-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EroLGcLSs8HDWG2KF8NGB5TkymiV+zujicU04VKJzWoZSzVxSukocPk9rPlBqvNI OGWmH+Pk03mR0JFvG4dAyA== 0000950152-98-006510.txt : 19980812 0000950152-98-006510.hdr.sgml : 19980812 ACCESSION NUMBER: 0000950152-98-006510 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980626 FILED AS OF DATE: 19980810 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER TASK GROUP INC CENTRAL INDEX KEY: 0000023111 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 160912632 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09410 FILM NUMBER: 98681032 BUSINESS ADDRESS: STREET 1: 800 DELAWARE AVE CITY: BUFFALO STATE: NY ZIP: 14209 BUSINESS PHONE: 7168828000 MAIL ADDRESS: STREET 1: 800 DELAWARE AVE CITY: BUFFALO STATE: NY ZIP: 14209 FORMER COMPANY: FORMER CONFORMED NAME: MARKS BAER INC DATE OF NAME CHANGE: 19690128 10-Q 1 COMPUTER TASK GROUP, INCORPORATED 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 JUNE 26, 1998 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 June 26, 1998 ------------------- ------------------ Common stock, par value $.01 per share 20,750,003 2 PART I. FINANCIAL INFORMATION ----------------------------- ITEM 1. FINANCIAL STATEMENTS COMPUTER TASK GROUP, INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
QUARTER ENDED TWO QUARTERS ENDED JUNE 26, JUNE 27, JUNE 26, JUNE 27, 1998 1997 1998 1997 --------- --------- -------- -------- (amounts in thousands, except per share data) Revenue $ 117,646 $ 100,105 $ 227,329 $ 195,040 Direct costs 80,472 70,579 156,546 138,814 Selling, general and administrative expenses 27,359 22,183 52,579 43,059 --------- --------- --------- --------- Operating income 9,815 7,343 18,204 13,167 Interest and other income 244 469 500 948 Interest and other expense (171) (92) (211) (279) --------- --------- --------- --------- Income before income taxes 9,888 7,720 18,493 13,836 Provision for income taxes 4,054 3,235 7,582 5,682 --------- --------- --------- --------- Net income $ 5,834 $ 4,485 $ 10,911 $ 8,154 ========= ========= ========= ========= Net income per share: Basic $ 0.36 $ 0.27 $ 0.68 $ 0.48 ========= ========= ========= ========= Diluted $ 0.34 $ 0.26 $ 0.64 $ 0.46 ========= ========= ========= ========= Weighted average shares outstanding: Basic 16,196 16,732 16,151 16,867 Diluted 16,939 17,582 16,968 17,674 Cash dividend per share $ 0.05 $ 0.05 $ 0.05 $ 0.05
The accompanying notes are an integral part of these consolidated financial statements. 2 3 COMPUTER TASK GROUP, INCORPORATED CONSOLIDATED BALANCE SHEETS
JUNE 26, DECEMBER 31, 1998 1997 -------------- ------------ (Unaudited) (Audited) (amounts in thousands) ASSETS - ------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and temporary cash investments $ 18,325 $ 25,033 Accounts receivable, net of allowance for doubtful accounts of $951,000 81,584 60,176 Prepaids and other 3,217 2,420 Deferred income taxes 1,108 1,244 - ------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 104,234 88,873 Property and equipment, net of accumulated depreciation and amortization 13,216 12,445 Acquired intangibles, net of accumulated amortization of $6,431,000 and $6,124,000, respectively 2,947 3,280 Deferred income taxes 2,725 2,546 Other assets 1,127 597 - ------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 124,249 $ 107,741 ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------- Current Liabilities: Accounts payable $ 12,922 $ 9,207 Accrued compensation 21,644 21,641 Income taxes payable 5,394 4,620 Advance billings on contracts 533 1,158 Other current liabilities 5,467 5,145 - ------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 45,960 41,771 Deferred compensation benefits 10,003 9,752 Other long-term liabilities 739 892 - ------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 56,702 52,415 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 190,311 216,028 Retained earnings 53,038 42,939 Less: Treasury stock of 6,267,821 and 6,267,289 shares, at cost (31,795) (31,773) Stock Employee Compensation Trust of 4,549,495 and 4,693,948 shares, at fair value (139,044) (166,929) Foreign currency adjustment (3,182) (3,206) Minimum pension liability adjustment (1,915) (1,915) Loans to related parties (54) (54) Unearned portion of restricted stock to related parties (82) (34) - ------------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 67,547 55,326 - ------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 124,249 $ 107,741 ========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 COMPUTER TASK GROUP, INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
TWO QUARTERS ENDED JUNE 26, JUNE 27, 1998 1997 --------- ---------- (amounts in thousands) Cash flows from operating activities: Net income $ 10,911 $ 8,154 Adjustments: Depreciation and amortization expense 2,378 2,526 Deferred compensation expense 251 322 Changes in assets and liabilities: Increase in accounts receivable (21,437) (6,114) Increase in prepaids and other (802) (643) (Increase) decrease in deferred income taxes (43) 81 Increase in other assets (530) (184) Increase in accounts payable 3,805 4,090 Decrease in accrued compensation (18) (824) Increase in income taxes payable 771 419 Decrease in advance billings on contracts (625) (1,169) Increase in other current liabilities 350 1,287 Decrease in other long-term liabilities (152) (158) --------- ---------- Net cash provided by (used in) operating activities (5,141) 7,787 - ------------------------------------------------------------------------------------------------------------------- Cash flows used in investing activities - additions to property and equipment (2,836) (1,893) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from Employee Stock Purchase Plan 766 468 Purchase of stock for treasury (22) (118) Purchase of stock by Stock Employee Compensation Trust (1,617) (7,114) Proceeds from other stock plans, inclusive of related tax benefit 2,971 1,800 Dividends paid (812) (837) --------- ---------- Net cash provided by (used in) financing activities 1,286 (5,801) - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and temporary cash investments (17) (82) --------- ---------- Net increase (decrease) in cash and temporary cash investments (6,708) 11 Cash and temporary cash investments at beginning of year 25,033 41,516 - ------------------------------------------------------------------------------------------------------------------- Cash and temporary cash investments at end of quarter $ 18,325 $ 41,527 ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 COMPUTER TASK GROUP, INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Financial Statements The consolidated financial statements included herein reflect, in the opinion of the management of Computer Task Group, Incorporated (the Company), all normal recurring adjustments necessary to present fairly the financial position, results of operations and 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 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 During the first quarter of 1998, the Company adopted the Provisions of Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," as they apply to interim reporting periods. For the first two quarters of 1998, comprehensive income totaled $10,935,000, including $24,000 related to foreign currency adjustments. 5 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE QUARTER AND TWO QUARTERS ENDED JUNE 26, 1998 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 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 needs of current and prospective customers for the Company's services, the availability of qualified professional staff, and price and wage inflation. Results of Operations - --------------------- CTG recorded second quarter 1998 revenue of $117.6 million, the highest in the Company's history, and an increase of 17.5 percent when compared to second quarter 1997 revenue of $100.1 million. CTG recorded year-to-date 1998 revenue of $227.3 million, an increase of 16.6 percent when compared to year-to-date 1997 revenue of $195 million. In the second quarter of 1998, as compared to 1997, North American revenue increased by $11.8 million, or 13.2 percent, while revenue from European operations increased by $5.7 million, or 51.9 percent. The year-to-date 1998 consolidated revenue increase as compared to year-to-date 1997 is mainly due to the Company providing higher value added services to its customers, billing rate adjustments and additional billable personnel. The 1997 to 1998 second quarter-to-quarter revenue growth rate was negatively impacted by the strength of the U.S. dollar. If there had been no change in the foreign currency exchange rates from the second quarter of 1997 to the second quarter of 1998, total consolidated revenues would have increased by an additional $0.7 million, resulting in a quarter-to-quarter consolidated revenue growth rate of 18.2 percent. This $0.7 million of additional revenue in Europe would have increased the European revenue growth rate to 58.3 percent. 6 7 In December 1997, the Company renewed a contract with IBM for three additional years as one of IBM's national technical service providers for the United States. In the second quarter of 1998, IBM continued to be the Company's largest customer accounting for $38.9 million or 33.1 percent of total revenue as compared to $36 million or 35.9 percent of the second quarter 1997 revenue. The Company expects to continue to derive a significant portion of its revenue from IBM throughout 1998 and in future years. While a significant decline in revenue from IBM would have a material 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 recent renewal of the national contract, the number of other contracts presently in existence with IBM, 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 $80.5 million or 68.5 percent of revenue in the second quarter of 1998 as compared to $70.6 million or 70.5 percent of second quarter 1997 revenue. Direct costs were 68.9 percent of year-to-date 1998 revenue as compared to 71.2 percent of year-to-date 1997 revenue. The decrease in direct costs as a percentage of revenue in 1998 as compared to 1997 is also primarily due to a trend toward higher value added services and billing rate adjustments. Selling, general and administrative (SG&A) expenses were $27.4 million or 23.3 percent of revenue in the second quarter of 1998 as compared to $22.2 million or 22.2 percent of revenue in the second quarter of 1997. SG&A expenses were 23.1 percent of year-to-date 1998 revenue, as compared to 22.1 percent of year-to-date 1997 revenue. The increase as a percentage of revenue from 1997 to 1998 is primarily due to an investment in 1998 in sales and marketing, recruiting, and training programs. Operating income was $9.8 million or 8.3 percent of revenue in the second quarter of 1998 as compared to $7.3 million or 7.3 percent of revenue in the second quarter of 1997. Operating income was 8 percent of year-to-date 1998 revenue, as compared to 6.8 percent of year-to-date 1997 revenue. The increase is primarily due to the factors discussed above. Operating income from North American operations for the second quarter increased $2.3 million or 38.1 percent from 1997 to 1998. European operations recorded operating income of $1.5 and $1.3 million in the second quarter of 1998 and 1997, respectively. Interest and other income decreased $0.4 million to $0.5 in 1998 from $0.9 million in 1997. The decrease was a result of the Company utilizing a large portion of its available cash and temporary cash investment balances in the fourth quarter of 1997 to purchase the Company's stock through the Stock Employee Compensation Trust (SECT). Income before income taxes increased by $2.2 million from $7.7 million or 7.7 percent of revenue in the second quarter of 1997 to $9.9 million or 8.4 percent of second quarter revenue in 1998, and by $4.7 million from $13.8 million or 7.1 percent of year-to-date 1997 revenue to $18.5 million or 8.1 percent of year-to-date 1998 revenue. The provision for income taxes was 41 percent in both 1998 and 1997. Net income for the second quarter of 1998 was $5.8 million or $0.34 per diluted share, compared to $4.5 million or $0.26 per diluted share in 1997. Net income for the year-to-date 1998 period was $10.9 million or $0.64 per diluted share, compared to $8.2 million or $0.46 per diluted share. Diluted earnings per share for the second quarter was calculated using 16.9 million and 17.6 million weighted average shares outstanding in 1998 and 1997, respectively. The decrease in weighted average shares outstanding is primarily due to the purchase of the Company's stock in 1997 through the SECT, as mentioned above, offset by the dilutive effect of outstanding stock options on the earnings per share calculation. 7 8 Financial Condition - ------------------- Cash used by operations was $5.1 million for the first two quarters of 1998. Net income totaled $10.9 million, and non-cash adjustments for depreciation and amortization expense and deferred compensation expense totaled $2.6 million. As compared to December 31, 1997, accounts receivable increased $21.4 million as a result of an increase in revenue and slower accounts receivable turnover. Prepaid assets increased $0.8 million due to the prepayment of items that will be expensed throughout the remainder of 1998 and 1999. Accounts payable increased $3.8 million due to the timing of certain payments. Income taxes payable increased $0.8 million due to an increase in taxable income. Advance billings on contracts decreased $0.6 million due to the mix of contracts outstanding at June 26, 1998, as compared to December 31, 1997. Net property and equipment increased $0.8 million. Additions to property and equipment were $2.8 million offset by depreciation of $2.1 million and $0.1 million in translation adjustments. The Company has no material commitments for capital expenditures at June 26, 1998. Net acquired intangibles decreased $0.3 million, caused by amortization of $0.3 million. Financing activities provided $1.3 million of cash in the first two quarters of 1998. The Company received $3.0 million for the exercise of stock options, inclusive of the related tax benefit. The Company also received $0.8 million from employees for 21,000 shares of stock purchased under the Employee Stock Purchase Plan. The Company's Stock Employee Compensation Trust purchased 50,000 shares of stock for $1.6 million, and the Company paid an annual dividend of $812,000 to shareholders on a $0.05 per share basis. At June 26, 1998, the Company's current ratio is 2.3 to 1. The Company has approximately $53 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 two million shares and on July 21, 1995 authorized the repurchase of another 1.4 million shares of its Common Stock. At June 26, 1998, approximately 2.5 million shares have been repurchased under the authorizations, leaving 0.9 million shares authorized for future purchases. 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. 8 9 PART II. OTHER INFORMATION -------------------------- Item 6. Exhibits And Reports On Form 8-K --------------------------------
Exhibit Description Page ------- ----------- ---- 11. Statement re: computation of earnings per share 10 27. a.) Financial Data Schedule - June 26, 1998 12 b.) Financial Data Schedule - June 27, 1997 - RESTATED 13
* * * * * * * SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMPUTER TASK GROUP, INCORPORATED By: /s/ James R. Boldt -------------------- James R. Boldt Principal Accounting and Financial Officer Title: Vice President - Finance Date: August 10, 1998 9 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 ---------- COMPUTER TASK GROUP, INCORPORATED --------------------------------- Computation of diluted earnings per share under treasury stock method set forth in Statement of Financial Accounting Standards No. 128, "Earnings Per Share." 10 2 COMPUTATION OF DILUTED EARNINGS PER SHARE UNDER TREASURY STOCK METHOD SET FORTH IN STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER SHARE" (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED TWO QUARTERS ENDED JUNE 26, JUNE 27, JUNE 26, JUNE 27, 1998 1997 1998 1997 ------ ------ ------ ------ Weighted-average number of shares outstanding during period 16,196 16,742 16,151 16,805 Add Common Stock equivalents - incremental shares under stock option plans 743 840 817 869 ------ ------ ------ ------ Number of shares on which diluted earnings per share is based 16,939 17,582 16,968 17,674 ====== ====== ====== ====== Net income for the period $5,834 $4,485 $10,911 $8,154 Diluted earnings per share $ 0.34 $ 0.26 $ 0.64 $ 0.46 Basic earnings per share $ 0.36 $ 0.27 $ 0.68 $ 0.48
11 EX-27.A 3 EXHIBIT 27.A
5 0000023111 COMPUTER TASK GROUP, INC. 6-MOS DEC-31-1997 JAN-01-1997 JUN-26-1998 18,325,000 0 82,535,000 951,000 0 104,234,000 39,598,000 26,382,000 124,249,000 45,960,000 0 0 0 270,000 67,277,000 124,249,000 0 227,329,000 0 156,546,000 52,579,000 0 32,000 18,493,000 7,582,000 0 0 0 0 10,911,000 0.68 0.64
EX-27.B 4 EXHIBIT 27.B
5 0000023111 COMPUTER TASK GROUP, INC. 6-MOS DEC-31-1997 JAN-01-1997 JUN-27-1997 41,527,000 0 61,934,000 955,000 0 106,741,000 39,883,000 27,852,000 125,907,000 42,507,000 0 0 0 270,000 72,840,000 125,907,000 0 195,040,000 0 138,814,000 43,059,000 0 116,000 13,836,000 5,682,000 0 0 0 0 8,154,000 0.48 0.46
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