<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
Commission file number 1-9410
COMPUTER TASK GROUP, INCORPORATED
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-0912632
- ------------------------ ---------------------------------
(State of incorporation) (IRS Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 882-8000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding:
Shares outstanding
Title of each class at March 31, 2000
------------------- ------------------
Common stock, par value
$.01 per share 20,875,056
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, MARCH 26,
2000 1999
-------- --------
(amounts in thousands,
except per share data)
<S> <C> <C>
Revenue $95,995 $116,618
Direct costs 69,516 78,197
Selling, general and administrative expenses 27,877 30,405
Restructuring charge 5,695 --
------- --------
Operating income (loss) (7,093) 8,016
Interest and other income 50 432
Interest and other expense (832) (252)
------- --------
Income (loss) before income taxes (7,875) 8,196
Provision (benefit) for income taxes (3,104) 3,497
------- --------
Net income (loss) $(4,771) $ 4,699
======= ========
Net income (loss) per share:
Basic $ (0.30) $ 0.29
======= ========
Diluted $ (0.29) $ 0.28
======= ========
Weighted average shares outstanding:
Basic 16,076 16,424
Diluted 16,259 16,827
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 3
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
(Unaudited) (Audited)
(amounts in thousands)
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------------------
Current Assets:
Cash and temporary cash investments $ 8,931 $ 10,684
Accounts receivable, net of allowances and reserves 79,498 80,773
Prepaids and other 3,601 2,821
Deferred income taxes 2,977 3,041
- -----------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 95,007 97,319
Property and equipment, net of
accumulated depreciation and amortization 13,553 13,483
Acquired intangibles, net of accumulated amortization
of $10,865,000 and $9,151,000, respectively 82,112 84,008
Deferred income taxes 3,739 3,685
Other assets 645 664
- -----------------------------------------------------------------------------------------------------
TOTAL ASSETS $195,056 $199,159
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 10,299 $ 10,834
Accrued compensation 21,530 27,567
Income taxes payable 6,257 10,423
Advance billings on contracts 712 761
Other current liabilities 13,731 12,532
- -----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 52,529 62,117
Long-term debt 41,680 31,380
Deferred compensation benefits 9,982 9,953
Other long-term liabilities 762 785
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 104,953 104,235
Shareholders' Equity:
Common stock, par value $.01 per share, 150,000,000
shares authorized; 27,017,824 shares issued 270 270
Capital in excess of par value 111,461 110,895
Retained earnings 77,275 82,046
Less: Treasury stock of 6,142,768 and 6,141,823 shares, at cost (31,300) (31,279)
Stock Trusts of 4,760,808 and 4,823,173 shares, at cost (61,040) (61,306)
Unearned portion of restricted stock to related parties (36) (43)
Other comprehensive income:
Foreign currency adjustment (5,654) (4,786)
Minimum pension liability adjustment (873) (873)
- -----------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (6,527) (5,659)
- -----------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 90,103 94,924
- -----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $195,056 $199,159
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
COMPUTER TASK GROUP, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, MARCH 26,
2000 1999
---------- --------
(amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,771) $ 4,699
Adjustments:
Depreciation expense 1,159 1,063
Amortization expense 1,822 434
Deferred compensation expense 29 91
Changes in assets and liabilities,
net of assets acquired and liabilities assumed:
(Increase) decrease in accounts receivable 439 (11,022)
Increase in prepaids and other (829) (384)
Decrease in deferred income taxes 10 6
Decrease in other assets 19 109
Decrease in accounts payable (324) (1,230)
Decrease in accrued compensation (6,025) (259)
Increase (decrease) in income taxes payable (3,938) 2,511
Increase (decrease) in advance billings on contracts (49) 474
Increase in other current liabilities 1,268 819
Increase (decrease) in other long-term liabilities (23) 6
-------- --------
Net cash used in operating activities (11,213) (2,683)
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisition -- (86,775)
Additions to property and equipment (1,304) (1,690)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,304) (88,465)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Short-term borrowings, net -- 44,300
Proceeds from long-term revolving debt, net 10,300 --
Proceeds from Employee Stock Purchase Plan 255 279
Purchase of stock for treasury (21) (12)
Purchase of stock by Stock Trusts -- (949)
Proceeds from other stock plans, inclusive of related tax benefit 584 930
-------- --------
Net cash provided by financing activities 11,118 44,548
- -------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and temporary cash investments (354) (781)
-------- --------
Net decrease in cash and temporary cash investments (1,753) (47,381)
Cash and temporary cash investments at beginning of year 10,684 57,748
- -------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of quarter $ 8,931 $ 10,367
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
COMPUTER TASK GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Financial Statements
The consolidated financial statements included herein reflect, in the
opinion of the management of Computer Task Group, Incorporated ("CTG" or "the
Company"), all normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows for the periods
presented.
2. Basis of Presentation
The consolidated financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC). Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the SEC rules and
regulations. Management believes that the information and disclosures provided
herein are adequate to present fairly the financial position, results of
operations and cash flows of the Company. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's latest Annual
Report on Form 10-K filed with the SEC.
3. Comprehensive Income
At March 31, 2000, accumulated other comprehensive income totaled
$(6,527,000), including an adjustment of $(868,000) related to foreign currency
translation made in the first quarter of 2000.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE QUARTER ENDED MARCH 31, 2000
Forward-Looking Statements
Statements included in this Management's Discussion and Analysis of
Results of Operations and Financial Condition and elsewhere in this document
that do not relate to present or historical conditions are "forward-looking
statements" within the meaning of that term in Section 27A of the Securities Act
of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934,
as amended. Additional oral or written forward-looking statements may be made by
the Company from time to time, and such statements may be included in documents
that are filed with the Securities and Exchange Commission. Such forward-looking
statements involve risks and uncertainties that could cause results or outcomes
to differ materially from those expressed in such forward-looking statements.
Forward-looking statements may include, without limitation, statements relating
to the Company's plans, strategies, objectives, expectations and intentions and
are intended to be made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts,"
"intends," "possible," "expects," "estimates," "anticipates," or "plans" and
similar expressions are intended to identify forward-looking statements. Among
the important factors on which such statements are based are assumptions
concerning the anticipated growth of the information technology industry, the
continued need of current and prospective customers for the Company's services,
the availability of qualified professional staff, and price and wage inflation.
Results of Operations
To better understand the financial trends of the Company, the following
table sets forth data as contained on the consolidated statements of operations,
with the information calculated as a percentage of consolidated revenues.
<TABLE>
<CAPTION>
Quarter ended: March 31, March 26,
(percentage of revenue) 2000 1999
- ----------------------- --------- ---------
<S> <C> <C>
Revenue 100.0% 100.0%
Direct costs 72.4% 67.1%
Selling, general, and administrative expenses 29.1% 26.0%
Restructuring charge 5.9% --
- ------------------------------------------------------------------------------------
Operating income (loss) (7.4)% 6.9%
Interest and other income (expense), net (0.8)% 0.1%
- -----------------------------------------------------------------------------------
Income (loss) before income taxes (8.2)% 7.0%
Provision (benefit) for income taxes (3.2)% 3.0%
- -----------------------------------------------------------------------------------
Net income (loss) (5.0)% 4.0%
===== =====
</TABLE>
6
<PAGE> 7
CTG recorded first quarter 2000 revenue of $96.0 million, a decrease of
17.7 percent when compared to first quarter 1999 revenue of $116.6 million. The
quarter to quarter revenue decrease is a result of revenue generated from the
completion of year 2000 remediation services in 1999, and an industry-wide
slowdown in demand for services in 2000. North American revenue decreased by
$19.6 million or 20.3 percent in 2000 as compared to 1999, while revenue from
European operations decreased by $1.0 million, or 5.3 percent.
The 1999 to 2000 quarter-to-quarter revenue decline was impacted by the
strengthening of the U.S. dollar as compared to the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no
change in these foreign currency exchanges rates from the first quarter of 1999
to 2000, total consolidated revenues would have been $2.3 million higher,
resulting in a quarter-to-quarter consolidated revenue decline of 15.7 percent.
This additional $2.3 million increase in revenue in Europe would have increased
the European revenue growth rate to 6.5 percent.
In March 2000, the Company renewed a contract with IBM for six months
as one of IBM's national technical service providers for the United States. In
the first quarter of 2000, IBM continued to be the Company's largest customer,
accounting for $27.1 million or 28.2 percent of total revenue as compared to
$34.3 million or 29.4 percent of first quarter 1999 revenue. Although revenues
from IBM have been constrained in 2000, CTG expects to continue to derive a
significant portion of its revenue from IBM throughout the remainder of 2000 and
in future years. While the decline in revenue from IBM has had an adverse effect
on the Company's revenues and profits, the Company believes a simultaneous loss
of all IBM business is unlikely to occur due to the existence of the national
contract, the diversity of the projects performed for IBM, and the number of
locations and divisions involved.
Direct costs, defined as costs for billable staff, were 72.4 percent of
revenue in the first quarter of 2000 as compared to 67.1 percent of first
quarter 1999 revenue. The increase in direct costs as a percentage of revenue in
2000 as compared to 1999 is primarily due to the IT services industry spending
slowdown mentioned above and the retention of a higher percentage of
non-billable staff in 2000 in anticipation of the IT services market recovering.
Selling, general and administrative expenses were 29.1 percent of
revenue in the first quarter of 2000 as compared to 26.0 percent of revenue in
the first quarter of 1999. While selling, general and administrative expenses
decreased year over year, the increase as a percentage of revenue from 1999 to
2000 is primarily due to the revenue decline discussed above, and a continued
strategic investment in e-business and enterprise wide solutions. Additionally,
goodwill amortization expense related to the acquisition of Elumen Solutions,
Inc. (Elumen) increased selling, general and administrative expense year over
year.
In the first quarter of 2000, the Company recorded an after-tax
restructuring charge of $3.8 million, or $0.23 per diluted share. On a pre-tax
basis, the charge was $5.7 million, and consisted primarily of severance and
related costs of $4.2 million for approximately 400 employees, costs associated
with the consolidation of facilities of $0.7 million, and $0.8 million for other
exit costs related to the restructuring plan. At March 31, 2000, approximately
$3.7 million of the total charge of $5.7 million is included in other current
liabilities on the consolidated balance sheet. The Company expects to complete
its restructuring plan within the next twelve months.
Operating income (loss) was (7.4) percent of revenue in 2000 compared
to 6.9 percent of revenue in 1999. The quarter-to-quarter decrease is primarily
due to the factors discussed above. Excluding the restructuring charge, the
operating loss from North American operations was $2.3 million, while European
operations recorded operating income of $0.9 million.
7
<PAGE> 8
Interest and other income (expense) was $(0.8) million in 2000 and $0.2
million in 1999. The decrease is due to additional interest expense on
indebtedness associated with the acquisition of Elumen, which occurred late in
the first quarter of 1999.
Income (loss) before income taxes was (8.2) percent of revenue in the
first quarter of 2000 as compared to 7.0 percent of revenue in 1999. The
provision (benefit) for income taxes was (39.4) percent in 2000 and 42.7 percent
in 1999.
Net income (loss) for the first quarter of 2000 was (5.0) percent of
revenue or $(0.29) per diluted share, compared to 4.0 percent of revenue or
$0.28 per diluted share in 1999. Diluted earnings per share were calculated
using 16.3 million and 16.8 million equivalent shares outstanding in 2000 and
1999, respectively.
Financial Condition
Cash used in operating activities was $11.2 million for the first
quarter. Net loss totaled $4.8 million, and non-cash adjustments for
depreciation expense, amortization expense, and deferred compensation expense
totaled $3.0 million. Accounts receivable decreased $0.4 million as compared to
December 31, 1999, as a result of a decrease in revenue, offset by slower
accounts receivable turnover in the first quarter of 2000. Prepaid and other
assets increased $0.8 million due to payments made in the first quarter of 2000
that will be amortized throughout the remainder of the year. Accounts payable
decreased $0.3 million primarily due to the timing of certain payments. Accrued
compensation decreased $6.0 million due to the timing of the U.S. biweekly
payroll and fewer total employees. Income taxes payable decreased $3.9 million
due to the taxable loss incurred in the first quarter of 2000. Other current
liabilities increased $1.3 million, primarily due to the restructuring charge
recorded in the first quarter of 2000.
Net property and equipment increased $0.1 million. Additions to
property and equipment were $1.3 million, offset by depreciation expense of $1.2
million. The Company has no material commitments for capital expenditures at
March 31, 2000.
Financing activities provided $11.1 million of cash in the first
quarter of 2000. Net proceeds from long-term revolving debt totaled $10.3
million. The Company received $0.3 million from employees for stock purchased
under the Employee Stock Purchase Plan, and $0.6 million from other stock plans,
inclusive of the related tax benefit.
At March 31, 2000, including unsecured lines of credit, the Company had
approximately $132.0 million in total credit, of which $41.7 million was
outstanding.
On October 26, 1994, the Company authorized the repurchase of 2.0
million shares and on July 21, 1995 authorized the repurchase of another 1.4
million shares of its Common Stock. At March 31, 2000, approximately 3.2 million
shares have been repurchased under the authorizations, leaving 0.2 million
shares authorized for future purchases.
The Company believes existing internally available funds, cash
generated by operations, and available borrowings will be sufficient to meet
foreseeable working capital, stock repurchase and capital expenditure
requirements and to allow for future internal growth and expansion.
8
<PAGE> 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters To A Vote of Security Holders
The annual meeting of shareholders was held on April 26, 2000,
at the Company's Headquarters, 800 Delaware Avenue, Buffalo,
New York at 10:00 a.m.
The Company submitted for shareholder approval the election of
Class II and III directors, and to approve and ratify the
adoption by the Board of Directors of the Computer Task Group,
Incorporated Equity Award Plan, and to authorize for issuance
2,000,000 shares of the Company's Common Stock to be used for
awards thereunder.
Election of Directors
o Two Class II directors (George B. Beitzel and Richard
L. Crandall) were elected to hold office for two
years until the 2002 annual meeting of shareholders
and until their successors are elected and qualified,
and two Class III directors (Gale S. Fitzgerald and
Barbara Z. Shattuck) were elected to hold offices for
three years until the 2003 annual meeting of
shareholders and until their successors are elected
and qualified. The results of the voting are as
follows:
<TABLE>
<CAPTION>
Total Vote Total Vote
Class II Directors For Against
------------------ ---------- -----------
<S> <C> <C>
George B. Beitzel 18,670,373 511,436
Richard L. Crandall 18,884,620 297,189
Total Vote Total Vote
Class III Directors For Against
------------------- ---------- -----------
Gale S. Fitzgerald 18,860,992 320,817
Barbara Z. Shattuck 18,880,401 301,408
</TABLE>
o The Class I directors of the Company, whose terms of
office extend until the 2001 annual meeting of
shareholders and until their successors are elected
and qualified, are Randolph A. Marks and R. Keith
Elliott.
Computer Task Group, Incorporated Equity Award Plan
Total Vote For 12,501,348
Total Vote Against 3,778,212
Total Votes Abstained 81,336
Broker Non-Votes 2,820,913
9
<PAGE> 10
Item 6. Exhibits And Reports On Form 8-K
<TABLE>
<CAPTION>
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
11. Statement re: computation of earnings per share 11
27. a.) Financial Data Schedule - March 31, 2000 12
b.) Financial Data Schedule - March 26, 1999 13
</TABLE>
* * * * * * *
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER TASK GROUP, INCORPORATED
By: /s/ James R. Boldt
--------------------------------------------------
James R. Boldt
Principal Accounting and
Financial Officer
Title: Vice President and Chief Financial Officer
Date: May 12, 2000
10
<PAGE> 1
EXHIBIT 11
COMPUTER TASK GROUP, INCORPORATED
COMPUTATION OF DILUTED EARNINGS PER SHARE
UNDER THE TREASURY STOCK METHOD SET FORTH IN
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128
"EARNINGS PER SHARE"
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31, MARCH 26,
2000 1999
--------- ---------
<S> <C> <C>
Weighted-average number of shares outstanding during period 16,076 16,424
Common Stock equivalents -
Incremental shares under stock options plans 183 403
-------- -------
Number of shares on which diluted earnings per share is based 16,259 16,827
======== =======
Net income (loss) for the period $ (4,771) $ 4,699
======== =======
Diluted earnings (loss) per share $ (0.29) $ 0.28
======== =======
Basic earnings (loss) per share $ (0.30) $ 0.29
======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 8,931,000
<SECURITIES> 0
<RECEIVABLES> 81,744,000
<ALLOWANCES> 2,246,000
<INVENTORY> 0
<CURRENT-ASSETS> 95,007,000
<PP&E> 40,495,000
<DEPRECIATION> 26,942,000
<TOTAL-ASSETS> 195,056,000
<CURRENT-LIABILITIES> 52,529,000
<BONDS> 0
0
0
<COMMON> 270,000
<OTHER-SE> 89,833,000
<TOTAL-LIABILITY-AND-EQUITY> 195,056,000
<SALES> 0
<TOTAL-REVENUES> 95,995,000
<CGS> 0
<TOTAL-COSTS> 69,516,000
<OTHER-EXPENSES> 33,572,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 653,000
<INCOME-PRETAX> (7,875,000)
<INCOME-TAX> (3,104,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,771,000)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.29)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000023111
<NAME> COMPUTER TASK GROUP, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-26-1999
<CASH> 10,367,000
<SECURITIES> 0
<RECEIVABLES> 94,873,000
<ALLOWANCES> 1,169,000
<INVENTORY> 0
<CURRENT-ASSETS> 110,302,000
<PP&E> 43,769,000
<DEPRECIATION> 28,941,000
<TOTAL-ASSETS> 215,772,000
<CURRENT-LIABILITIES> 114,053,000
<BONDS> 0
0
0
<COMMON> 270,000
<OTHER-SE> 89,998,000
<TOTAL-LIABILITY-AND-EQUITY> 215,772,000
<SALES> 0
<TOTAL-REVENUES> 116,618,000
<CGS> 0
<TOTAL-COSTS> 78,197,000
<OTHER-EXPENSES> 30,405,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 243,000
<INCOME-PRETAX> 8,196,000
<INCOME-TAX> 3,497,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,699,000
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.28
</TABLE>
