with
respect to the Plan Year ending December 31, 1995, prior to June 16, 1995) to
defer all or a part of his or her Compensation in a certain dollar amount or
percentage not to exceed that permitted by the Committee ("Employee
Contributions"). The Committee shall credit the Participant's Employee
Contribution Account with an amount equal to such Employee Contributions at
such times and in such amounts as would otherwise have been paid or made
available to such Participant. The elections described in this subsection shall
be made by such time and using such forms as the Plan Administrator shall
provide.
.2 CORPORATION CONTRIBUTIONS. With respect to each
Plan Year commencing after December 31, 1994, a Participant eligible to
receive an award of Corporation Contributions shall be awarded an amount equal
to a specified percentage of the Participant's Compensation for the Plan Year.
The percentage shall be determined for each Plan Year based on the degree of
achievement by the Corporation of certain performance targets recommended by
the Chairman and approved by the Committee. Both the award percentages and the
degree of the achievement of the performance targets shall be determined by the
Committee, in its sole discretion at a meeting of the Committee following the
close of the audit of the Corporation by its outside accountants for the Plan
Year. Such award shall be credited to the Participant's Corporation
Contribution Account as of January 1 of the Plan Year following the Plan Year
for which the Corporation Contribution is awarded, and such award may be in the
form of cash or Corporation Stock at the sole discretion of the Committee.
IV
ACCOUNTS AND INVESTMENTS
------------------------
.1 THE DEFERRED COMPENSATION ACCOUNT. The Committee
shall maintain for each Participant a Deferred Compensation Account to which it
shall credit all amounts allocated thereto in accordance with Sections 3.1 and
3.2. Each Participant's Deferred Compensation Account shall be adjusted no less
often than annually, beginning January 1, 1995, to reflect the credits made to
the Deferred Compensation Account and any interest, earnings, gains and losses
thereon pursuant to Section 4.2. Such adjustments shall be made as long as any
amount remains credited to the Deferred Compensation Account. The amounts
allocated and the adjustments made shall comprise the Deferred Compensation
Account at any time.
<PAGE> 6
-5-
.2 INTEREST, EARNINGS, GAINS AND LOSSES. Amounts
represented by the Deferred Compensation Accounts of all Participants shall
be credited with interest or invested in an investment vehicle(s) (including
but not limited to Corporation Stock) in the sole discretion of the Committee.
A Deferred Compensation Account shall be credited with its share of the
interest thereon or the earnings, gains and losses of such investment vehicles
for the period for which the Account is so invested no less often than
annually. Interest, earnings, gains and losses shall accrue annually on the
balance as of the first day of each Plan Year and shall be credited annually as
of the last day of the Plan Year during which such interest, earnings, gains
and losses accrued.
.3 THE RABBI TRUST. The Committee may
determine that the Corporation shall establish a Rabbi Trust to which the
Corporation shall contribute all amounts credited to the Employee and
Corporation Contribution Accounts in accordance with Sections 3.1, 3.2, and 4.2
of the Plan.
.4 RIGHTS AS GENERAL CREDITOR. Unless the Corporation
establishes the Rabbi Trust, a Deferred Compensation Account does not
constitute a trust fund or escrow. A Participant's interest in the Deferred
Compensation Account and in the Rabbi Trust, if established, is limited to the
right to receive payments as provided under the Plan and the Rabbi Trust, if
any, and the Participant's position is that of a general unsecured creditor of
the Corporation with respect to the entire Deferred Compensation Account, i.e.,
the Corporation Contributions, Employee Contributions, and interest, earnings,
gains and losses thereon.
.5 VESTING IN EMPLOYEE CONTRIBUTION ACCOUNT.
Except as otherwise provided in this Article, a Participant shall at all times
have a 100% nonforfeitable right to the value of his or her Employee
Contribution Account.
.6 VESTING IN CORPORATION CONTRIBUTION ACCOUNT.
Except as otherwise provided in this Article,
(a) A Participant who first becomes a
Participant in the Plan in 1995 shall have
a 100% nonforfeitable right to the value of
the Participant's Corporation Contribution
Account on January 1, 2003, and, in the
case of any other Participant, such
Participant shall have a 100%
nonforfeitable right to the value of the
Participant's Corporation Contribution
Account on the January 1 following eight
full calendar years after the Participant
first becomes a Participant in the Plan,
and no Participant shall have any right to
any amount in such Account prior to such
respective date.
<PAGE> 7
-6-
(b) Notwithstanding subsection (a), prior
to January 1, 2003, in the case of a
Participant who first becomes a Participant
in the Plan in 1995, or, prior to the
January 1 following eight full calendar
years after the Participant first becomes a
Participant in the Plan, in the case of a
Participant who first becomes a Participant
in the Plan after 1995, if a Participant
incurs a Separation from Service (i)
involuntarily and without Cause, (ii) due
to death, disability (as hereafter
defined), or retirement at age 65 or later,
or (iii) if there is a Change of Control,
as defined in Section 4.8, such Participant
shall have a nonforfeitable right in a
portion of the Participant's Corporation
Contribution Account equal to 12.5% times
the Participant's Years of Participation.
(c) Notwithstanding subsections (a) or (b),
if a Participant incurs a Separation from
Service for Cause, the Participant shall
forfeit all amounts in the Participant's
Corporation Contribution Account.
(d) For purposes of this Plan, Separation
from Service due to disability shall mean
separation from service due to a physical
or mental condition which prevents the
Participant from engaging in any gainful
occupation in which the Participant might
reasonably be expected to engage, with due
regard for the Participant's education,
training, experience, and prior economic
status. The determination shall be made on
medical evidence by a licensed physician
assigned by the Committee. Separation from
Service due to disability shall exclude
disabilities arising from: (i)
intentionally self-inflicted injury or
intentionally self-induced sickness, (ii) a
proven unlawful act or enterprise on the
part of the Participant, or (iii) military
service where the Participant is eligible
to receive a government military disability
pension. In all cases, the Committee shall
make the final determination whether a
Participant has incurred a Separation from
Service due to disability for purposes of
this Plan.
(e) For purposes of this Plan,
Separation from Service for Cause shall
mean termination of employment due to:
(i) Embezzlement from the Corporation
(ii) Theft from the Corporation
<PAGE> 8
-7-
(iii) Defrauding the Corporation
(iv) Drug addiction
(v) Habitual intoxication
(vi) Use or disclosure of
Corporation or client
confidential or proprietary
information
(vii) Engaging in activities or
businesses which are
substantially in competition
with the Corporation
(viii) Any other action, activity or
course of conduct which is
substantially detrimental to the
Corporation's business or business
reputation
(ix) Violation of the provision of the
terms of any nondisclosure and
nonsolicitation, noncompetition, or
other contractual agreement between
the Participant and the
Corporation.
.7 PAYMENT OF BENEFITS.
(a) COMMENCEMENT. Except as otherwise
provided in this Section and subject to the
vesting provisions of Section 4.6, if the
Participant does not make an election in
the time and manner specified in (c), the
vested value of a Participant's Deferred
Compensation Account shall be paid under
the Plan as soon as practicable on or after
the Participant's Separation from Service
but in any event not later than 90 days
after such Separation from Service. In the
case of a Change of Control, as defined in
Section 4.8, the vested value of a
Participant's Deferred Compensation Account
shall be paid in cash immediately following
such Change of Control.
(b) NORMAL FORM OF PAYMENT. Except as
otherwise provided in this Section and
subject to the vesting provisions of
Section 4.6, if the Participant does not
make an election in the time and manner
specified in (c), benefits payable under
the Plan (i.e.
<PAGE> 9
-8-
vested benefits) shall be paid in the form
of a single lump sum payment and shall,
with respect to the Employee Contribution
Account, be in the form of cash, and with
respect to the Corporation Contribution
Account, be in the form of cash,
Corporation Stock, or a combination of cash
and such Corporation Stock, to be
determined in the sole discretion of the
Committee. Shares of Corporation Stock used
to satisfy the obligation of the
Corporation under this Plan shall be valued
at their fair market value. For purposes of
this Plan, fair market value means as of
any date the average of the highest and
lowest reported sales prices on such date
(or if such date is not a trading day, then
the most recent prior date which is a
trading day) of a share of Corporation
Stock as reported on the composite tape, or
similar reporting system, for issues listed
on the New York Stock Exchange (or, if the
Corporation Stock is no longer traded on
the New York Stock Exchange, on such other
national securities exchange on which the
Corporation Stock is listed or national
securities or central market system upon
which transactions in Corporation Stock are
reported, as either shall be designated by
the Committee for the purposes hereof) or
if sales of Corporation Stock are not
reported in any manner specified above, the
average of the high bid and low asked
quotations on such date (or if such date is
not a trading day, then on the most recent
prior date which is a trading day) in the
over-the-counter market as reported by the
National Association of Securities Dealers'
Automated System or, if not so reported, by
National Quotation Bureau, Incorporated or
similar organization selected by the
Committee.
(c) ELECTION OF FORM OF PAYMENT.
Notwithstanding (a) and (b), the
Participant may elect any future date or
event with respect to the time at which
payment of the Employee Contribution
Account will be made, subject to the
approval of the Committee, in its sole
discretion, and provided that such written
election is filed with the Committee at the
same time and with respect to the
Compensation that is deferred for the same
period pursuant to Section 3.1, i.e. prior
to the calendar year for which the
Compensation is deferred (except with
respect to the Plan Year ending December
31, 1995, prior to June 16, 1995). However,
in no event shall such payment be later
than 90 days
<PAGE> 10
-9-
after the Participant's Separation from
Service, or, if earlier, immediately
following a Change of Control.
(d) UNFORESEEABLE EMERGENCY. In the case of
an unforeseeable emergency, as defined
below, a Participant may submit a written
request to the Committee for (1) a
distribution of all or a part of his or her
Employee Contribution Account and, if fully
vested, all or a part of his or her
Corporation Contribution Account prior to
the date benefits otherwise would be
payable, or (2) an acceleration of the
payment of installment payments that have
already begun. Withdrawals or acceleration
because of an unforeseeable emergency shall
be permitted only to the extent reasonably
necessary to satisfy the emergency. An
unforeseeable emergency is a severe
financial hardship resulting from
extraordinary and unforeseeable
circumstances arising as a result of one or
more recent events beyond the control of
the Participant. The need to send the
Participant's child to college or the
desire to purchase a residence will not be
considered unforeseeable emergencies.
Withdrawals or acceleration will not be
permitted to the extent such emergency is
or may be relieved: (1) through
reimbursement or compensation by insurance
or otherwise, or (2) by liquidation of the
Participant's assets, to the extent the
liquidation of such assets would not itself
cause severe financial hardship.
(e) Notwithstanding any other provision of
the Plan, a Participant shall forfeit all
future benefits payable from his or her
Corporation Contribution Account under the
Plan if the Committee determines the
Participant to be engaged in any of the
following activities:
(i) Use or disclosure of
Corporation or client
confidential or proprietary
information
(ii) Engaging in activities or
businesses which are
substantially in competition with
the Corporation
(iii) Any other action, activity or
course of conduct which is
substantially detrimental to the
Corporation's business or
business reputation
<PAGE> 11
-10-
(iv) Violation of the provision of the
terms of any nondisclosure and
nonsolicitation, noncompetition, or
other contractual agreement between
the Member and the Corporation.
.8 CHANGE OF CONTROL. A Change of Control shall be
deemed to have occurred if:
(a) any Person, which shall mean a "person"
as such term is used in Sections 13(d) and
24(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")
(other than the Corporation, any trustee or
other fiduciary holding securities under an
employee benefit plan of the Corporation,
or any company owned, directly or
indirectly, by the stockholders of the
Corporation in substantially the same
proportions as their ownership of stock of
the Corporation), is or becomes the
"beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
indirectly, of securities of the
Corporation representing 30% or more of the
combined voting power of the Corporation's
then outstanding voting securities;
(c) during any period of 24 consecutive
months, individuals who at the beginning of
such period constitute the Board, and any
new director whose election by the Board, or
whose nomination for election by the
Corporation's stockholders, was approved by
a vote of at least two-thirds (2/3) of the
directors (other than in connection with a
contested election) before the beginning of
the period cease, for any reason, to
constitute at least a majority thereof;
(d) the stockholders of the Corporation
approve (1) a plan of complete liquidation
of the Corporation or (2) the sale or
disposition by the Corporation of all or
substantially all of the Corporation's
assets unless the acquirer of the assets or
its directors shall meet the conditions for
a merger or consolidation in subparagraphs
(d)(i) or (d)(ii); or
<PAGE> 12
-11-
(f) the stockholders of the Corporation
approve a merger or consolidation of the
Corporation with any other company other
than:
(i) such a merger or consolidation
which would result in the voting
securities of the Corporation
outstanding immediately prior
thereto continuing to represent
(either by remaining outstanding or
by being converted into voting
securities of the surviving entity)
more than 70% of the combined
voting power of the Corporation's
or such surviving entity's
outstanding voting securities
immediately after such merger or
consolidation; or
(ii) such a merger or consolidation
which would result in the directors
of the Corporation who were
directors immediately prior thereto
continuing to constitute more than
50% of the directors of the
surviving entity immediately after
such merger or consolidation.
In this paragraph (d), "surviving entity"
shall mean only an entity in which all of
the Corporation's stockholders immediately
before such merger or consolidation become
stockholders by the terms of such merger or
consolidation, and the phrase "directors of
the Corporation who were directors
immediately prior thereto" shall include
only individuals who were directors of the
Corporation at the beginning of the 24
consecutive month period preceding the date
of such merger or consolidation, or who
were new directors (other than any director
nominated in connection with a contested
election or designated by a Person who has
entered into an agreement with the
Corporation to effect a transaction
described in paragraph (a), (b), (d)(i) or
(d)(ii) of this Section) whose election by
the Board, or whose nomination for election
by the Corporation's stockholders, was
approved by a vote of at least two-thirds
(2/3) of the directors before the beginning
of such period.
.9 DEATH BENEFITS. If a Participant dies after he or
she becomes entitled to a benefit under Section 4.6 and before payment to the
Participant has been made under Section 4.7, the balance of the Participant's
benefit shall be paid to his or her Beneficiary in the form of a single lump
sum cash payment as soon as practicable after the death of the Participant.
"Beneficiary" shall mean any one or more persons, corporations or trusts, or
any
<PAGE> 13
-12-
combination thereof, last designated by the Participant to receive the death
benefits provided under the Plan. Each Participant may designate the
Beneficiary for the benefits provided on his or her death under the Plan. Such
designation may be changed from time to time. All designations shall be made on
forms provided by and filed with the Plan Administrator. If the Committee, in
its sole discretion, determines that there is not a valid designation, the
Beneficiary shall be the executor or administrator of the Participant's estate.
.10 SET-OFF. Notwithstanding any other provision of
this Plan, any amounts payable to the Participant or any beneficiary
under this Plan may be used by the Corporation to set off any indebtedness owed
to the Corporation by such Participant or beneficiary for any reason.
<PAGE> 14
-13-
V
AMENDMENT, SUSPENSION, OR TERMINATION
-------------------------------------
.1 AMENDMENT, SUSPENSION, OR TERMINATION.
The Committee may amend, suspend or terminate the Plan, in whole or in part, at
any time and from time to time by resolution adopted at a regular or special
meeting of the Committee, and only in such manner.
.2 NO REDUCTION. No amendment, suspension or
termination shall operate to adversely affect the benefit otherwise available
to a Participant under the Plan determined as if the Participant had
ceased being a Participant on or before the effective date of such amendment,
suspension, or termination. The value of a Participant's Deferred Compensation
Account, if any, determined as of the effective date of such amendment,
suspension or termination shall continue to be adjusted for investment results
as provided in Sections 4.1 and 4.2 until paid. Any benefit determined as of
such date shall continue to be payable as provided in Sections 4.6 through 4.8.
VI
ADMINISTRATION OF THE PLAN
--------------------------
.1 NAMED FIDUCIARY. The named fiduciary of
the Plan is the Committee.
.2 ADMINISTRATION BY COMMITTEE. The general
administration of this Plan, as well as construction and interpretation
thereof, shall be the responsibility of the Committee, the number and members
of which shall be designated and appointed from time to time by, and shall
serve at the pleasure of the Board. Any such member of the Committee may resign
by notice in writing filed with the Secretary of the Committee. Vacancies shall
be filled promptly by the Board. The Corporation shall pay any and all expenses
incurred in the administration of the Plan.
.3 DELEGATION. The Board may designate one of the
members of the Committee as Chairman and may appoint a Secretary who
need not be a member of the Committee and may be a Participant in the Plan. The
Secretary shall keep minutes of the Committee's proceedings and all data,
records and documents relating to the Committee's administration of the Plan.
The Committee may appoint from its number such subcommittees with such powers
as the Committee shall determine and may authorize one or more members of the
Committee or any agent to execute or deliver any instrument or make any payment
on behalf of the Committee.
<PAGE> 15
-14-
.4 MAJORITY VOTE. All resolutions or other
actions taken by the Committee shall be by vote of a majority of those present
at a meeting at which a majority of the members are present, or in writing by
all the members at the time in office if they act without a meeting.
.5 EXCLUSIVE RIGHT TO INTERPRET PLAN. Subject to the
Plan, the Committee shall, from time to time, establish rules, forms and
procedures for the administration of the Plan. Except as herein otherwise
expressly provided, the Committee shall have the exclusive right to interpret
the Plan and to decide any and all matters arising thereunder or in connection
with the administration of the Plan. The decisions, actions and records of the
Committee shall be conclusive and binding upon the Corporation and all persons
having or claiming to have any right or interest in or under the Plan.
.6 RELIANCE. The members of the Committee
and the officers and directors of the shall be entitled to rely on all
certificates and reports made by any duly appointed accountants, and on all
opinions given by any duly appointed legal counsel, which legal counsel may be
counsel for the Corporation.
.7 INDEMNIFICATION. No member of the Committee shall
be liable for any act or omission of any other member of the Committee, nor
for any act or omission on his or her own part. The Corporation shall indemnify
and save harmless each member of the Committee against any and all expenses and
liabilities arising out of his membership on the Committee. Expenses against
which a member of the Committee shall be indemnified hereunder shall include,
without limitation, the amount of any settlement or judgment, costs, counsel
fees, and related charges reasonably incurred in connection with a claim
asserted, or a proceeding brought or settlement thereof. The foregoing right of
indemnification shall be in addition to any other rights to which any such
member on the Committee may be entitled as a matter of law.
.8 ADDITIONAL POWERS. In addition to the
powers specified above, the Committee shall have the power to compute and
certify under the Plan the amount and kind of benefits from time to time
payable to Participants and their beneficiaries and to authorize all
disbursements for such purposes.
.9 INFORMATION. To enable the Committee to
perform its functions, the Corporation shall supply full and timely information
to the Committee on all matters relating to the compensation of all
Participants, their retirement, death or other termination of employment, and
such other pertinent facts as the Committee may require.
<PAGE> 16
-15-
VII
GENERAL PROVISIONS
------------------
.1 FUNDING. The Plan and the Rabbi Trust, if
established, constitute an unfunded arrangement and shall have the status
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title 1 of ERISA. The plan is not intended to be the principal
source of retirement income for the Participants or the Participants'
beneficiaries.
.2 NONASSIGNABILITY. The interests of any
person under the Plan (other than the Corporation) shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
attachment or encumbrance, or to the claims of creditors of such person, and
any attempt to effectuate any such actions shall be void.
.3 INTEREST OF PARTICIPANT. Except as provided in the
Rabbi Trust, if any, a Participant and the Participant's beneficiaries, in
respect of the Participant's Deferred Compensation Account, and any benefit to
be paid under the Plan, shall be and remain simply a creditor of the
Corporation in the same manner as any other creditor having a general claim, if
and when the Participant's or beneficiaries' rights to receive payments shall
mature and become payable. Except as provided in the Rabbi Trust, if any, at
no time shall the Participant be deemed to have any right, title or interest,
legal or equitable, in any asset of the Corporation, including, but not limited
to any investments held.
.4 LEAVES OF ABSENCE. The Committee may, in
its sole discretion, permit the Participant to take a leave of absence for a
period not to exceed one year. During such leave, the Participant will still
be considered to be in the continuous employment of this Corporation for all
purposes of this Plan.
.5 WITHHOLDING. The Corporation shall have
the right to deduct or withhold from the benefits paid under the Plan (or from
other amounts payable to the Participant, if necessary) all taxes which may be
required to be deducted or withheld under any provision of law (including, but
not limited to, Social Security payments, income tax withholding and any other
deduction or withholding required by law) now in effect or which may become
effective any time during the term of the Plan.
.6 EXCLUSIVITY OF PLAN. The Plan is intended solely
for the purpose of providing deferred compensation to the Participants to
the mutual advantage of the parties. Nothing contained in the Plan shall in
any way affect or interfere with the right of a Participant to participate in
any other benefit plan in which he or she may be entitled to participate.
<PAGE> 17
-16-
.7 NO RIGHT TO CONTINUED SERVICE. Neither the Plan nor
any agreements signed in relationship to the Plan, either singly or
collectively, shall obligate the Corporation in any way to continue the
employment of a Participant with the Corporation or prohibit the Corporation
from terminating a Participant's employment. Nor does this Plan or the Plan
Participation Agreement prohibit or restrict the right of a Participant to
terminate employment with the Corporation. Termination of a Participant's
employment with the Corporation, whether by action of the Corporation or by the
Participant, shall immediately terminate the Participant's future participation
in the Plan. All further obligations of either party shall be determined under
the provisions of this Plan according to the nature of the termination. The
Corporation is an at will employer.
.8 NOTICE. Each notice and other communication to
be given pursuant to the Plan shall be in writing and shall be deemed given
only when (a) delivered by hand, (b) transmitted by telex or telecopier
(provided that a copy is sent at approximately the same time by registered or
certified mail, return receipt requested), (c) received by the addressee, if
sent by registered or certified mail, return receipt requested, or by Express
Mail, Federal Express or other overnight delivery service, to the Corporation
at its principal office and to a Participant at the last known address of such
Participant (or to such other address or telecopier number as a party may
specify by notice given to the other party pursuant to this Section).
.9 CLAIMS PROCEDURES. If a Participant or
the Participant's Designated Beneficiary does not receive benefits to which he
or she believes he or she is entitled, such person may file a claim in writing
with the Committee. The Committee shall establish a claims procedure under
which:
(a) the Committee shall be required to
provide adequate notice in writing to the
Participant or the Designated Beneficiary
whose claim for benefits has been denied,
setting forth specific reasons for such
denial, written in a manner calculated to
be understood by the Participant or the
Designated Beneficiary; and
(b) the Committee shall afford a reasonable
opportunity to the Participant or the
Designated Beneficiary whose claim for
benefits has been denied for a full and
fair review by the Committee of the
decision denying the claim.
.10 NEW YORK LAW CONTROLLING. The Plan shall be
construed in accordance with the laws of the State of New York. Any and all
controversies arising under or relating to this Plan shall be adjudicated in a
court of competent jurisdiction located in the
<PAGE> 18
-17-
State of New York, and the Participant hereby consents to
jurisdiction in the State of New York for purposes of said legal action.
.11 SEVERABILITY. Every provision of the
Plan is intended to be severable. If any provision of the Plan is illegal or
invalid for any reason whatsoever, the illegality or invalidity of that
provision shall not affect the validity or legality of the remainder of the
Plan, and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been made part of the Plan.
.12 BINDING ON SUCCESSORS. The Plan shall be
binding upon the Participants and the Corporation, their heirs, successors,
legal representatives and assigns.
.13 DISCRETIONARY NATURE OF PLAN. Participation in and
determination of amounts of benefits under the Plan shall be determined
in the sole discretion of the Committee. No employee shall have any right to
receive benefits under the Plan for any reason (including but not limited to,
length of service, performance, receipt of benefits in prior periods, and
awards to other individuals) other than as determined by the Committee acting
in its sole discretion.
.14 TITLES. Titles to the Articles and
Sections of this of this Plan are included for convenience only and shall not
control the meaning or interpretation of any provision of this Plan.
<PAGE> 19
-16-
SCHEDULE 1
- ----------
COMPUTER TASK GROUP, INCORPORATED
NONQUALIFIED KEY EMPLOYEE DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION
Designation of Beneficiary
- --------------------------
Primary Beneficiary:
-------------------
Name Relationship Percent of Benefit
---- ------------ ------------------
1.
2.
3.
4.
5.
Secondary Beneficiary:
---------------------
In place of Benefit to
be paid to Number: Name Relationship
---------------------- ---- ------------
1
2
3
4
5
- ------------------------------ --------------------------------------
Date Participant
<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.
<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)
Year Ended December 31:
- -----------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average number of shares
outstanding during year................. 8,329 8,969 9,097 8,589 7,833
Add Common Stock equivalents
-- Incremental shares under
stock option plans.............. 416 70 4 13 29
-- Incremental shares
related to convertible
preferred stock................. - 227 1,448 1,448 1,448
Number of shares on which
fully diluted earnings per
share based............................. 8,745 9,266 10,549 10,050 9,310
Net income/(loss) for the year............ $ 10,776 $ 4,797 $ (27,673) $ 5,602 $ 890
Fully diluted earnings per
share................................... $ 1.23 $ 0.52 $ (2.62) $ 0.56 $ 0.10
Primary earnings per
share................................... $ 1.23 $ 0.52 $ (2.62) $ 0.56 $ 0.10
</TABLE>
<PAGE> 1
EXHIBIT 13
----------
COMPUTER TASK GROUP, INCORPORATED
---------------------------------
1995 Annual Report to Shareholders.
<PAGE> 2
[CTG LOGO]
1995
Annual Report
<PAGE> 3
A DESIGN FOR GROWTH
- --------------------------------------------------------------------------------
In 1995 CTG reported the highest revenue, net income and head count in our
history. We are thriving in a growing industry. Our growth follows a carefully
designed plan. In 1996 we will direct our energies along a two-pronged strategy.
First, we are focusing our attention and considerable talents on Key Clients,
companies that view CTG as a strategic variable work force partner. Second, we
are committed to attracting and retaining the best information technology
professionals in the industry. We believe growth by design will maximize our
value to our Key Clients and colleagues and will improve long-term
profitability.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
[FIGURE]
Net Income
millions of dollars
1993 (27.7)
1994 4.8
1995 7.6*
* Excluding the effect of a non-recurring tax benefit of $3.2 million taken in
the third quarter.
[FIGURE]
Working Capital
millions of dollars
1993 51.3
1994 38.8
1995 49.5
[FIGURE]
Revenue from
Ongoing Operations
millions of dollars
1993 267.8
1994 284.5
1995 339.4
<PAGE> 4
[CTG LOGO]
CONTENTS
- --------------------------------------------------------------------------------
Letter to Our Shareholders ................................................ 2
A Sketch of the Marketplace ............................................... 4
CTG's Growth Strategy ..................................................... 5
A Value Story ............................................................. 9
Consolidated Financial Statements ......................................... 11
Notes to Consolidated Financial Statements ................................ 16
Report of Independent Auditors ............................................ 25
Consolidated Summary - Ten-Year Selected Financial Information ............ 26
Management's Discussion and Analysis ...................................... 26
Additional Information .................................................... 30
Board of Directors & Officers ............................................. 31
CTG Locations ............................................................. 32
<PAGE> 5
[PHOT0]
Gale S. Fitzgerald
Dear Fellow Shareholders,
As I close my first full year as Chairman and CEO, I am proud to have shared our
record accomplishments with 5,000 CTG colleagues. Thanks to our dedicated
professionals and valued clients, we ended 1995 with our fifth consecutive
quarter of growth in revenues, net income and earnings per share. Net income and
earnings per share for 1995 were $10,776,000 and $1.23, respectively. Excluding
a non-recurring tax benefit taken in the third quarter, net income for the year
was $7,576,000 or $0.87 per share. Our financial position is strong and stable.
We further strengthened our balance sheet, and the stock market took notice as
our stock reached its highest levels in nearly 10 years.
As we enter our 30th year, CTG is energized by the momentum of our 1995
successes. We are now one of the leading providers of variable work force
solutions in information technology (IT). As a strategic partner to many of the
Fortune 500, CTG has an unparalleled ability to identify, recruit and place
qualified IT professionals. CTG's unique approach to filling clients' needs
combines a formal "sourcing" process, artificial-intelligence based technology
and dedicated recruiting staff with access to a nationwide pipeline of more than
160,000 qualified IT professionals. Our ability to match professional talent
with client opportunities and develop IT professionals sets us apart from our
competitors.
The IT professional services marketplace is growing at double-digit rates. CTG
competes in some of the fastest growing market segments: help desk, software
integration, consulting, client/server development and application management.
Long-term growth in line with the market
<PAGE> 6
is eminently achievable as CTG continues to improve our value to our clients.
To increase market share we must maintain a high-quality, accessible
professional talent base and capture business opportunities with the highest
levels of profitability. We move into the future with our two-pronged strategy
that is built on a framework of open communication, teamwork, process and
methodology. First, we will focus on Key Clients. By capitalizing on our
pragmatic methodologies, we will strengthen our relationships with companies who
view the IT variable work force as critical to their corporate strategies. 1996
will be a year of Key Client opportunity, as we transfer lessons learned from
organizing around national companies like IBM to other clients. Second, we will
focus on attracting and retaining the best IT professionals. Our professionals
are our greatest asset. It is therefore incumbent upon us to address their most
pressing employment issues: training, career development, recognition,
compensation and benefits. Our Employee Satisfaction Team is measuring the
overall satisfaction of our 5,000+ colleagues, identifying areas for
improvement, and creating corporate-wide initiatives to allow us to continuously
improve as an employer. CTG's strong commitment to our colleagues differentiates
us from our competitors and allows us to build a power base of the best and
brightest IT experts.
Whether we deliver individual technical skills, or take full responsibility for
IT projects or outsourcing engagements, CTG seeks to be the industry's highest
quality service provider and highest quality IT employer. To achieve this, every
action must take careful aim. We must establish crystal clear expectations with
clients and colleagues and meet these expectations every time. Moreover, we must
only commit to what we can deliver well and profitably.
In 1995 we positioned ourselves for growth. Our recent financial performance
validates our approach: we are well on our way to giving our shareholders the
best possible value for their investment. Directing our focus toward improved
profitability, we expect to reach higher levels of client, employee and
shareholder satisfaction.
Lasting growth follows a thoughtful design... but even the best design is
worthless without the right people to make it work. CTG's professionals deliver
real results because we are real people doing real work. We're accustomed to
making strategies work for our clients... now we're doing it for ourselves.
We appreciate your continued support.
Sincerely,
/s/ Gale S. Fitzgerald
Gale S. Fitzgerald
Chairman & CEO
3
<PAGE> 7
A SKETCH OF THE MARKETPLACE
- --------------------------------------------------------------------------------
Successful companies give their customers what they want, when they want it.
And information systems are the means to that end in today's marketplace. Yet
more and more companies are finding their systems inadequate to handle
present-day business conditions, much less support future needs.
With high-quality information systems, companies can be sure they have...
* Useful information when and where they need it
* Accurate and consistent information
* The ability to share information across the organization
* The ability to contain and reduce costs
The information technologies that form these information systems change
rapidly, and with every change comes the need to update information technology
(IT) skills. The costs associated with managing IT employees, in the face of
this constant change, place ever-increasing demands on the bottom line. To stay
competitive, many companies look to IT services firms to help them convert the
fixed costs of the IT work force to variable costs. This trend is driving the
growth of the IT services sector.
According to Dataquest, a market research firm specializing in the IT
industry, the demand for IT services will double over the next five years,
particularly in the areas of help desk, consulting, software integration and
application management. In 1995 Dataquest reported that the worldwide market for
professional IT services was $107 billion, and is projected to grow over the
next 5 years at a compounded annual growth rate (CAGR) of 16.5%. The U.S. and
European market was estimated at $78 billion, with a CAGR of 14+%. CTG competes
in most major segments of this marketplace and does business primarily in North
America and Europe.
Rapidly changing markets are fostering the evolution of the variable work
force concept, and more companies are considering IT variable work force
strategies. To succeed, an IT variable work force strategy demands serious
planning. First, a company must determine how IT fits into
Industry Trends
---------------
Worldwide IT Service Markets
[FIGURE]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
amounts in millions of US dollars
<S> <C> <C> <C> <C> <C> <C>
United States
Europe
Japan
Rest of World
</TABLE>
Source: Dataquest Sept. '95
<PAGE> 8
its overall strategy. Is it merely a convenient tool, or is it integral to
survival? Industry leaders, especially the FORTUNE 500, see IT as integral, yet
the logistics and cost of managing an ever-changing IT work force often distract
them from their core business. Variable work force solutions in IT are the core
competency of companies like CTG. A strategic partnership with CTG can help
companies focus on their core business.
TECHNICAL TRENDS
Matching our IT professionals' skills with our clients' needs is CTG's biggest
challenge. Market demand for skills has changed dramatically over the past 30
years. Today, the strongest demand is for mainframe or legacy system skills such
as COBOL, DB2 and CICS. Gaining fast is the demand for client/server skills,
including relational databases and network specialties, and Internet skills.
When it comes to the Internet, CTG is ahead of the pack. The Net and,
particularly the Web, have been integral to our culture of knowledge exchange
for years. We use the Net and its various services to connect our widely
dispersed employee base, to recruit, to market, to deliver our services and to
communicate with our colleagues and shareholders. Thousands of users from 21
countries have visited our web sites. Our dramatic employee growth is due, in
great part, to our ability to recruit over the Web. Our own "Intranet"
development has given us a large pool of Internet expertise that our clients
increasingly draw upon. For some Key Clients, we are helping them assess the
Net's business impact, build secure pathways and develop strategies and
architectures for using this tool effectively. As the Internet evolves, we are
closely monitoring its capabilities, looking for new and better ways to improve
client satisfaction, employee development and shareholder satisfaction.
Within the next 5 years we expect increases in client/server and Internet
skill demand, however, we expect mainframe skill demands to remain high as
companies continue to maximize their significant investments in legacy systems.
CTG'S GROWTH STRATEGY
- --------------------------------------------------------------------------------
CTG is a leading provider of variable work force solutions in IT. As a
strategic partner, we provide IT services and solutions to the Fortune 500 and
other companies where IT is critical to their corporate strategy.
Our culture of knowledge exchange brings together the right people with the
right tools, methodologies and quality-management processes... to deliver the
services our clients need, when they need them. CTG's services are also
customizable, to add the greatest strategic value to our clients' operations.
Finding, retaining, managing and developing IT professionals are the means by
which CTG competes. In fact, CTG's greatest asset is our people. We mobilize our
core competency - managing IT professionals - so our clients can focus on their
business.
Over our 30-year history, as our clients' needs became more sophisticated, CTG
mobilized our professionals in more advanced ways. Helping clients stay ahead of
technology's rapid changes required "value-added" services. Evolving to meet
this pressing client demand, CTG's services today include enterprise-wide IT
solutions ranging from complex IT projects to ongoing management of IT
functions, such as help desks or application maintenance. Value-added solutions
and deliverables call for a special approach... a methodology.
As our knowledge of a particular technology or solution grows, CTG collects
the relevant information, analyzes it and formulates a methodology, a design
that ensures we can repeat our successes for every client. CTG uses our
proprietary methodologies when our clients require value-added services.
CTG's long-term goal is to improve our value to clients. We will achieve this
through a business strategy with two major priorities:
1. Develop Key Client relationships
2. Attract and retain the best IT professionals
5
<PAGE> 9
CTG - PROFILES IN PARTNERSHIP
AGWAY
- --------------------------------------------------------------------------------
As an alliance partner, CTG was selected to enhance IT programming support for
Agway's business units. CTG is maintaining applications and managing the
company's IT workforce.
INDUSTRY:
Agricultural Services & Products
LENGTH OF CONTRACT:
4 years
CLIENT IMPACT:
* Reduce IT labor costs by at least 5% to 10% over contract life
* Shift IT costs from fixed to variable basis
* Improve service delivery to business units
* Improve technical capabilities and overall service quality through
cross-pollination of information, ideas and resources
IBM
- --------------------------------------------------------------------------------
CTG was named one of 9 National Technical Services providers authorized to
provide IT services to IBM, and is a primary vendor to all five IBM regions.
INDUSTRY:
Computer Hardware and Software
LENGTH OF CONTRACT:
2 years
CLIENT IMPACT:
* Reduced IT services costs
* Improved internal efficiency
* Ensured consistent quality in IT services
* Reduced 1,500 vendors down to 9
BRITISH PETROLEUM OUTSOURCING IN THE AMERICAS
- --------------------------------------------------------------------------------
CTG, as part of a 4-company federation, created an international delivery team
to manage all IT services for British Petroleum in North and South America.
CTG's responsibilities include all applications support and development.
INDUSTRY:
Energy
LENGTH OF CONTRACT:
3 years
CLIENT IMPACT:
* Reduced IT service costs by 20+% in the first year
* Improved service levels
A KEY CLIENT FOCUS
IT service providers who have the ability, structure and commitment to be
high-value partners - like CTG - offer significant competitive advantage. The
closer the IT provider is to the organization's strategy, the greater the impact
on the organization. Value-added partnerships like these are what CTG strives
for in its Key Client strategy.
Key Clients are companies who see us as a strategic partner. Such valued
partner relationships are mutually beneficial to both CTG and our Key Clients.
For these companies, we excel in delivering individual skills, full-scale IT
projects, or IT outsourcing.
Service to Key Clients may involve CTG's own professionals and solutions, or
may extend beyond our capabilities. In the latter case, CTG obtains and manages
resources from specialist firms, when client needs dictate. Many of our Key
Client relationships involve this "extended" partnering. It preserves the
benefits of the core competency approach for each partner, and is an extremely
efficient and cost-effective way to do business.
Our ability to flexibly and dependably implement IT solutions is why we have
so many long-term, stable partnerships. In 1995 we had preferred vendor
relationships with 75 companies. Our goal is to increase the number of clients
who recognize the significant impact IT services can have on their business. We
enter 1996 with approximately 150 clients whom we view as "Key."
How do these relationships benefit our clients? Strategic partnerships reduce
IT services costs, reduce risk in IT projects, enhance the impact of IT on the
organization, and give our clients immediate access to an IT resource that is
organized around their needs. How does CTG benefit? Strategic partnerships help
us have a greater impact on our clients' business, give us access to a wider
range of industry solutions, increase our profit margins, widen the career paths
for our employees and improve our market share.
For our professionals, the Key Client focus creates an environment of growth,
improves teamwork and enhances the stability of CTG as an employer. Financially,
a Key Client focus allows us to reduce our overhead expenses. When we organize
around our Key Clients, we can achieve more efficient overhead structures. By
maximizing our proactive sourcing approach we can fulfill client needs quickly
and cost-effectively. A Key Client approach also allows us to get the most out
of our operational and administrative capabilities, as we take lessons learned
from one client and use them to achieve success with others.
<PAGE> 10
- --------------------------------------------------------------------------------
A PROFESSIONAL ENVIRONMENT
--------------------------
Increase in billable staff ........................................ 13%
IT staff promoted ............................................. 15%-20%
Percentage of new hires who
were former CTG employees: ......................................... 11%
Average number of years'
experience in consulting (billable employees) .............. 6-10 years
Number of training courses offered by CTG ......................... 200
Percent of instructor-led courses taught by CTG staff .............. 90%
Most popular courses (by total enrollment):
* Clent/server fundamentals
* Systems engineering development program
* CICS
* Resource Management for Field SEvices Managers
* Interpersonal Managing Skills
* Consulting Skills for the CTG Professional
Average training days per
CTG employee (in 1995) ......................................... 5 days
Total spent corporate-wide
on Tuition Reimbursement ................................... $ 479,876
Total training costs in 1995 ............................... $4 million
(as of year-end 1995)
- --------------------------------------------------------------------------------
[FIGURE]
Staff Growth
1993 1994 1995
---- ---- ----
Total employees 3,738 4,497 5,014
ATTRACTING & RETAINING THE BEST PROFESSIONALS
We are in the business of managing people with IT skills, yet IT service
providers are locked in heated competition for a limited number of
professionals. Employment options are many and varied in our field. IT
professionals may choose from hundreds of IT service providers and even more
in-house MIS departments. Certain skill sets are rare and have extremely high
demand and market value. Professionals with these skills can virtually name
their price. Aggressive competition is why we've made it a corporate goal to
attract and retain the best IT professionals.
WHAT DO WE LOOK FOR IN IT PROFESSIONALS?
Over years of placing exceptional IT experts in client engagements, we have
identified a profile of the ideal professional. While technical skill is
essential, success in IT services demands more. The majority of our
professionals have 6 to 10 years' experience in the consulting industry. As
billable consultants working on a client site, they must excel under close
scrutiny. That means our IT professionals must have strong interpersonal
characteristics. They must be
7
<PAGE> 11
CTG - PROFILES IN PARTNERSHIP
SMS
- --------------------------------------------------------------------------------
CTG is developing and testing product prototypes, helping SMS build the
client/server versions of their software, and implementing the product at client
sites.
INDUSTRY:
Computer Software
CLIENT IMPACT:
* Reduced marketing, testing and product roll-out costs
* Immediate access to IT professionals with SMS skills
* Improved product time-to-market
CALVIN KLEIN COSMETICS COMPANY
- --------------------------------------------------------------------------------
CTG designed and implemented a warehouse management system to support Calvin
Klein's Logistics mission: "Order Today, Ship Tomorrow."
The system combines real-time inventory control, radio frequency functions and
high speed automation including conveyors, sorts, bar code scanners and a weigh
in motion scale.
INDUSTRY:
Distribution - Prestige Fragrance
LENGTH OF CONTRACT:
2-year project
CLIENT IMPACT:
* Improved customer service
* Increased throughput
* Advanced ship note capability with carton contents
Alyeska Pipeline Service Company
- --------------------------------------------------------------------------------
As its only IT service provider, CTG has developed a strong alliance with
Alyeska and is managing the company's entire IT organization to meet its
strategic goals.
INDUSTRY:
Energy
LENGTH OF CONTRACT:
5 years
CLIENT IMPACT:
* Reduced IT labor costs 35% in first year
* Increased service levels
resourceful problem-solvers with strong communication skills and have a sense of
urgency about the task at hand. They also must understand our clients' business.
CTG's sourcing and recruiting processes ensure that we find people who meet all
these criteria.
WHAT DO IT PROFESSIONALS LOOK FOR IN CTG?
Our research tells us that most IT professionals look for more than just
compensation. They tell us they want exciting and diverse career opportunities,
a company with stability, training and open communication. We have been
implementing programs to make CTG stand above the competition as an IT services
employer. That's the goal of our Employee Satisfaction Team. Through this and
other team initiatives, CTG has created progressive and flexible benefits plans,
distributed training and tuition reimbursement, an effective communications
network and other features to ensure we remain an outstanding place to work.
Keeping our professionals satisfied, giving them opportunities to develop, and
providing tools to augment their skills are tantamount to CTG's continued
growth.
WHAT MAKES CTG DIFFERENT?
In today's market, organizations are redefining their relationships with IT
services providers. In the past, companies looked for availability, price and
skills. Today, a market leader looks for a long-term relationship with an IT
service provider who is able to stand apart from the many providers jostling for
their business. CTG distinguishes itself in many ways:
LONGEVITY & STABILITY
Founded in 1966, CTG has evolved with the fledgling IT services industry. We
are now one of the leading providers of variable work force solutions in IT.
REAL PEOPLE DOING REAL WORK
CTG's professionals are the best in the industry. What's more, our people can
recommend the solution and do the work, something most of our competitors
can't do.
COMMITMENT TO PROCESS AND TEAMWORK
Innovations in Quality, a pervasive quality management program, governs
everything we do.
<PAGE> 12
FAST, ACCURATE FULFILLMENT
CTG has a proprietary approach to finding, qualifying and deploying the best
IT professionals... quickly and cost effectively. We combine thorough sourcing
and recruiting processes with a staff of trained recruiting professionals and
a powerful technology tool that gives our clients access to 160,000+ qualified
IT professionals from around the world.
FLEXIBILITY TO ORGANIZE AROUND THE CLIENT
When we won the highly competitive IBM National Technical Services contract,
we demonstrated our flexibility to structure ourselves around Key Client
needs.
BREADTH OF OFFERINGS AND SERVICES
CTG's services span the business solution life cycle. We provide IT services
in a variable work force mode to help clients solve business problems through
technology. Our industry specialties range from manufacturing to healthcare to
telecommunications.
GEOGRAPHIC PRESENCE
With 55 offices in five countries, CTG's services are available worldwide. We
have completed projects in 32 countries.
A VALUE STORY
- --------------------------------------------------------------------------------
Since its restructuring in 1993, CTG has grown dramatically. In line with our
plan for 1995, we grew revenues faster than the industry and made consistent,
incremental improvements in bottom line profitability.
Revenue for 1995 increased 19% over 1994 revenue from ongoing operations, and
13% over 1994 total revenue. Net income for the year increased 59% (excluding
the effect of a non-recurring tax benefit taken in the third quarter) and
earnings per share increased 67% over 1994. We are committed to improving
operating income margins, and we believe our strategy will give us significant
opportunity to reach this goal.
At 24% of our 1995 business, IBM remains our largest customer. Revenue from
IBM increased 17% over 1994. In 1995 IBM named CTG one of nine authorized
providers of national technical services. Unlike some of IBM's other IT service
sources, CTG has experienced a positive impact from the IBM contract, primarily
because we worked closely with IBM and we organized around their needs. There is
excellent potential for increased IBM revenues in 1996; the questions that
remain are how much growth we will experience from IBM and how fast. Since the
inception of our strategic partnership, both IBM and CTG have benefited.
Our balance sheet has strengthened. We focused on reducing outstanding
accounts receivable, which improved cash flow and resulted in an $11 million
increase in cash during the year.
We ended the year with 8.7 million weighted average shares outstanding, and
our Stock Employee Compensation Trust (SECT), which was created to fund employee
benefits programs, held 1.8 million shares at the end of 1995.
These improvements in financial performance are reflected in our stock price.
Last year our stock significantly
9
<PAGE> 13
outperformed the S&P's Computer Software and Services Index. The index rose 40%
in 1995 while CTG's stock rose 125% over that same period.
FUTURE GROWTH
Enhancing shareholder value is key to CTG's strategy. In 1996, profit growth
will be emphasized over revenue growth. Matching our profitability to that of
our competitors requires us to deliver services in places and ways that have the
greatest cost benefit. We have proven that Key Client opportunities are positive
to both clients and our professionals.
We expect that this strategy, coupled with rigorous
management of selling, general and administrative costs, will result in revenue
and head count growth of at least 10% along with consistently improving
profitability.
In 1993 we restructured the company and in 1994 we took actions that
positioned CTG to compete more effectively. 1995's performance affirms that our
evolving strategy is working. We will continue to follow this design for
strategic growth to provide more value to our clients, our employees and our
shareholders.
- --------------------------------------------------------------------------------
WHERE QUALITY TAKES US
----------------------
MILLIKEN & OTHERS
While some IT service providers claim to have quality management programs, CTG
can prove it. Since 1992, we have had a formal, corporate-wide quality
management system, known as Innovations in Quality (IQ). IQ's processes govern
everything we do, from managing our IT professionals to selling our services, to
completing projects on-time and with controllable risk. And as further
demonstration of our commitment, several CTG offices are currently seeking ISO
9000 certification. CTG's European offices have been ISO 9000 certified since
1992.
Our Key Clients recognize the value of IQ. Recently, Milliken & Company,
itself a Malcolm Baldrige National Quality award winner, awarded CTG its
Distinguished Supplier award. Milliken gives this award only to partners who can
demonstrate pervasive corporate commitments to quality, and CTG was the first IT
services firm ever to be so honored.
For 12 years, CTG has been a primary supplier of IT services to Milliken, the
world's largest privately held textile company. For months, Milliken's auditors
pored over our processes, employee recognition programs, training, methodologies
and manuals. In the end they awarded us their highest honor.
We believe that our quality management program assures clients that we
are serious about adding value. It's a sign of our commitment to their
long-term success.
- --------------------------------------------------------------------------------
<PAGE> 14
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $339,407 $ 301,559 $ 295,465
Direct costs 249,123 224,005 208,940
Selling, general and administrative expenses 77,534 79,774 81,770
Restructuring expenses -- -- 12,782
Impairment losses -- -- 21,340
-------- --------- ---------
Operating income (loss) 12,750 (2,220) (29,367)
Interest and other income 619 542 1,426
Interest and other expense 1,328 1,540 2,725
Gain on sales of assets -- 11,348 --
- ------------------------------------------------------------------------------------
Income (loss) before income taxes 12,041 8,130 (30,666)
Provision (benefit) for income taxes including a
$ 3.2 million benefit related to foreign
operations in 1995 (See note 6) 1,265 3,333 (2,993)
- ------------------------------------------------------------------------------------
Net income (loss) $ 10,776 $ 4,797 $ (27,673)
======== ========= =========
Net income (loss) per share $ 1.23 $ 0.52 $ (2.62)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consoldated financial
statements.
11
<PAGE> 15
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(amounts in thousands)
DECEMBER 31,
ASSETS 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and temporary cash investments $ 16,545 $ 5,112
Accounts receivable, net of allowance for
doubtful accounts of $862,000 and $1,045,000 58,546 55,373
Prepaids and other 1,621 2,004
Deferred income taxes 2,057 2,809
Income taxes receivable -- 2,895
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 78,769 68,193
Property and equipment, net of accumulated
depreciation and amortization 17,981 17,790
Acquired intangibles, net of accumulated
amortization of $5,568,000 and $4,458,000 5,526 6,267
Deferred income taxes 1,969 2,345
Other assets 521 895
- -----------------------------------------------------------------------------
TOTAL ASSETS $ 104,766 $ 95,490
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------
Current Liabilities:
Current portion of long-term debt $ 2,289 $ 2,296
Accounts payable 9,365 9,287
Accrued compensation 9,961 5,999
Short-term borrowings -- 4,500
Income taxes payable 2,080 --
Advance billings on contracts 2,168 1,717
Other current liabilities 3,397 5,547
- -----------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 29,260 29,346
Long-term debt 3,640 6,114
Deferred compensation benefits 8,739 6,626
Other long-term liabilities 1,651 2,746
- -----------------------------------------------------------------------------
TOTAL LIABILITIES 43,290 44,832
Shareholders' Equity:
Common stock, par value $.01 per share,
25,000,000 shares authorized;
13,306,594 and 12,706,265 shares issued 133 127
Capital in excess of par value 114,446 87,327
Retained earnings 15,687 5,734
Foreign currency adjustment (1,735) (2,441)
Less: Treasury stock of 3,008,456 and
2,719,305 shares, at cost (28,594) (24,413)
Loans to employees (371) (557)
Stock Employee Compensation Trust of
1,830,000 and 1,770,000 shares, at market (36,170) (14,881)
Minimum pension liability adjustment (1,920) (238)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 61,476 50,658
- -----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 104,766 $ 95,490
========= ========
</TABLE>
12
The accompanying notes are an integral part of these consoldated financial
statements.
<PAGE> 16
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(amounts in thousands)
YEAR ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 10,776 $ 4,797 $(27,673)
Adjustments:
Depreciation and amortization expense 6,146 5,888 7,924
Realized and unrealized loss on securities -- 267 863
Gain on sales of assets -- (11,348) --
Deferred compensation expense 375 1,001 667
Impairment losses -- -- 21,340
Restructuring expenses -- -- 12,782
Changes in assets and liabilities, net of assets sold:
Increase in accounts receivable (2,871) (2,427) (212)
(Increase) decrease in prepaids and other 487 2,648 (498)
(Increase) decrease in deferred income taxes 1,128 637 (5,491)
(Increase) decrease in income taxes receivable/payable 4,993 (3,593) 553
Decrease in other assets 381 266 1,082
Increase (decrease) in accounts payable (94) 690 (639)
Increase (decrease) in accrued compensation 3,803 2,091 (819)
Increase (decrease) in advance billings on contracts 451 1,255 (1,474)
Decrease in other current liabilities (2,326) (3,587) (2,912)
Increase (decrease) in other long-term liabilities (1,039) 563 583
-------- -------- --------
Net cash provided by (used in) operating activities 22,210 (852) 6,076
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (5,370) (4,222) (5,443)
Purchases of marketable securities -- (1,026) (5,239)
Proceeds from sales of marketable securities -- 7,240 4,820
Additions to acquired intangibles -- -- (522)
Net proceeds from sales of assets -- 16,705 --
-------- -------- --------
Net cash provided by (used in) investing activities (5,370) 18,697 (6,384)
- -------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings (4,500) 3,625 (17)
Proceeds from long-term debt -- -- 2,000
Principal payments on long-term debt (2,481) (2,290) (5,056)
Proceeds from Employee Stock Purchase Plan 515 850 2,976
Purchase of treasury stock (4,181) (4,985) (732)
Purchase of stock held by Stock Employee
Compensation Trust (733) (14,881) --
Proceeds from other stock plans 6,240 562 38
Dividends paid (823) (855) (1,052)
-------- -------- --------
Net cash used in financing activities (5,963) (17,974) (1,843)
- -------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
temporary cash investments 556 (114) (73)
-------- -------- --------
Net increase (decrease) in cash and temporary cash investments 11,433 (243) (2,224)
Cash and temporary cash investments at beginning of year 5,112 5,355 7,579
- -------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of year $ 16,545 $ 5,112 $ 5,355
======== ======== ========
</TABLE>
13
The accompanying notes are an integral part of these consoldated financial
statements.
<PAGE> 17
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
Preferred Stock Common Stock
--------------- ------------ Capital in Excess Retained
Shares Amount Shares Amount Of Par Value Earnings
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
December 31, 1992 1,448 $ 14 10,628 $106 $ 83,444 $ 30,533
Employee Stock Purchase
Plan issuance -- -- 494 5 2,971 --
Stock Option Plan issuance -- -- 4 -- 29 --
Restricted Stock Plan:
Issuance -- -- -- -- -- --
Forfeiture -- -- -- -- -- --
Adjustment to market -- -- -- -- (323) --
Management Stock Purchase Plan:
Issuance -- -- -- -- -- (16)
Repurchase -- -- -- -- -- --
Repayments -- -- -- -- -- --
Purchase of treasury stock -- -- -- -- -- --
Net loss -- -- -- -- -- (27,673)
Cash dividends-$.10 per share -- -- -- -- -- (1,052)
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability
adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Balance as of
December 31, 1993 1,448 14 11,126 111 86,121 1,792
Conversion of preferred stock (1,448) (14) 1,448 14 -- --
Employee Stock Purchase Plan issuance -- -- 110 1 849 --
Stock Option Plan issuance -- -- 22 1 165 --
Restricted Stock Plan:
Forfeiture -- -- -- -- -- --
Adjustment to market -- -- -- -- 192 --
Management Stock Purchase Plan:
Repurchase -- -- -- -- -- --
Repayments -- -- -- -- -- --
Purchase of treasury stock -- -- -- -- -- --
Purchase of Stock Employee
Compensation Trust Stock -- -- -- -- -- --
Net income -- -- -- -- -- 4,797
Cash dividends-$.10 per share -- -- -- -- -- (855)
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Balance as of
December 31, 1994 -- -- 12,706 127 87,327 5,734
Employee Stock
Purchase Plan issuance -- -- 40 1 514 --
Stock Option Plan issuance -- -- 560 5 6,049 --
Management Stock Purchase Plan:
Issuance -- -- -- -- -- --
Repurchase -- -- -- -- -- --
Repayments -- -- -- -- -- --
Purchase of treasury stock -- -- -- -- -- --
Stock Employee Compensation Trust:
Purchase -- -- -- -- -- --
Adjustment to Market -- -- -- -- 20,556 --
Net income -- -- -- -- -- 10,776
Cash dividends-$.10 per share -- -- -- -- -- (823)
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------
Balance as of
December 31, 1995 -- $ -- 13,306 $133 $ 114,446 $ 15,687
====== ==== ====== ==== ========= ========
</TABLE>
14
The accompanying notes are an integral part of these consoldated financial
statements.
<PAGE> 18
<TABLE>
<CAPTION>
Stock Employee
Foreign Treasury Stock Compensation Trust
Currency -------------- Unearned Portion Loans to Minimum Pension ------------------
Adjustment Shares Amount Of Restricted Stock Employees Liability Adjustment Shares Amount
- -----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
$(1,711) 1,722 $(17,107) $(1,658) $(1,041) $ -- -- $ --
-- -- -- -- -- -- -- --
-- 1 (10) -- -- -- -- --
-- (100) 750 (750) -- -- -- --
-- 42 (293) 293 -- -- -- --
-- -- -- 323 -- -- -- --
-- (40) 276 -- (260) -- -- --
-- 32 (232) -- 232 -- -- --
-- -- -- -- 19 -- -- --
-- 96 (732) -- -- -- -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
(1,019) -- -- -- -- -- -- --
-- -- -- -- -- (2,605) -- --
- -----------------------------------------------------------------------------------------------------------
(2,730) 1,753 (17,348) (1,792) (1,050) (2,605) -- --
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
-- 5 (48) -- -- -- -- --
-- 256 (1,984) 1,984 -- -- -- --
-- -- -- (192) -- -- -- --
-- 7 (48) -- 48 -- -- --
-- -- -- -- 445 -- -- --
-- 698 (4,985) -- -- -- -- --
-- -- -- -- -- -- 1,770 (14,881)
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
289 -- -- -- -- -- -- --
-- -- -- -- -- 2,367 -- --
- -----------------------------------------------------------------------------------------------------------
(2,441) 2,719 (24,413) -- (557) (238) 1,770 (14,881)
-- -- -- -- -- -- -- --
-- 35 (553) -- -- -- -- --
-- (10) 115 -- (115) -- -- --
-- 8 (144) -- -- -- -- --
-- -- -- -- 301 -- -- --
-- 256 (3,599) -- -- -- -- --
-- -- -- -- -- -- 60 (733)
-- -- -- -- -- -- -- (20,556)
-- -- -- -- -- -- -- --
-- -- -- -- -- -- -- --
706 -- -- -- -- -- -- --
-- -- -- -- -- (1,682) -- --
- -----------------------------------------------------------------------------------------------------------
$(1,735) 3,008 $(28,594) $ -- $ (371) $(1,920) 1,830 $(36,170)
======= ===== ======== ======= ======= ======= ===== ========
</TABLE>
15
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Computer
Task Group, Incorporated and its subsidiaries (the Company or CTG). All
significant intercompany accounts and transactions have been eliminated. Certain
amounts in the prior years' consolidated financial statements and notes have
been reclassified to conform with the current year presentation. Management of
the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Such estimates primarily relate to allowances
for doubtful accounts and deferred tax assets, and estimates of progress toward
completion and gross profit or loss on fixed-price contracts. Actual results
could differ from those estimates.
The Company provides information technology services with a focus on
technical services and business consulting.
REVENUE AND COST RECOGNITION
The Company recognizes revenue on time-and-material contracts as time is
expended and costs are incurred. Revenue from fixed-price contracts, which
represents 4 percent of 1995 revenue, is recognized on the
percentage-of-completion method, measured by the percentage of labor and
overhead costs incurred to date to total estimated labor and overhead costs for
each contract. Fixed-price contract costs include all direct material and labor
costs and those indirect costs related to contract performance. Provisions for
estimated losses, if any, on uncompleted contracts are made in the period in
which such losses are determined. Included in accounts receivable at December
31, 1995 and 1994 are project reserves for fixed-price contracts of $595,000 and
$1,014,000, respectively. Selling, general and administrative costs are charged
to expense as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
On December 31, 1995, the Company adopted Statement of Financial Accounting
Standards No. 107 (SFAS 107) "Disclosures about Fair Value of Financial
Instruments." SFAS 107 defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. At December 31, 1995, the carrying amounts of the
Company's financial instruments, which include cash and temporary cash
investments, accounts receivable and long-term debt, approximate fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on estimated
useful lives of two years to 30 years. The cost of property sold or otherwise
disposed of, along with related accumulated depreciation, is eliminated from the
accounts, and the resulting gains or losses are reflected in current operations.
Maintenance and repairs are charged to expense when incurred and significant
betterments are capitalized.
Property and equipment also include assets leased by the Company under
capital lease arrangements. Such assets are being amortized over the shorter of
their estimated useful lives or the term of the leases using the straight-line
method.
ACQUIRED INTANGIBLES
Acquired intangibles consist of goodwill which is being amortized using the
straight-line method based on an estimated useful life of 15 years. The cost of
the goodwill was $11,094,000 at December 31, 1995 and $10,725,000 at December
31, 1994, the difference caused by foreign currency translation. The Company
evaluates the recoverability of the value of acquired intangibles and their
estimated useful lives based upon prevailing economic indicators to determine
whether the assets are impaired. See Note 3.
INCOME TAXES
The Company provides deferred income taxes for the temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities.
Deferred income taxes relate principally to net operating loss
carryforwards, deferred compensation and accelerated depreciation and
amortization methods. Tax credits are accounted for by a reduction of the income
tax provision in the year in which they are realized (flow-through method).
NET INCOME PER SHARE
Net income per share is computed based on the weighted average common
shares and common stock equivalents (convertible Preferred Stock and stock
options) of 8,745,000 (including common stock equivalents of 416,000), 9,266,000
(including common stock equivalents of 297,000), and 10,549,000 (including
common stock equivalents of 1,452,000) in 1995, 1994 and 1993, respectively. The
weighted average outstanding common and common stock equivalent shares does not
include common shares held by the Stock Employee Compensation Trust (Trust)
since the shares are not considered outstanding until released from the Trust.
Primary and fully diluted earnings per share amounts are approximately the same
for the three years presented.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's foreign subsidiaries is the
applicable local currency. The translation of the applicable foreign currencies
into U.S. dollars is performed for assets and liabilities using current exchange
rates in effect at the balance sheet date, for equity accounts using historical
exchange rates and for revenue and expense activity using the applicable month's
average exchange rates.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, cash and temporary cash
investments are defined as cash on hand, demand deposits and short-term, highly
liquid investments that are readily convertible to known amounts of cash.
16
<PAGE> 20
Interest paid during 1995, 1994 and 1993 amounted to $736,000, $1,068,000
and $1,086,000, respectively, while net income tax payments (refunds), totaled
$(5.6 million), $5.9 million and $2.0 million for the respective years. The 1995
refund of $5.6 million related primarily to receipt of the December 31, 1994
income tax receivable of approximately $2.9 million and receipt of a refund
related to previously incurred impairment losses related to the Company's
European operations.
During 1995, as a non-cash financing activity, the shares of common stock
held by the Stock Employee Compensation Trust were remeasured to fair value,
with an adjustment to capital in excess of par value. This remeasurement totaled
$20,556,000.
(2) 1994 SALES OF ASSETS
On July 18, 1994, the Company sold Profimatics, Inc. (Profimatics), its
hydrocarbon processing industry subsidiary, including the 67 percent interest
which Profimatics held in its German subsidiary, Profimatics Europe, GmbH
(Europe and collectively, the Subsidiaries). The Company purchased the 33
percent minority interest in Europe for $1.3 million prior to the sale thereby
selling a 100 percent interest in the Subsidiaries. The Subsidiaries were sold
to Honeywell Inc. for $17 million with a pretax gain of approximately $10.6
million. The net proceeds from the sale of the Subsidiaries were used to repay
outstanding short-term indebtedness under the Company's various lines of credit.
On July 11, 1994, the Company sold the hardware portion of its
communications group to AmeriData Inc. for $1.5 million. As a part of its 1993
reengineering program, the Company determined that this group no longer fit its
long-term strategy and, therefore, a restructuring charge of $5.4 million
related to the shutting down of this business was recorded in 1993. This charge
consisted primarily of the write-off of intangible assets capitalized when the
Company acquired the businesses in 1988 and 1990 as well as the anticipated
costs of the shutdown. The sale resulted in a gain of $92,000 during the third
quarter of 1994.
The Company also sold its 16 percent interest in SerCon, a joint venture
with IBM Germany. This investment, which was carried at its cost of $318,000,
was sold to IBM Germany during the second quarter of 1994 for $956,000.
(3) 1993 RESTRUCTURING EXPENSES AND IMPAIRMENT LOSSES
In late 1993 management completed an extensive reengineering of the Company
that resulted in fundamental changes in strategy designed to reduce cost
structure and improve responsiveness to the rapidly changing information
technology market. As a result of this restructuring, the Company recorded a
1993 fourth-quarter charge for restructuring expenses and impairment losses. As
part of this restructuring, the Company determined that the hardware portion of
its communications group no longer fit its long-term strategy. The restructuring
charge related to this event totaled $5.4 million, which mainly related to the
write-off of unamortized costs of intangibles capitalized in 1988 and 1990
acquisitions. This business was sold to AmeriData, Inc. in the third quarter of
1994 for $1.5 million, resulting in a gain of $92,000. In addition, during the
fourth quarter of 1993, the Company adopted, retroactive to January 1, 1993,
SFAS No. 112 "Employers' Accounting for Postemployment Benefits." This adoption
resulted in additional restructuring expenses of $3,731,000 as certain employees
were terminated in conjunction with the restructuring. The restructuring
expenses also include approximately $3,700,000 of expenses related to facility
consolidations, employee relocations, write-downs of certain assets and other
related restructuring costs. At December 31, 1993, the Company had accrued
severance costs of $2.7 million, reserves of $1.5 million for leases for excess
or redundant space, $.3 million for employee relocations and $.9 million for
other restructuring expenses.
In addition to the restructuring expenses discussed above, the Company also
recorded a fourth-quarter 1993 impairment loss of $21,340,000. In conjunction
with the restructuring and the Company's new strategy, the Company evaluated the
carrying values of its domestic acquired intangibles and determined that they
were impaired. Management had formed a new sales and delivery organization to
allow the Company to compete more cost-effectively. In today's marketplace,
customers will continue to do business with the Company because of its ability
to compete and not because of the acquired customer relationships. As a result,
the Company determined that neither previously acquired customer lists nor
non-compete agreements had future value. As such, the Company wrote off the
remaining carrying value of these intangibles and recorded an impairment loss of
$6,995,000.
The remaining portion of the $21,340,000 impairment loss of $14,345,000
related to the value of acquired intangibles in the Company's European segment.
The Company determined that the initial expectations of this segment, acquired
in 1990, will not be met. A recessionary environment and a high cost structure
have caused initial sales and income projections for the European operations to
fall well short of expectations. The Company had changed management of its
European operations during 1992 and 1993 and taken other measures to improve
profitability. After more than three years of losses, management decided to
reevaluate the carrying value of the European acquired intangibles. Management
estimated the fair value of these assets by forecasting the expected future cash
flows of the business over their estimated remaining useful lives of
approximately 11.7 years. Cash flows were forecasted using management's best
estimate of future results and were developed based on historical operating cash
flows, before interest and amortization since acquisition, as adjusted for known
changes that would affect future sales and/or profitability. The Company
discounted the projected future cash flows at a rate of 14 percent, which was
CTG's weighted average cost of capital at the time the loss was recorded. The
carrying values of the acquired intangibles were then written down to this
estimated fair value. The impact of the write down of the domestic and European
acquired intangibles on 1994 and 1995 operating results was a reduction in
annual amortization expense of $1.2 million.
During 1994, the Company paid severance costs to approximately 30 former
employees across all levels of $1.5 million, including $.9 million related to
four executive-level employees who were terminated in conjunction with the
restructuring. The Company also paid $1.4 million of restructuring expenses for
facility consolidations and excess space, $.2 million for employee relocations,
and $.8 million for other restructuring costs, primarily consisting of employee
training. The remaining accrued restructuring costs of $1.3 million at December
31, 1994 related primarily to severance costs which, based on employee severance
agreements, were to be paid during 1995 and 1996.
During 1995, approximately $.6 million of restructuring costs were paid,
leaving a reserve of approximately $.7 million. The majority of the remaining
restructuring costs are expected to be paid during 1996.
17
<PAGE> 21
(4) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
(amounts in thousands)
Property and equipment is summarized as follows: 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Land ......................................................................... $ 607 $ 607
Land - capital leases ........................................................ 378 378
Buildings .................................................................... 5,350 4,532
Buildings - capital leases ................................................... 3,151 3,151
Equipment .................................................................... 26,259 20,378
Equipment - capital leases ................................................... -- 250
Furniture .................................................................... 7,716 6,543
Software ..................................................................... 6,770 5,852
Leasehold improvements ....................................................... 1,691 2,160
-------- --------
51,922 43,851
Less accumulated depreciation and amortization,
including $1,339,000 and $1,213,000 relating to capital leases ............. (33,941) (26,061)
-------- --------
$ 17,981 $ 17,790
======== ========
</TABLE>
The Company currently owns four buildings, three of which are on the market as
the Company looks for more efficient space. The three buildings on the market
are still in use by the Company, which does not expect to incur a loss on the
sale of these buildings. The fourth building, with a net book value of $1.8
million, is leased to a third party under a five-year lease.
(5) DEBT
<TABLE>
<CAPTION>
(amounts in thousands)
Debt is summarized as follows: 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Promissory note, interest at LIBOR plus 1 percent (6.86 percent at December 31, 1995),
payable in monthly installments through 1998 ....................................... $4,533 $6,375
Promissory note, interest at LIBOR plus 70 basis points, (6.56 percent
at December 31, 1995) payable in monthly installments through 1998 ................. 1,100 1,533
Industrial revenue bonds, various interest rates, payable in
monthly or annual installments through 1996 and 1997,
secured by real property with a cost of $4,000,000 ................................. 296 502
------ ------
5,929 8,410
Less current portion of long-term debt ............................................... 2,289 2,296
------ ------
$3,640 $6,114
====== ======
</TABLE>
As of December 31, 1995, 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 December 31, 1995, the
Company's current ratio is 2.7 to 1.
The Company has lines of credit available totaling $53.9 million, renewable
annually at various times throughout the year, with interest at or below the
equivalent of prime rate. All borrowings under these agreements are unsecured
and payable upon demand. Borrowings under these lines of credit were $ 0 and
$4,500,000 as of December 31, 1995 and 1994, respectively. Commitment fees paid
on unused lines of credit were $ 0 during 1995 and $4,000 during 1994.
The maximum amounts outstanding under short-term borrowings for 1995, 1994
and 1993 were $16,221,000, $16,000,000 and $13,800,000, respectively. Average
daily bank borrowings outstanding for the years 1995, 1994 and 1993 were
$4,348,000, $3,669,000 and $3,536,000, and carried weighted average interest
rates of 6.5 percent, 6 percent and 5 percent, respectively.
The annual maturities of debt are as follows:
1996 .......... $2,289,000
1997 .......... $2,206,667
1998 .......... $1,433,000
18
<PAGE> 22
(6) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
(amounts in thousands)
Domestic and foreign components of
income (loss) before income taxes are: 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic .............................................. $ 13,461 $ 8,836 $(14,774)
Foreign ............................................... (1,420) (706) (15,892)
-------- -------- --------
$ 12,041 $ 8,130 $(30,666)
======== ======== ========
The provision (benefit) for income
taxes consists of 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
Current Tax:
U.S. Federal .......................................... $ (2,367) $ 1,892 $ 1,466
Foreign ............................................... 2,195 110 452
State and Local ....................................... 309 604 717
-------- -------- --------
137 2,606 2,635
Deferred Tax:
U.S. Federal .......................................... 983 459 (5,030)
Foreign ............................................... -- -- 127
State and Local ....................................... 145 268 (725)
-------- -------- --------
1,128 727 (5,628)
-------- -------- --------
$ 1,265 $ 3,333 $ (2,993)
======== ======== ========
The effective income tax rate and the statutory
income tax rate can be reconciled as follows: 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
Tax at statutory rate of 34 percent ........................... $ 4,094 $ 2,764 $(10,426)
Tax benefit for losses related to Company's European operations (3,200) -- --
State tax, net of federal benefits ............................ 204 576 477
Amortization of nondeductible expenses ........................ 807 113 6,898
Unrealized tax benefit ........................................ -- -- 294
Change in estimate of nondeductible expenses .................. (514) -- --
Other, net .................................................... (126) (120) (236)
-------- -------- --------
$ 1,265 $ 3,333 $ (2,993)
======== ======== ========
Effective income tax rate 10.5% 41% (9.8%)
</TABLE>
The Company's deferred tax assets (liabilities) included the following at:
<TABLE>
<CAPTION>
Assets December 31, 1995 December 31, 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss carryforwards .............................................. $ 2,250 $ 2,293
Deferred compensation ........................................... 2,380 2,237
Restructuring charges ........................................... 145 515
Accruals deductible for tax purposes when paid .................. 1,206 1,844
Allowance for doubtful accounts ................................. 293 348
Accrued loan interest ........................................... 105 387
Other ........................................................... 368 510
------- -------
Gross deferred tax assets ................................. $ 6,747 $ 8,134
Liabilities
- ---------------------------------------------------------------------------------------------------------
Amortization .................................................... 572 715
Depreciation .................................................... 1,187 1,178
------- -------
Gross deferred tax liabilities ............................ 1,759 1,893
Deferred tax assets valuation allowance ................... (962) (1,087)
------- -------
Net deferred tax assets ......................................... $ 4,026 $ 5,154
======= =======
Net deferred assets and liabilities including valuation allowances are recorded at
December 31, 1995 and 1994 as follows:
Net current assets .............................................. $ 2,057 $ 2,809
Net non-current assets .......................................... 1,969 2,345
------- -------
$ 4,026 $ 5,154
======= =======
</TABLE>
19
<PAGE> 23
The net change in the valuation allowance for deferred tax assets was a
decrease of $125,000 from 1994 to 1995. The decrease is mainly attributed to the
utilization of foreign net operating losses that were previously offset
completely by the valuation allowance.
In assessing the realizability of deferred tax assets, management
considers, within each taxing jurisdiction, whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income over the years which the deferred tax assets are
deductible, management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the existing
valuation allowances at December 31, 1995.
Provision has not been made for U.S. or additional foreign taxes on the
international subsidiaries as such operations have generated losses. In the
event these operations were to generate earnings which were remitted as
dividends, the amount of withholding tax that would be imposed would be
immaterial.
CTG recognized a tax benefit of approximately $3.2 million in the third
quarter of 1995 relating to the impairment losses associated with the Company's
European operations, which were recognized for financial reporting purposes in
1993 as discussed in Note 3. The benefit was not recorded in 1993 as all of the
criteria necessary to support a deduction for these losses for tax purposes had
not been met, and there was no certainty of any tax benefit in the forseeable
future. In the third quarter of 1995, the criteria, including a determination of
the value of these operations, were met and the benefit was recorded.
The Company has net operating loss (NOL) carryforwards of approximately
$7.7 million at December 31, 1995. Of the total, approximately $4.1 million is
limited to future taxable earnings of the U.S. parent company and will expire
between 2000 and 2007. This carryforward is a preacquisition loss of an
acquired domestic company which was recognized in the financial statements
through a reduction in acquired intangibles upon adoption of Statement of
Financial Accounting Standards No. 109. The remaining loss carryforwards, which
relate to the Company's foreign operations, generally have an unlimited
carryforward period.
(7) LEASE COMMITMENTS
At December 31, 1995, the Company was obligated under a number of long-term
operating leases for property and equipment. Minimum future obligations under
such leases are summarized as follows:
<TABLE>
<CAPTION>
(amounts in thousands)
Year Ending December 31, Operating Leases
- -----------------------------------------------------------
<C> <C>
1996 .................................. $ 5,351
1997 .................................. 3,497
1998 .................................. 2,052
1999 .................................. 975
2000 .................................. 569
Later years ........................... 1,476
---------
Minimum future obligations ............ $ 13,920
=========
</TABLE>
The above operating leases relate to the rental of office space, computer
equipment, and other equipment. Total rental expense under such operating leases
for 1995, 1994 and 1993 was approximately $6,189,000, $7,574,000 and $9,368,000,
respectively.
(8) DEFERRED COMPENSATION BENEFITS
The Company maintains an Executive Supplemental Benefit Plan that provides
certain key executives with deferred compensation benefits, based on years of
service and base compensation, payable during retirement. The plan was amended
as of November 30, 1994, so as to freeze current benefits and provide no
additional benefit accruals for participants.
<TABLE>
<CAPTION>
(amounts in thousands)
Net Periodic Pension Cost 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost ........................................... $ -- $ 256
Interest cost on projected benefit obligation .......... 557 559
Amortization of unrecognized net obligation ............ -- 172
Curtailment expense .................................... -- 168
------ ------
$ 557 $1,155
====== ======
</TABLE>
20
<PAGE> 24
<TABLE>
<CAPTION>
(amounts in thousands)
Reconciliation of Funded Status as of December 31, 1995 1994
------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present
value of benefit obligation:
Vested ............................................ $ 8,696 $ 6,626
Nonvested ......................................... -- --
------- -------
Accumulated benefit obligation ...................... 8,696 6,626
Effect of projected future salary increases ......... -- --
------- -------
Projected benefit obligation ........................ 8,696 6,626
Plan assets at fair value ........................... -- --
------- -------
Projected benefit obligation in excess of plan assets 8,696 6,626
Unrecognized net obligation ......................... -- --
Adjustment needed to recognize minimum liability .... (1,920) (238)
Unrecognized net loss ............................... 1,920 238
------- -------
Accrued pension cost ................................ $ 8,696 $ 6,626
======= =======
Weighted average discount rate ...................... 7.0% 8.5%
Salary increase rate ................................ 0% 0%
</TABLE>
The plan is deemed unfunded as the Company has not specifically identified
Company resources to be used to discharge the deferred compensation benefit
liabilities. The Company has purchased insurance on the lives of certain plan
participants in amounts considered sufficient to reimburse the Company for the
costs associated with the plan. During 1995, the Company established a defined
contribution deferred compensation plan for certain key executives. The Company
contributions to this plan, which were $10,000 in 1995, are based on annual
defined performance objectives.
(9) EMPLOYEE BENEFITS
PROFIT-SHARING RETIREMENT PLAN
The Company has a contributory profit-sharing retirement plan covering
substantially all U.S. employees. Company contributions, which are
discretionary, were funded and charged to operations in the amounts of
$1,816,000, $2,159,000 and $1,661,000 for 1995, 1994 and 1993, respectively.
OTHER POSTRETIREMENT BENEFITS
The Company provides limited health care and life insurance benefits to
certain retired employees.
<TABLE>
<CAPTION>
(amounts in thousands)
Net Periodic Postretirement Benefit Costs 1995 1994
---------------------------------------------------------------------
<S> <C> <C>
Service cost ...................................... $ 3 $ 11
Interest cost ..................................... 49 40
Amortization of unrecognized net obligations ...... 29 27
----- -----
Net periodic postretirement benefit cost .......... $ 81 $ 78
===== =====
Reconciliation of Funded Status as of December 31 1995 1994
---------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees ...................................... $ 614 $ 543
Eligible active plan participants ............. 96 75
----- -----
Total accumulated postretirement benefit obligation 710 618
Less plan assets at fair value .................... -- --
Less unrecognized transition obligation ........... (497) (526)
Plus unrecognized gain (loss) ..................... (50) 20
----- -----
Accrued postretirement benefit liability .......... $ 163 $ 112
===== =====
Weighted average discount rate .................... 7.0% 8.5%
Salary increase rate .............................. 1.0% 1.0%
</TABLE>
The rate of increase in health care costs was assumed to be 9.2% and 9.9%
in 1995 for pre-65 and post-65 benefits, respectively, gradually declining to 5%
by the year 2003 and remaining at that level thereafter. Increasing the assumed
health care cost trend rate by one percentage point would increase the
accumulated postretirement benefit obligation by $42,600 at December 31, 1995
and the net periodic cost by $3,200 for the year.
21
<PAGE> 25
(10) SHAREHOLDERS' EQUITY
STOCK OPTION PLANS
On April 24, 1991, the shareholders approved the Company's 1991 Employee
Stock Option Plan (1991 Plan), which came into effect after the Company's 1981
Employee Stock Option Plan (1981 Plan) terminated on April 21, 1991. The option
price for options granted under each plan is equal to or greater than the fair
market value of the Company's Common Stock on the date the option is granted.
Incentive stock options generally become exercisable in annual installments of
25 percent of the shares covered by the grant on each of the first four
anniversary dates from the date of the grant. Such options expire six years
after becoming exercisable. Nonqualified stock options generally become
exercisable in installments of 20 percent of the shares covered by the grant on
each of the first five anniversary dates of the grant. Such options expire 15
years from the date of the grant. All options remain in effect until the earlier
of the expiration, exercise, or surrender date. No accounting recognition is
given to stock options until they are exercised, at which time the difference
between the option price and par value of such shares is credited to capital in
excess of par value.
Under the 1981 Plan, the Company had designated 1,668,750 common shares
(adjusted for splits) for the granting of options. During 1995, 1994 and 1993,
options were exercised at an average price of $10.39, $6.30 and $6.28,
respectively. As of December 31, 1995, outstanding granted stock options are
exercisable over the next 9 years at prices ranging from $8.63 to $17.33 per
option.
Under the 1991 Plan, the Company has designated 1,000,000 common shares for
the granting of options. During 1995 and 1994, options were exercised at an
average price of $8.09 and $7.93, respectively. No options were exercised during
1993. As of December 31, 1995, outstanding granted stock options are exercisable
over the next 10 years at prices ranging from $7.00 to $15.00 per option.
A summary of stock option activity under these plans follows:
<TABLE>
<CAPTION>
(Number of Common Shares)
1981 Plan 1991 Plan
- -------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1992 1,180,848 253,500
Granted ...................... -- 228,275
Exercised .................... (4,491) --
Cancelled or expired ......... (154,975) (63,000)
-------- --------
Outstanding at December 31, 1993 1,021,382 418,775
Granted ...................... -- 93,800
Exercised .................... (7,307) (15,000)
Cancelled or expired ......... (408,135) (65,000)
-------- --------
Outstanding at December 31, 1994 605,940 432,575
Granted ...................... -- 310,000
Exercised .................... (440,139) (120,034)
Cancelled or expired ......... (83,118) (61,848)
-------- --------
Outstanding at December 31, 1995 82,683 560,693
- -------------------------------------------------------------
Exercisable at:
December 31, 1994 ............ 590,318 130,258
December 31, 1995 ............ 82,683 88,619
Available for grant:
December 31, 1995 ............ -- 304,273
- -------------------------------------------------------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's First Employee Stock Purchase Plan, employees may apply
up to 10 percent of their compensation to purchase the Company's Common Stock.
Prior to February 1, 1994, the purchase price was the lower of 85 percent of the
market price at the beginning of the plan year (if employed at that date) or 85
percent of the market price on the business day preceding the date of purchase.
Effective February 1, 1994, shares are purchased at market price on the business
day preceding the date of purchase. The maximum number of shares that can be
purchased under the plan by all employees of the Company, as a group, totaled
5,500,000 as of December 31, 1995 of which 187,000 shares remain unissued.
During 1995, 1994 and 1993, 40,000, 110,000 and 494,000 shares were purchased
under the plan at an average price of $12.78, $7.78 and $6.02 per share,
respectively.
RESTRICTED STOCK PLAN
Under the Company's 1991 Restricted Stock Plan, 400,000 common shares were
designated for granting with certain restrictions to key employees of the
Company. The Plan will terminate when all restricted shares have been awarded
and are no longer subject to forfeiture. As of December 31, 1995, there were no
restricted shares outstanding, reflecting the forfeiture of 300,000 restricted
shares by 30 executives.
22
<PAGE> 26
MANAGEMENT STOCK PURCHASE PLAN
Under the Company's Management Stock Purchase Plan approved in 1992,
400,000 common shares have been designated (up to 200,000 shares from treasury)
for purchase by certain key employees. During 1995, the Company loaned $115,000
to an employee to purchase 9,787 shares of the Company's Common Stock from
treasury at a price of $11.75 and employees repaid loans representing 36,696
shares with a value of $301,420. During 1994, no loans were made to employees
and employees repaid loans representing 65,000 shares with a value of $493,000.
During 1993, the Company loaned $260,000 to employees to purchase 40,000 shares
of the Company's Common Stock from treasury at an average price of $6.50 and
repurchased 32,000 shares with a value of $232,000. The loans are classified as
a reduction of shareholders' equity since they were used to purchase and are
secured by Common Stock previously held in treasury. Interest is being charged
at 4 percent per annum and the loan principal is payable in full no later than
three years from the date of the loan. The number of shares of Common Stock
which secure the loans are sufficient to ensure repayment of the loans.
SHAREHOLDER RIGHTS PLAN
The Board of Directors adopted a Shareholder Rights Plan in January 1989.
Under the Plan, one right was distributed for each share of Common Stock
outstanding on January 27, 1989, and on each additional share of Common Stock
issued after that date and prior to the date the rights become exercisable. The
rights become exercisable when 20 percent or more of the Company's outstanding
Common Stock is acquired by a person or group or when an offer to acquire is
made. Each right entitles the holder to purchase Series A Preferred Stock (which
is essentially equivalent to Common Stock) at a 50 percent discount from the
then market price of the Common Stock or, in the event of a merger,
consolidation or sale of a major part of the Company's assets, to purchase
common stock of the acquiring company at a 50 percent discount from its then
market price. The rights expire in January 1999 and may be redeemed by the
Company at a price of $.01 per right.
Stock Employee Compensation Trust
On May 3, 1994, the Company established a Stock Employee Compensation Trust
(SECT), which purchased 1,570,200 shares of the Company's Common Stock at a
price of $13.4 million. The shares were repurchased from two major shareholders
including Kastange Plantage N.V., previously the Company's largest shareholder.
The SECT repurchased an additional 200,000 shares in December 1994 from
International Business Machines Corporation (IBM) for $1.5 million. During 1995,
the SECT purchased an additional 60,400 shares for $.7 million. The stock will
be used by the SECT to provide funding for existing employee stock plans and
benefit programs. Shares are released from the SECT by the trustee at the
request of the Compensation Committee of the Board of Directors. As of December
31, 1995, all shares remain unallocated and therefore are not considered
outstanding for purposes of calculating earnings per share. The shares of Common
Stock are valued at market with changes in share price from prior reporting
periods reflected as an adjustment to capital in excess of par value. This
adjustment totaled $20.6 million at December 31, 1995. During 1995 and 1994, the
Company loaned $.7 million and $14.9 million, respectively, to the SECT for the
purchase of the shares. During 1995 and 1994, dividends paid by the Company to
the SECT in the amount of $183,062 and $157,020 were used to repay a portion of
the loan made by the Company to the SECT.
(11) RELATED PARTY TRANSACTIONS
IBM, which owned approximately 11 percent of the Company's stock prior to
1994, is the Company's largest customer. IBM accounted for $80 million or 23.7
percent, $68 million or 22.7 percent and $80 million or 27.1 percent of
consolidated 1995, 1994 and 1993 revenue, respectively. The Company's accounts
receivable from IBM at December 31, 1995 and 1994 amounted to $9.6 million and
$11.2 million, respectively. No other customer accounted for more than 10
percent of revenue in 1995, 1994 and 1993.
At December 31, 1993, the Company owned a 16 percent interest in SerCon, a
joint venture created to market and implement platforms and standard solutions
in the German market. The investment, which had a cost of $318,000, was sold in
1994 at a $638,000 gain.
(12) LITIGATION
The Company is involved in litigation arising in the normal course of
business. In the opinion of management, any adverse outcome to this litigation
would not have a material effect on the financial condition of the Company.
23
<PAGE> 27
(13) SEGMENT INFORMATION
The Company operates in one segment, the services sector of the information
technology industry.
Information concerning the Company's operations by geographic area at
December 31, 1995, 1994 and 1993, and for the years then ended, follows (in
thousands):
<TABLE>
<CAPTION>
Financial Information Relating to Domestic and Foreign Operations 1995 1994 1993
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
North America ............................................... $ 306,156 $ 274,115 $ 266,150
Europe ...................................................... 33,251 27,444 29,315
--------- --------- ---------
Total Revenue ......................................... $ 339,407 $ 301,559 $ 295,465
========= ========= =========
Operating Income (Loss)
North America ............................................... $ 25,186 $ 14,502 $ 2,270
Europe ...................................................... 450 128 (14,838)
Corporate and Other ......................................... (12,886) (16,850) (16,799)
--------- --------- ---------
Total Operating Income (Loss) ......................... $ 12,750 $ (2,220) $ (29,367)
========= ========= =========
Identifiable Assets
North America ............................................... $ 61,771 $ 62,406 $ 67,088
Europe ...................................................... 13,280 10,510 13,202
Corporate and Other ......................................... 29,715 22,574 28,281
--------- --------- ---------
Total Identifiable Assets ............................. $ 104,766 $ 95,490 $ 108,571
========= ========= =========
Capital Expenditures
North America ............................................... $ 3,273 $ 2,050 $ 2,484
Europe ...................................................... 273 123 581
Corporate and Other ......................................... 1,822 2,049 2,378
--------- --------- ---------
Total Capital Expenditures ............................ $ 5,368 $ 4,222 $ 5,443
========= ========= =========
Depreciation and Amortization
North America ............................................... $ 2,618 $ 2,931 $ 3,769
Europe ...................................................... 667 676 2,329
Corporate and Other ......................................... 2,861 2,281 1,826
--------- --------- ---------
Total Depreciation and Amortization ................... $ 6,146 $ 5,888 $ 7,924
========= ========= =========
</TABLE>
Corporate and other identifiable assets consist principally of cash and
temporary cash investments and other assets.
24
<PAGE> 28
(14) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(amounts in thousands, except per share data)
Quarters
-------------------------------------------------------
1995 First Second Third Fourth Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ 82,226 $ 84,613 $ 85,609 $ 86,959 $ 339,407
Direct costs ............................... 60,325 61,731 62,358 64,709 249,123
Selling, general and administrative expenses 18,960 19,751 20,000 18,823 77,534
-------- -------- -------- -------- ---------
Operating income ........................... 2,941 3,131 3,251 3,427 12,750
Net interest and other expense ............. (283) (291) (81) (54) (709)
-------- -------- -------- -------- ---------
Income before income taxes ................. 2,658 2,840 3,170 3,373 12,041
Net income ................................. $ 1,594 $ 1,899 $ 5,158 $ 2,125 $ 10,776
Net income per share ....................... $ 0.19 $ 0.22 $ 0.59 $ 0.24 $ 1.23
<CAPTION>
Quarters
-------------------------------------------------------
1994 (as restated) First Second Third Fourth Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue .................................... $ 77,006 $ 77,950 $ 68,995 $ 77,608 $ 301,559
Direct costs ............................... 55,750 57,628 53,173 57,454 224,005
Selling, general and administrative expenses 19,081 18,628 23,955 18,110 79,774
-------- -------- -------- -------- ---------
Operating income (loss) .................... 2,175 1,694 (8,133) 2,044 (2,220)
Net interest and other income (expense) .... 53 (292) (581) (178) (998)
Gain on sales of assets .................... -- 638 10,710 -- 11,348
-------- -------- -------- -------- ---------
Income before income taxes ................. 2,228 2,040 1,996 1,866 8,130
Net income ................................. $ 1,248 $ 1,143 $ 1,117 $ 1,289 $ 4,797
Net income per share ....................... $ 0.12 $ 0.13 $ 0.13 $ 0.15 $ 0.52
</TABLE>
Certain amounts in the 1994 quarterly data as previously reported have been
reclassified from direct costs to selling, general and administrative expenses
to conform with the current year presentation.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Computer Task Group, Incorporated:
We have audited the consolidated balance sheet of Computer Task Group,
Incorporated and subsidiaries as of December 31, 1995 and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit. The financial
statements of Computer Task Group, Incorporated and consolidated subsidiaries as
of and for the years ended December 31, 1994 and 1993, were audited by other
auditors whose report thereon dated February 10, 1995, expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to
above present fairly, in all material aspects, the financial position of
Computer Task Group, Incorporated and subsidiaries as of December 31, 1995, and
the results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Buffalo, New York
February 9, 1996
25
<PAGE> 29
CONSOLIDATED SUMMARY - TEN-YEAR SELECTED FINANCIAL INFORMATION
(amounts in millions, except per share data)
<TABLE>
<CAPTION>
Operating Data 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 339.4 301.6 295.5 302.7 285.1 243.9 233.0 218.7 170.1 143.3
Operating income (loss) $ 12.8 (2.2) (29.4)** 10.6 3.1 11.2 (14.1)* 10.2 8.4 8.7
Income (loss) before
income taxes $ 12.0 8.1 (30.7) 10.1 1.6 12.6 (11.6) 10.8 8.5 9.3
Net income (loss) $ 10.8*** 4.8 (27.7) 5.6 0.9 7.2 (7.8) 6.4 5.1 5.1
Net income (loss) per share $ 1.23*** 0.52 (2.62) 0.56 0.10 0.77 (0.88) 0.80 0.66 0.68
Average shares outstanding 8.7 9.3 10.5 10.1 9.3 9.4 8.9 8.1 7.8 7.5
* Includes expenses of $17.4 million for restructuring.
** Includes expenses of $33.5 million for restructuring and impairment losses.
*** Includes a tax benefit of $3.2 million ($.36 per share) related to losses
associated with the Company's European operations.
Financial Position
-------------------------------------------------------------------------------------------------------------------------------
Working capital $ 49.5 38.8 51.3 47.7 39.5 35.5 51.4 42.1 38.5 33.2
Total assets $ 104.8 95.5 108.6 138.2 139.3 134.0 106.8 111.3 78.0 64.1
Long-term debt $ 3.6 6.1 8.4 10.5 13.8 11.6 1.4 12.1 0.9 1.0
Shareholders' equity $ 61.5 50.7 62.5 92.6 87.2 83.3 83.6 67.0 61.1 52.4
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
1995 VS. 1994
CTG's 1995 performance resulted in record revenue of $339.4 million,
including fourth quarter revenue of $87.0 million, which represented the highest
quarterly revenue in the Company's history and the fifth consecutive quarter of
revenue growth.
The total revenue of $339.4 million is an increase of 13 percent over 1994
total revenue of $301.6 million. The majority of the 13 percent annual increase
was caused by an 11.7 percent or $32.0 million increase in revenue from North
American operations. European revenue increased 21.2 percent or $5.8 million.
The aggregate revenue advance is a result of increases in volume of billable
time. Billable staff at the end of 1995 increased by 15.5 percent over the 1994
year-end headcount. Billable staff in North America increased by 15.2 percent
and European billable staff increased by 18.6 percent. Due to the competitive
marketplace, increases in the rates the Company charges its customers were not a
significant factor contributing to the revenue increase. Additionally, the
increases in revenue occurred despite the sale of several businesses in 1994,
which accounted for $17.1 million of revenue in 1994. Accordingly, 1995 revenue
from ongoing operations increased by $54.9 million or 19 percent over comparable
1994 figures.
Management believes the increase in revenue is a result of its Key Client
focus; adoption of more flexible employment policies; and continued improvement
of its sourcing approach and database. In addition, during the third quarter of
1995 CTG was awarded a contract as one of IBM's nine national technical service
providers. The contract covers approximately 60 percent of the total services
provided to IBM by the Company and CTG expects to increase its revenue from IBM
during the duration of this two-year contract. IBM continues to be the Company's
largest customer, accounting for $80 million or 23.7 percent of 1995 total
revenue, up from $68 million in 1994 or 22.7 percent of 1994 total revenue. The
Company expects to continue to derive a significant portion of its business from
IBM in 1996. While a significant decline in revenue from IBM could have a
material adverse impact on the Company's revenues and profits, the Company
believes a simultaneous loss of all IBM business is unlikely to occur. In
addition, the Company continues to expand its non-IBM business which grew by 11
percent or $25.8 million in 1995 compared to 1994.
Direct costs (defined as costs for billable staff) for 1995 were $249.1
million or 73.4 percent of revenue, compared to $224.0 million or 74.2 percent
of revenue in 1994. The decrease in direct costs as a percentage of revenue is
consistent with the Company's goal to increase direct profit by increasing
the value of its services. The Company expects to continue to reduce direct
costs as a percentage of revenue during 1996, as revenues are anticipated to
increase more rapidly than direct costs.
Selling, general and administrative expenses in 1995 were $77.5 million or
22.8 percent of revenue compared to $79.8 million or 26.5 percent of revenue in
1994. Included in the 1994 amount is $4.2 million in charges related to
severance and other costs aimed at streamlining future overhead costs. Excluding
these charges, 1994 selling, general and administrative expenses were 25.1
percent of revenue. The decrease in these costs as a percentage of revenue is
consistent with the Company's continued efforts to streamline operations. The
Company expects to continue to reduce selling, general and administrative
expenses as a percentage of revenue during 1996.
26
<PAGE> 30
Operating income in 1995 was $12.8 million or 3.8 percent of revenue
compared to an operating loss of $2.2 million in 1994. The 1994 figure includes
the $4.2 million discussed above and a $3.0 million adjustment to revenue for
fixed-price project overruns. Excluding these charges, 1994 operating income
would have been $5.0 million or 1.7 percent of revenue. The Company's operating
income is primarily generated from its North American operations. European
operating income increased from $.1 million in 1994 to $.5 million in 1995. The
primary reasons for the significant improvement in North American operating
income is increased revenue of approximately $32.0 million, a .9 percent
improvement in direct profit in 1995 as compared to 1994, and a reduced overhead
structure as the Company has not only reduced overhead costs but has also
reallocated resources to sourcing, sales, and resource management.
Interest and other income increased $77,000 or 14 percent to $619,000 in
1995 from $542,000 in 1994. 1995 fourth quarter interest and other income
increased by $166,000 as the Company generated additional cash flow from
collection of its receivables. Investment and other income had decreased by
$115,000 through the first nine months of 1995 versus the comparable 1994 period
due to the liquidation of the Company's investment portfolio during 1994.
During 1994, the Company recognized gains on sales of assets totaling $11.3
million primarily from the sale of its Profimatics, Inc. subsidiary.
Interest and other expense decreased $212,000 or 14 percent to
approximately $1.3 million in 1995 from approximately $1.5 million in 1994. This
decrease is primarily due to $380,000 of realized and unrealized losses on
marketable securities incurred during 1994. There were no material gains or
losses due to foreign exchange on currency in either year.
The provision for income taxes includes 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
in the fourth quarter of 1993. Without this benefit, the tax rate would
approximate 37 percent compared to 41 percent in 1994. 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
and a tax benefit for a change in estimate of non-deductible expenses. Combined,
these tax benefits had a material impact on 1995 net income, and therefore the
10.5 percent effective income tax rate is not indicative of rates that will be
experienced in the future.
Net income for 1995 was $10.8 million or $1.23 per share, compared to $4.8
million or $0.52 per share in 1994. Excluding the tax benefit of $3.2 million
related to losses associated with the Company's European operations, net income
was $7.6 million, or $.87 per share. Earnings per share was calculated using
8,745,000 and 9,266,000 weighted average shares outstanding in 1995 and 1994,
respectively. Weighted average shares outstanding decreased during 1995 due to
share purchases during 1995 and 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. It remains the Company's goal to reduce costs as a percentage of
revenue. The Company continues to review its operations and may dispose of any
businesses that are not deemed to be strategic.
During 1996, the Company will adopt the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and No. 123,
"Accounting for Stock-Based Compensation." Management believes the adoption of
these standards will not have a significant effect on the Company's operating
results, primarily pertaining to Statement No. 123, where the Company intends to
continue to apply the accounting provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees" for its stock-based employee compensation
agreements.
1994 VS. 1993
CTG's 1994 performance reflected the actions taken during late 1993 and
1994 to make the Company more competitive in its marketplace.
During 1994, the Company reviewed its operations and their fit with its
long-term strategy, and divested several businesses which were no longer
strategic. At the beginning of the third quarter, CTG sold its petroleum
industry subsidiary, Profimatics, Inc., to Honeywell Inc. and its Network
Systems Integration hardware support business to AmeriData, Inc. Revenue from
these sold businesses of $17.1 million and $27.7 million is included in total
revenue for 1994 and 1993, respectively.
Total revenue for 1994 was $301.6 million, an increase of 2 percent over
1993 total revenue of $295.5 million. Revenue from ongoing operations accounted
for $284.5 million in 1994 compared to $267.8 million in 1993 for similar
operations, an increase of 6 percent. The increase was primarily from North
American operations; European revenue increased 1.6 percent or $400,000. The
increase in North American revenue is attributable to the Company's 1993
realignment of its sales organization, adoption of a more flexible employment
policy, and enhancement of its electronic sourcing database. These actions
improved the Company's ability to meet customer requirements and to hire
technical staff, as billable staff at the end of 1994 showed an increase of 19
percent over the 1993 year-end headcount. Likewise, fourth quarter 1994 revenue
from ongoing operations was 19 percent higher than comparable fourth quarter
1993 revenue. Increases in the rates the Company charges its customers were not
a factor contributing to the revenue increase because of the competitive
marketplace. Approximately 8 percent of the Company's revenue is from
fixed-price engagements, compared to 9 percent in 1993.
27
<PAGE> 31
The sale of Profimatics contributed to this decline as a high percentage of its
business was from fixed-price contracts. 1994 revenue was negatively impacted by
$3.0 million related to fixed-price projects experiencing cost overruns.
IBM continued to be CTG's largest client, accounting for $68 million or
22.7 percent of the Company's revenue, down from $80 million in 1993 or 27.1
percent of 1993 revenue. CTG 's revenue from IBM peaked in 1992 at $86 million
or 28.4 percent of CTG's 1992 revenue. Revenue from IBM had been declining since
1992 but started to stabilize during 1994. Revenue from IBM increased $.2
million from the second quarter of 1994 to the third quarter of 1994 and $.7
million from the third quarter of 1994 to the fourth quarter of 1994. Although
revenue from IBM stabilized from the first half of 1994 to the second half of
1994, the second half of 1994 is still less than the 1993 second half rate. The
Company continued to derive a significant portion of its business from IBM in
1995 and to actively pursue new business at IBM. Additionally, revenue from all
other customers grew 8 percent in 1994 compared to 1993.
Direct costs (defined as the costs for billable staff) for 1994 were $224.0
million or 74.2 percent of revenue, compared to $208.9 million in 1993 or 70.7
percent of revenue. The increase in direct costs is a result of the increase in
professional staff, unbilled start up costs for new businesses in 1994 as
well as the cost overruns on several fixed-price projects. The Company expects
to reduce direct costs as a percentage of revenue in 1995.
Selling, general and administrative expenses were $79.8 million in 1994
(26.5 percent of revenue) compared to $81.8 million in 1993 (27.7 percent of
revenue). Included in the 1994 figures are $4.2 million in charges taken during
the third quarter for severance and other expenses to further streamline
overhead. This included approximately $2.5 million related to the retirement in
September 1994 of the Company's former Chairman and Chief Executive Officer. The
Company also spent $6.6 million on its recruiting activities during 1994 in
order to increase the number of billable staff, compared to $3 million in 1993.
Excluding these additional costs, overhead expense decreased, reflecting the
impact of the 1993 restructuring on staff reductions and facility consolidations
as well as an annual savings of $1.2 million in amortization of acquired
intangibles.
The Company reported an operating loss of $2.2 million for 1994, compared
to a 1993 operating loss of $29.4 million. A primary cause for the 1994 loss was
the third quarter charges reflected in the Company's third quarter operating
loss of $8.1 million. The loss was due to $3.0 million in project overruns and
$4.2 million in unusual expenses as discussed above. Included in the 1993
operating loss was $34.1 million of restructuring-related write-offs, consisting
of $26.4 million for writedown of acquired intangibles, $1 million write-off of
fixed assets, $3.7 million in severance as the Company implemented SFAS No. 112
"Employers' Accounting for Postemployment Benefits," and $3 million of other
restructuring expenses. Operating income for ongoing European operations was
breakeven in 1994, compared to a $.5 million loss in 1993, after adjusting for
the 1993 write-off of $14.3 million in European acquired intangibles. The
primary reason for the improvement was a $.7 million reduction in amortization
of acquired intangibles, resulting from the 1993 writedown. The Company's
Belgium operations improved slightly but this was offset by reduced
profitability in the United Kingdom.
Interest and other income decreased $.9 million or 62 percent and interest
and other expense decreased $1.2 million or 44 percent. The Company liquidated
its marketable securities during the first half of 1994 so investment income
decreased $.2 million. Also, the Company sold real property located in Buffalo,
New York during 1993 and realized a $.2 million gain on the sale. The Company
recognized a $.9 million net unrealized loss on a marketable security during
1993, compared to $.3 million in net realized and unrealized losses on
marketable securities in 1994. Interest expense remained constant at $1.1
million as the average daily bank borrowings were stable although interest rates
increased throughout 1994. There were no material gains or losses due to
currency fluctuations or translations.
CTG recognized pretax gains of $10.7 million in the third quarter from the
sale of its petroleum industry subsidiary, Profimatics, Inc., and from the sale
of its Network Systems Integration hardware support business (NSI). Profimatics
was sold to Honeywell Inc. for $17.0 million, less $1.3 million paid to a
minority shareholder, resulting in a pretax gain on sale of $10.6 million. NSI
was sold to AmeriData, a subsidiary of Sage Technologies, for $1.5 million,
resulting in a gain of $92,000. A loss of $5.4 million related to the disposal
of NSI was included in the 1993 restructuring charge. Also included in the gains
on sales of assets was a $638,000 gain on the sale of the Company's 16 percent
interest in SerCon, a joint venture with IBM Germany. This investment was sold
to IBM Germany during the second quarter for $956,000.
Income before income taxes was $8.1 million in 1994, an increase of $38.8
million over 1993's pre-tax loss of $30.7 million. The 1994 provision for income
taxes was 41 percent of income before income taxes. This was lower than the
Company's historical effective rate of 43 percent to 45 percent due primarily to
two factors. The reduction in the Company's amortization of acquired intangibles
reduced the amount of nondeductible expenses. Also, a tax benefit of $.5 million
was recorded in the fourth quarter resulting from the sale of the marketable
security which generated the unrealized loss in 1993. No tax benefit had been
recorded in prior years for this capital loss because the Company did not have
sufficient capital gains to record a deferred tax asset.
Net income for 1994 was $4.8 million or $0.52 per share, compared to a net
loss of $27.7 million in 1993 or $2.62 per share. Earnings per share were
calculated using 9,266,000 weighted average shares in 1994 (8,559,000 for the
fourth quarter) and 10,549,000 weighted average shares in 1993. Weighted average
shares outstanding were reduced because the Company and its Stock Employee
Compensation Trust purchased approximately 2.5 million of its common shares
during 1994 and 256,000 shares outstanding under the Company's 1991 Restricted
Stock Plan were forfeited and returned to treasury during 1994. The Stock
Employee Compensation Trust (SECT) purchased 1,770,200 of the shares. These
shares remained outstanding for voting purposes although they are not considered
outstanding for purposes of calculating earnings per share.
28
<PAGE> 32
FINANCIAL CONDITION
Cash provided by operations during 1995 was $22.2 million. Accounts
receivable increased by $2.9 million or 5.2 percent, resulting from the 12
percent increase in fourth quarter 1995 revenue as compared to the fourth
quarter of 1994. The accounts receivable increase is smaller than the increase
in quarterly revenues due to continued improvements in cash collections.
The net deferred income tax asset decreased $1.2 million to $4.0 million at
December 31, 1995 from $5.2 million at December 31, 1994. This decrease resulted
primarily from payments of previously accrued restructuring expenses and other
items that are deductible in 1995. Income taxes receivable decreased by $2.9
million primarily due to the effect of $2.9 million in tax refund payments
received by the Company during 1995 related to the December 31, 1994 tax
receivable.
The Company's strong cash flow eliminated the need for short-term borrowing
at the end of 1995. The increase in Company headcount and normal fluctuations in
year-end payroll payments caused a $3.8 million increase in accrued
compensation. The $2.3 million decrease in other current liabilities is
primarily due to payments for restructuring expenses and other severance costs
of $1.8 million. Amounts remaining accrued at December 31, 1995 for
restructuring expenses and other severance costs are $.7 million and $.7
million, respectively.
Deferred compensation benefits increased by approximately $2.1 million
primarily due to a change in the weighted average discount rate utilized by the
Company's actuary. An offsetting $1.9 million minimum pension liability has been
included in shareholders' equity. Other liabilities decreased by
approximately $1.0 million primarily due to the $.9 million reclassification to
current liabilities for severance costs payable during 1996.
Net property and equipment increased by $191,000 representing the
offsetting effects of normal purchasing activity of $5.3 million and
depreciation and amortization expense of $5.1 million. Net acquired intangibles
decreased by $741,000 primarily due to current year amortization expense of $1.0
million and translation adjustments reflecting a weaker U.S. dollar during 1995.
Financing activities of the Company used $6.0 million during 1995. The
Company repaid $2.5 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. At December 31, 1995, the Company's current
ratio is 2.7 to 1.
Approximately 40,000 shares of Common Stock were issued to employee
participants of the Company's Employee Stock Purchase Plan during 1995, which
generated funds of approximately $.5 million. During 1995, the Company
repurchased approximately 298,000 shares for $4.3 million. Proceeds from other
stock plans include $5.3 million from the exercise of stock options, $.7 million
in tax benefits related to stock options and net repayments from the Management
Stock Purchase Plan of $.2 million. In May 1995, the Company's Stock Employee
Compensation Trust (SECT) 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. Stock held by the SECT was
remeasured to fair value as of December 31, 1995, totaling a $20.6 million
adjustment to the SECT and capital in excess of par value. The Company paid a
$.10 per share dividend to shareholders during the second quarter, totaling $.8
million.
The Company has approximately $54 million in aggregate lines of credit
which are renewable annually at various times throughout the year.
On October 26, 1994, the Company authorized the repurchase of 1 million
shares and on July 21, 1995 authorized the repurchase of another .7 million
shares of its Common Stock for treasury. At December 31, 1995, approximately
462,000 shares have been repurchased under the authorizations.
The Company believes existing internally available funds, cash generated by
operations and borrowings will be sufficient to meet foreseeable working
capital, stock repurchase and capital expenditure requirements and to allow for
future internal growth and expansion. The Company has no material commitments
for capital expenditures at the end of 1995.
29
<PAGE> 33
ADDITIONAL INFORMATION
STOCK MARKET INFORMATION
<TABLE>
<CAPTION>
Year ended December 31, 1995: High Low
---------------------------------------------------------------------------
<S> <C> <C>
First Quarter 12 1/8 8 1/8
Second Quarter 14 1/8 10 3/8
Third Quarter 16 1/8 13 1/4
Fourth Quarter 22 14 1/4
Year ended December 31, 1994: High Low
---------------------------------------------------------------------------
First Quarter 8 5/8 6 3/4
Second Quarter 9 3/8 7 1/2
Third Quarter 10 1/8 8 1/4
Fourth Quarter 8 7/8 7 5/8
</TABLE>
The Company's common shares are traded on the New York Stock Exchange under
the symbol TSK, commonly abbreviated Cptr Task. The shares are listed on the
Amsterdam Stock Exchange and are traded by means of the Amsterdam Security
Account System (ASAS).
On February 9, 1996, there were 3,535 record holders of the Company's
common shares. The Company paid an annual cash dividend of $.10 per share in
1995, 1994 and 1993, and prior to that had paid $.05 per share annually since
1976 plus a 10 percent share dividend in 1980. The Company expects to continue
to pay cash dividends subject to the availability of earnings, the financial
condition of the Company, and other relevant factors at the time.
ANNUAL MEETING
The annual meeting of shareholders has been scheduled for April 24, 1996 in
Buffalo, New York for shareholders of record on March 13, 1996.
FORM 10K AVAILABLE
Copies of the Company's Form 10K Annual Report, which is filed with the
Securities and Exchange Commission, may be obtained without charge upon written
or verbal request to:
Computer Task Group, Incorporated
Investor Relations Department
800 Delaware Avenue
Buffalo, NY 14209
(716) 887-7400
TRANSFER AGENT AND REGISTRAR
BOSTON EQUISERVE
Our Transfer Agent is responsible for our shareholder records, issuance of
stock certificates, and distribution of our dividends and the IRS Form 1099.
Your requests, as shareholders, concerning these matters are most efficiently
answered by corresponding directly with Boston EquiServe:
Computer Task Group, Incorporated
c/o Boston EquiServe Investor Relations
Mail Stop: 45-02-64 P.O.
Box 644 Boston, Massachusetts 02102-0644
(617) 575-3170 (MA residents)
(800) 730-4001
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP
700 Main Place Tower
Buffalo, New York 14202
30
<PAGE> 34
BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
G. DAVID BAER
Co-Founder, Computer Task Group, Inc.
Retired Executive Vice-President,
Computer Task Group, Inc.
GEORGE B. BEITZEL
Retired Senior Vice President and Director
IBM Corporation
RICHARD L. CRANDALL
Chairman, Comshare, Incorporated
GALE S. FITZGERALD
Chairman & Chief Executive Officer
Computer Task Group, Inc.
PAUL W. JOY
Retired Vice Chairman, American Brass Company
RANDOLPH A. MARKS
Co-Founder, Computer Task Group, Inc.
Retired Chairman, American Brass Company
BARBARA Z. SHATTUCK
Principal, Shattuck Hammond Partners Inc.
OFFICERS
- --------------------------------------------------------------------------------
GALE S. FITZGERALD
Chairman & Chief Executive Officer
RICHARD BALLOU
Vice President, Operations, Mid-Atlantic
& South Regions
CHARLES A. BARBOUR
Vice President, Operations, Midwest Region
JAMES R. BOLDT
Vice President, Finance & Chief Financial Officer
LOUIS J.F. BOYLE
Vice President & Chief Information Officer
JANICE M. COLE
Vice President, Operations, Northeast Region
BEATRICE C. DEROCCO
Vice President, Operations, West Region
MICHAEL E. GRICH
Vice President, Operations, Central Region
STEPHEN A. HOFFMAN
Vice President, Operations, IBM National Delivery
JOSEPH G. MAKOWSKI
Vice President, General Counsel & Secretary
MARK V. MEGREGIAN
Vice President, Project Performance
NICO H. MOLENAAR
Vice President & Managing Director, CTG Europe
31
<PAGE> 35
CTG LOCATIONS
- --------------------------------------------------------------------------------
ALBANY, NY
(518) 456-9323
(National Healthcare Group)
(518) 464-4147
ANCHORAGE, AK
(907) 261-6500
ATLANTA, GA
(770) 263-3400
(800) 345-6855
AUSTIN, TX
(512) 502-0190
BALTIMORE, MD
(410) 837-3700
BOSTON, MA
(617) 937-5564
BUFFALO, NY
(Corporate HQ)
(716) 882-8000
(800) 992-5350
CENTRAL PA
(717) 691-8999
CHARLOTTE, NC
(704) 527-6730
CHICAGO, IL
(708) 434-0312
CINCINNATI, OH
(513) 793-6611
CLEVELAND, OH
(216) 524-6441
COLUMBUS, OH
(614) 268-8883
DALLAS, TX
(214) 919-1567
(800) 345-7782
DELAWARE VALLEY
(610) 891-7200
(800) 891-7270
DENVER, CO
(303) 770-8833
DES MOINES, IA
(515) 225-8379
DETROIT, MI
(810) 746-6090
FT. LAUDERDALE, FL
(305) 486-7105
FT. WAYNE, IN
(219) 426-5101
GRAND RAPIDS, MI
(616) 956-0131
GREENVILLE, SC
(803) 297-4790
HARTFORD, CT
(203) 828-2029
HUDSON VALLEY
(203) 790-9556
INDIANAPOLIS, IN
(317) 578-5100
JACKSONVILLE/ORLANDO, FL
(904) 296-9100
KANSAS CITY
(913) 469-4188
MELBOURNE, FL
(407) 725-1300
MEMPHIS, TN
(901) 766-9335
MERRILLVILLE, IN
(includes Midwest Region HQ)
(219) 738-1908
MILWAUKEE, WI
(414) 223-3777
NASHVILLE, TN
(615) 373-0794
NEW YORK/NEW JERSEY
(908) 685-5800
OMAHA, NE
(402) 342-0494
PHOENIX, AZ
(602) 943-5527
PITTSBURGH, PA
(412) 323-8600
(Metals)
(412) 963-8288
PORTLAND, OR
(503) 222-2915
RALEIGH, NC
(includes South and
Mid Atlantic Region HQ)
(919) 851-9008
(800) 851-6577
ROCHESTER, NY
(716) 325-4220
SALT LAKE CITY, UT
(801) 363-0800
SAN FRANCISCO, CA
(includes West Region HQ)
(415) 974-5454
SAN JOSE, CA
(408) 441-6777
SEATTLE, WA
(206) 827-8270
ST. LOUIS, MO
(includes Central Region HQ)
(314) 469-7100
SYRACUSE, NY
(includes Northeast Region HQ)
(315) 463-6276
(800) 272-5852
TAMPA, FL
(813) 289-4471
TORONTO, ONT., CANADA
(416) 360-3756
WASHINGTON, DC
(703) 790-1557
WINSTON SALEM, NC
(910) 724-4441
CTG EUROPE
THE NETHERLANDS
(including Europe HQ)
31-23-5684100
BELGIUM
32-2-720 51 70
ENGLAND - NOTTINGHAM
44-1159-678 078
ENGLAND - READING
44-1734-750 877
INTERNET ADDRESS:
http://www.ctg.com
32
<PAGE> 36
[PHOTO]
As CTG celebrates its 30-year anniversary, we bid a fond farewell to G.
David Baer, (center) co-founder of CTG, who retired last year. David's vision
made CTG one of the best places to work in the IT industry. He has been a friend
and a mentor to many CTG professionals, and a driving force behind CTG's growth.
His colleagues wish him well.
<PAGE> 1
EXHIBIT 21
----------
COMPUTER TASK GROUP, INCORPORATED
---------------------------------
Subsidiaries of Computer Task Group, Incorporated.
<PAGE> 2
SUBSIDIARIES OF COMPUTER TASK GROUP, INCORPORATED
-------------------------------------------------
The following is a list of all of the subsidiaries of the Registrant as of
December 31, 1995. All financial statements of such subsidiaries are included
in the consolidated financial statements of the Registrant, and all of the
voting securities of each subsidiary are wholly-owned by the Registrant:
<TABLE>
<CAPTION>
State/Country
or Jurisdiction
of Incorporation
----------------
<S> <C>
- - Computer Task Group of Delaware, Inc. Delaware
- - Computer Task Group (Holdings) Ltd. United Kingdom
- - Computer Task Group of Kansas, Inc. (a subsidiary Missouri
of Computer Task Group (Holdings) Ltd.)
- - Computer Task Group of Canada, Inc. Canada
- - Computer Task Group International, Inc. Delaware
- - Computer Task Group Europe B.V. (a subsidiary The Netherlands
of Computer Task Group International, Inc.)
- - Computer Task Group (U.K.) Ltd. (a subsidiary United Kingdom
of Computer Task Group Europe B.V.)
- - Computer Task Group Nederland B.V. (a subsidiary The Netherlands
of Computer Task Group Europe B.V.)
- - Computer Task Group Belgium N.V. (a subsidiary Belgium
of Computer Task Group Europe B.V.)
- - Rendeck Macro-4 Software B.V. (a subsidiary The Netherlands
of Computer Task Group Europe B.V.)
</TABLE>
<PAGE> 1
EXHIBIT 23
----------
COMPUTER TASK GROUP, INCORPORATED
---------------------------------
Consents of Independent Accountants.
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements No.
33-41995, No. 33-61493 and No. 33-50160 on Form S-8 of Computer Task Group,
Incorporated of our report dated February 9, 1996 which appears on page 25 of
the 1995 Annual Report to Shareholders, which is incorporated by reference in
Computer Task Group, Incorporated's Annual Report on Form 10-K for the year
ended December 31, 1995. We also consent to the incorporation by reference of
our report on the Financial Statement Schedule, which appears on page IV-3 of
such Annual Report on Form 10-K.
KPMG PEAT MARWICK LLP
Buffalo, New York
March 22, 1996
<PAGE> 3
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-41995 and No. 33-50160) of Computer Task Group,
Incorporated of our report dated February 10, 1995 appearing on page IV-2
included in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report on the Financial Statement Schedule,
which appears on page IV-4 of this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Buffalo, New York
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 16,545,000
<SECURITIES> 0
<RECEIVABLES> 59,408,000
<ALLOWANCES> 862,000
<INVENTORY> 0
<CURRENT-ASSETS> 78,769,000
<PP&E> 51,922,000
<DEPRECIATION> 33,941,000
<TOTAL-ASSETS> 104,766,000
<CURRENT-LIABILITIES> 29,260,000
<BONDS> 5,929,000
<COMMON> 133,000
0
0
<OTHER-SE> 61,343,000
<TOTAL-LIABILITY-AND-EQUITY> 104,766,000
<SALES> 0
<TOTAL-REVENUES> 339,407,000
<CGS> 0
<TOTAL-COSTS> 249,123,000
<OTHER-EXPENSES> 77,534,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,328,000
<INCOME-PRETAX> 12,041,000
<INCOME-TAX> 1,265,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,776,000
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
</TABLE>
