EXHIBIT 13
COMPUTER TASK GROUP, INCORPORATED
ANNUAL REPORT TO SHAREHOLDERS
Company Profile
In 2002, CTG began our 37th year of delivering information technology (IT)
services that provide real business value to our customers. Our fully integrated
array of IT staffing, application management outsourcing, and industry-focused
IT solutions is backed by a time-tested suite of formal methodologies, a
proprietary database of best practices, and an international network of
strategic alliances and partnerships. Our 2,800 business and IT experts, based
in an international network of offices in North America and Europe, help our
clients use IT to achieve their business objectives.
Mission
CTG's mission is to provide IT services and solutions that add real business
value to our customers while creating professional opportunities for our
employees and value for our shareholders.
Vision
CTG's vision is to be recognized as a leading provider of value-added IT
services and solutions in our selected markets.
Table of Contents
1 Letter to Shareholders
4 Service Offering: IT Staffing - Strategic
6 Service Offering: IT Staffing - Flexible
8 Service Offering: IT Solutions - Development and Integration
10 Service Offering: IT Solutions - Consulting
12 Service Offering: Application Management Outsourcing
14 Consolidated Summary: Selected Financial Information
15 Management's Discussion and Analysis
20 Independent Auditors' Report
21 Consolidated Financial Statements
26 Notes to Consolidated Financial Statements
36 Corporate Information
37 CTG Board of Directors and Officers
Statements included 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
need of current and prospective customers for the Company's services, the
availability of qualified professional staff, and price and wage inflation.
Dear Fellow Shareholder:
2002 marked CTG's 37th year of business as an information technology (IT)
services and solutions provider and the third consecutive extraordinarily
difficult year for the company and the entire IT industry. CTG has weathered the
post-year 2000 technology fallout better than most competitors due to our
diverse business mix and client base and the strategy we adopted in mid-2001. At
that time, we responded prudently to the prolonged technology downturn by
adjusting costs to current revenues. Since then, we have managed our business to
achieve modest operating profitability, while maintaining the resources to serve
our current clients' needs and respond to new business opportunities. We also
realigned our service offerings and resources to focus our strengths on the
areas with the greatest long-term growth potential for CTG: IT staffing,
application management outsourcing (AMO), and IT solutions. We continued this
strategy into 2002, and it has proven to be an effective stay-in-the-game plan
for CTG.
24
Despite lower revenues in 2002--$263.3 million compared with $320.2 million in
2001--CTG increased its operating income in 2002 to $4.0 million from $0.4
million in 2001. CTG also continues to maintain a strong financial position and
ended 2002 with just $8.5 million in long-term debt. Our 2002 net income before
the cumulative effect of change in accounting principle was $1.4 million, or
$0.08 per diluted share. In 2002, there was a $37.0 million charge for the
cumulative effect of change in accounting principle related to our adoption of
Statement of Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other
Intangible Assets." Although this non-cash writedown was primarily related to
the healthcare IT services firm that we acquired in 1999, our healthcare IT
practice is generating approximately the same level of revenue and earnings now
as it did in 1999; and it is growing at an annual rate of nearly 20%, an
outstanding growth rate in the current IT services environment. Healthcare IT
represents a very strong sector of our business, and the decline in its
valuation is primarily due to the reduction in market value multiples that has
occurred industrywide over the last three years.
CTG's Market Approach
CTG's market approach combines comprehensive IT service offerings with
significant industry experience. We currently have three major horizontal
service offerings: IT staffing, application management outsourcing, and IT
solutions. We are focusing on four major vertical markets, which make up
approximately 55% of our current business. These vertical markets are technology
service providers, financial services, healthcare, and retail.
CTG's "weaving" of IT expertise with industry experience is a very meaningful
value proposition for our clients. Our deep understanding of our clients'
businesses and IT needs enables us to better respond to client requirements and
provide more effective technology support for their businesses. This approach
contributes to strong, long-term client relationships.
Market Opportunity for CTG
Most agree that growth in capital expenditures is needed for a full-fledged
recovery in the technology sector since almost half of all capital expenditures
are technology-based. There is some indication that this could begin to take
place in 2003, but it is too soon to say with certainty that we will see
meaningful growth in capital spending this year. That said, we do see pockets of
opportunity and some positive signs in our business. An increase in staffing
demand began in the third quarter of 2002, and staffing is usually the first
area of our business to recover from an economic slowdown.
CTG's horizontal offerings and vertical market focus do put us in a good
position to capitalize on positive market trends and emerging opportunities. The
demand for application management outsourcing services is expected to continue
rising due to cost efficiencies and clients' increased focus on their core
businesses. Current outsourcing demand is particularly strong in financial
services and healthcare, two significant vertical markets where CTG has
extensive experience.
The Health Insurance Portability and Accountability Act (HIPAA) remains a major
opportunity for CTG with a series of deadlines extending over the next few
years. In 2002, initial HIPAA compliance assessments exceeded our expectations.
In 2003, HIPAA remediation is expected to surpass last year's efforts, and the
ongoing potential for further monitoring and compliance should represent a
significant opportunity for our healthcare practice in the years to come. The
growing use of computerized physician order entry (CPOE) systems designed to
improve medical instructions and reduce physician error is also contributing to
rising healthcare IT services demand in the marketplace.
The increased focus on data security by corporate senior managements and boards
of directors is increasing market demand for security assessments and remedial
network security work. CTG significantly strengthened its capabilities in
e-security over the last 12 months, recognizing that e-security is needed by all
of our customers. We have a very solid foundation in e-security and continue to
expand our practice on a monthly basis.
Retail is another industry where CTG has significant experience and where the
potential exists for considerable new demand. Expansion of the U.S. Universal
Product Code (UPC) to 13 digits and the international UPC code to 14 digits by
2005 will drive demand for new point-of-sale (POS) systems and legacy system
remediation, as UPC codes are the centerpiece of most retail systems and affect
the entire supply chain. For now, the current major opportunity in retail IT for
CTG is in leveraging business intelligence to support direct marketing.
Technology service and solution providers represent a significant vertical
market for CTG. In a September 2001 paper, "Service Providers Become Dominant
Purchaser of IT Services," Gartner defined this market as "technology
aggregators"--firms that use a "value chain" of other IT service providers to
deliver IT solutions to their end customers looking to purchase external IT
support from a single or limited number of suppliers. CTG supports this market
by providing IT talent to supplement the internal resources of these large
technology service and solution providers. According to Gartner, nearly
three-fourths of IT service providers expect that it is "likely" to "very
likely" that this strategy (buying from other IT service providers) will become
a predominant buying pattern by 2005. IBM, our largest customer, is the best
example of the technology aggregator business model, and our significant
long-term relationship with IBM underscores our ability to effectively support
this growing market.
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Corporate Governance
2002 brought a sharper focus on corporate governance for public companies. CTG
does not anticipate the need to make significant changes to comply with the
Sarbanes-Oxley Act, as our board had already instituted many of the Act's
requirements. We have historically limited non-audit services provided by our
auditors and already have an independent audit committee with a financial expert
on the committee. With the expansion of CTG's board in April 2002, six of our
seven directors are independent. We added three outside directors with
background in key areas: marketing, academia, and significant corporate IT use.
Randy Clark, chairman of Dunn Tire Corporation, brings a marketing background to
provide insight into our sales and marketing function. Dr. John Palms, professor
of physics and former president of the University of South Carolina, contributes
an academic perspective to the board, adding valuable insight to the significant
portion of our healthcare business that focuses on university hospitals. As a
leader of a company that is a heavy technology user, Dan Sullivan, president and
CEO of FedEx Ground, affords the perspective of our target customer to CTG's
board. Our expanded board has been a valuable resource this year, as we have
been challenged by reduced corporate IT spending while still positioning the
company to take best advantage of areas where we are strongest and to respond to
market opportunity.
What's Ahead?
Ironically, it is a "best of times, worst of times" environment for our
business. Never has information technology been in a better place to enhance
business success. At the same time, the combinations of the tech bubble and
dot-com implosion and the prolonged economic downturn have made companies
reluctant to make significant new investments in technology. Given all that IT
has to offer business to enhance productivity and performance, IT spending will
eventually increase and return to more normal levels. Additionally, we continue
to see overcapacity in our industry being corrected, which will benefit service
providers like CTG that are still in the game.
During this very challenging period, CTG has done many things right
strategically, financially, and operationally to continue to be a viable
participant in our industry and to resume growth as market conditions improve.
Looking ahead, CTG's market approach, which weaves strong core horizontal
competencies with significant vertical market experience, enhances our ability
to capitalize on current market opportunities and any incremental improvements
in market demand for IT services. We continue to be confident that this strategy
is the right direction to again grow our business and enhance CTG's financial
performance and shareholder value.
James R. Boldt
Chairman and Chief Executive Officer
26
IBM For nearly 35 years, CTG has provided IBM, the world's largest technology
service provider, with a wide array of technical services. CTG's success at IBM
results from our ability to provide a high volume of talented employees and
quality service at competitive prices. We have the structure, processes, and
business model to help large clients such as IBM augment their IT staffs quickly
and reduce their IT services costs. This experience and approach positions CTG
to effectively support the growing number of large technology service providers
aggregating technology services from a variety of sources on behalf of their
clients.
In the mid-1990s, CTG was designated as a national technical services supplier
to IBM in both the United States and Canada. In addition to these national
contracts, CTG provides IT services to IBM in Belgium and the Netherlands, where
we are a core supplier; and in the United Kingdom. Our services include
supplemental staffing, consulting, operations management, help desk, desk-side
support, and training.
A CTG Client Since 1969
Service Offering IT Staffing - Strategic
Through our Strategic Staffing Service (SSS) offering, CTG recruits, retains,
and manages IT talent for organizations with multiple locations and high-volume
IT requirements. We use ISO 9001:2000-certified methodologies and
service-level-driven processes to transition client staff to CTG where
appropriate, manage customer relationships efficiently and cost-effectively, and
certify and supervise subcontractors. CTG's vendor management capability is
augmented by CTGExchangeTM, an integrated management tool that handles the full
cycle of procuring IT resources, from initial requisition to project completion.
SSS gives our clients the advantage of a sole-source provider that is closely
aligned with their strategic goals and able to deliver resources on a
companywide basis to achieve cost reduction, improved service, and a competitive
edge.
Elizabeth Fallon Relationship Manager, IBM
"CTG has expanded the range of support that we provide IBM to include education
services. I think that CTG's long and significant relationship with IBM really
comes down to our proven ability to respond quickly to their changing needs on a
very large scale."
Service Offering IT Staffing - Flexible
CTG's staff augmentation capabilities serve clients with intermittent or
low-volume staffing needs. Our services provide fast access to highly
specialized "niche" skills or those needed for relatively short periods of time.
CTG flexible staffing arrangements eliminate the costs associated with employee
recruitment, retention, and benefits, while giving clients the benefit of our
proprietary ISO 9001:2000-certified methodologies, tools, and techniques. Our
central requirements distribution and tracking center enables us to fulfill
customer requirements with the right professionals within two to 48 hours. That
flexibility, backed by in-depth experience and a willingness to adapt to client
preferences, has earned us the position of preferred staffing vendor at numerous
companies across North America and Europe.
Ann Ryngaert Account Executive, KBC
"CTG helps our clients even out the peaks and valleys of a variable IT workload.
We also provide in-demand skills to supplement our clients' staffs quickly and
cost-effectively."
KBC Banking & Insurance CTG's European operation has provided IT staffing and
solutions services to KBC Banking & Insurance, one of the top three financial
groups in Belgium, for seven years. We supply KBC with experienced IT
professionals who perform application development and maintenance, software
analysis, testing services, IT support, and project management.
KBC relies on CTG to locate highly qualified consultants with specific skills
and expertise, on an as-needed basis. Because CTG has access to a significant
pool of IT talent and is committed to fully understanding KBC's business, we are
able to deliver to requirements and help KBC meet its technology needs in an
expeditious and cost-efficient manner.
Financial services companies can benefit from the use of external IT support
because of the flexibility and cost savings it offers. The combination of
industry experience and IT staffing and solutions expertise makes CTG a strong
partner for banks, brokerages, and insurance companies seeking to augment
internal IT staffs or outsource selected IT services.
A CTG Client Since 1996
27
Service Offering IT Solutions - Development and Integration
CTG plans, designs, implements, and maintains a full range of IT solutions for
our clients. At the planning stage, we help define business needs and decide on
the right IT solutions to meet them. Our technology experts and vertical
industry specialists evaluate the current application portfolio and data
architecture and design solutions that range from selection and implementation
of packaged software to the construction of new systems. During a project's
implementation phase, new technology is integrated seamlessly with existing
systems to achieve overall process improvement. CTG's systems integration
expertise maximizes the value of vital information assets through the
construction of strategic system linkages that make mission-critical data
readily accessible to users and processes throughout the enterprise.
M.H. Mac McMillan National Practice Director, E-Security
"Security is all about trust and confidence. As an information security partner,
CTG not only provides solutions that protect our clients' systems and data, but
we also educate clients on how to safeguard their information assets and still
maintain the systems access and functionality they need to run their
businesses."
Virtua Health Protecting the privacy of medical information has become a
priority as healthcare organizations increase their reliance on electronic
systems for everything from human resources to patient medical records. In 2001,
Virtua Health, the largest healthcare provider in southern New Jersey, engaged
CTG to assist with its vital information security program.
CTG began by conducting an information security assessment, which resulted in a
detailed remediation plan for compliance with the Health Insurance Portability
and Accountability Act (HIPAA), as well as satisfaction of Virtua Health's own
security objectives. Since the assessment, CTG has supported Virtua Health's
remediation efforts with secure engineering support, policy and program
development support, staff augmentation, and ongoing security testing. In 2002,
Virtua Health became an Audit Services Partner, a program where CTG provides
annual security audits, external security testing, on-call engineering support,
and 24/7 call center support to assist clients in maintaining the integrity of
their information security. Virtua Health is also a Technology Partner, a
collaborative program where CTG provides customer-based evaluations of new and
existing security technologies.
CTG's services have enabled Virtua Health to accelerate its readiness for HIPAA
compliance and to develop and implement a best practices information security
program.
A CTG Client Since 1994
WineISIT.com CTG brings significant experience to the retail industry, helping
retailers improve same-store sales, gross margin, and transaction size through
an integrated suite of service offerings that includes customer relationship
management (CRM) benchmarking, CRM strategy definition and execution planning,
technology foundation improvement, loyalty programs, business intelligence, and
customer-specific marketing.
WineISIT.com, a new customer of CTG's Retail Solutions group, is in the business
of providing outsourced marketing services to suppliers and independent
retailers of wine and spirits throughout the United States. Retailers using
WineISIT's marketing services currently represent $1.4 billion of the $19
billion independent retailer wine and spirit market. In 2002, the company teamed
with CTG Retail SolutionsTM to design and build a system that will manage the
customer loyalty, business intelligence, and customer-specific marketing
functions of its marketing service. The partnership of WineISIT's wine and
spirit industry experience with CTG's retail marketing knowledge and
technological expertise will soon result in the deployment of a system with the
functionality to drive sales and margin growth, the efficiency to do so at an
attractive price, and the scalability to support hundreds of suppliers and
retailers. This system will significantly enhance WineISIT's services and help
increase the company's penetration of the highly profitable retail wine and
spirit market.
A CTG Client Since 2002
Service Offering IT Solutions - Consulting
CTG business consultants support clients in assessing and evaluating their
business strategies, operations, and processes to achieve measurable
improvements in business performance using information technology. Our
consulting services include requirements definition, which analyzes and
documents business processes and user requirements in preparation for system
development and implementation activities; and technology selection, which helps
clients evaluate and select packaged software or infrastructure components such
as networks and platforms. Other services include IT architecture blueprinting,
which creates a "blueprint" of an organization's optimal IT infrastructure; and
feasibility and assessment studies that evaluate organizational readiness for
new technology. The CTG approach emphasizes collaboration, and a primary
objective of each consulting engagement is the transfer of intellectual property
and technical knowledge from our experts to the client organization.
Jeff Falvey Principal Consultant, CTG Retail SolutionsTM
"WineISIT has crafted a great strategy. CTG is helping assure effective
execution with our content, process, and technology expertise."
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Service Offering Application Management Outsourcing
CTG continues to build on our national reputation as a leading provider of
application management and IT outsourcing solutions. Our application management
outsourcing (AMO) services encompass support for single or multiple
applications; a full suite of systems maintenance, enhancement, development, and
integration solutions; and facilities management. CTG's specialized expertise in
transitional outsourcing serves clients in need of support for special projects
or backup for internal IT resources focusing on a major systems implementation
or acquisition. Our multi-tiered delivery model tailors our services to client
requirements using a blend of onshore, nearshore, and offshore resources to
satisfy customer-specific cost, quality control, and risk management priorities.
CTG's proprietary Application AdvantageTM methodology and AssureWareTM suite of
CTG-developed tools provide value-added support for our outsourcing services.
Jim Hazelett Engagement Manager, Bayer
"When I began working as an IT consultant at CTG, my manager said, `Just do
what's right for your client,' and that's still my first priority and very much
how CTG approaches the client-consultant relationship. CTG provides application
support that consistently meets service level agreements and quality standards
so our AMO clients can focus on higher-priority IT initiatives and their core
businesses."
Bayer Corporation CTG's first major AMO contract with Bayer Corporation was
awarded in 1994, when we assumed responsibility for the management of
approximately 30 legacy applications. Today, CTG manages applications that
support the chemicals and healthcare businesses of Bayer at its Pittsburgh,
Pennsylvania and Elkhart, Indiana sites. We have also performed AMO functions in
support of Bayer affiliate facilities in Canada.
A 26-year CTG client, Bayer initially engaged CTG to provide technical services
and has significantly expanded our relationship since then. In addition to AMO
and the recent outsourcing of selected help desk services, CTG, a preferred
provider of Bayer, provides IT staffing and IT solutions support on a project
basis. Most recently, CTG began to support Bayer in compliance initiatives for
21 CFR Part 11, an FDA regulation mandating the use of electronic records and
signatures by all companies using computer systems to produce or distribute
FDA-regulated products.
We believe that the strength of CTG's relationship with Bayer stems from our
proven track record and ability to provide quality services at a competitive
price. Our depth of expertise in business application management helps Bayer
maintain the high level of focus and technical skill it needs for
mission-critical business initiatives that enhance its competitive position.
As more companies consider outsourcing IT functions, CTG's broad-based
experience in a variety of industries gives us an important advantage in
expanding our AMO business.
A CTG Client Since 1977
29
Consolidated Summary - Five-Year Selected Financial Information
Consolidated Summary 2002 2001 2000 1999 1998
(amounts in millions, except per-share data)
Operating Data
Revenue $ 263.3 $ 320.2 $ 354.8 $ 486.3 $ 477.8
Operating income (loss) $ 4.0 $ 0.4 $ (5.6)** $ 30.8*** $ 39.9
Net income (loss)
before cumulative effect of change in
accounting principle $ 1.4 $ (2.2) $ (5.7)** $ 16.7*** $ 24.0
Net income (loss) $ (35.7)* $ (2.2) $ (5.7)** $ 16.7*** $ 24.0
Basic net income (loss) per share
before cumulative effect of change in
accounting principle $ 0.08 $ (0.13) $ (0.35)** $ 1.02*** $ 1.48
Basic net income (loss) per share $ (2.15)* $ (0.13) $ (0.35)** $ 1.02*** $ 1.48
Diluted net income (loss) per share
before cumulative effect of change in
income (loss) per share $ (2.11)* $ (0.13) $ (0.35)** $ 1.00*** $ 1.42
Cash dividend per share $ - $ - $ 0.05 $ 0.05 $ 0.05
Financial Position
Working capital $ 17.2 $ 20.3 $ 12.5 $ 35.2 $ 74.9
Total assets $ 99.2 $ 149.5 $ 162.4 $ 199.2 $ 156.8
Long-term debt $ 8.5 $ 15.5 $ 9.7 $ 31.4 $ -
Shareholders' equity $ 52.4 $ 86.6 $ 88.8 $ 94.9 $ 83.4
* Includes a charge for the cumulative effect of a change in accounting
principle related to the adoption of Financial Accounting Standard (FAS) No.
142, "Goodwill and Other Intangible Assets," which reduced net income by $37.0
million, basic net income per share by $2.23, and diluted net income per share
by $2.19
** Includes the net expense of a restructuring charge, which increased
operating loss by $4.2 million, net loss by $3.0 million, and basic and diluted
net loss per share by $0.18
*** Includes the expense of a non-recurring arbitration award, which lowered
operating income by approximately $2.5 million, net income by approximately
$1.5 million, and basic and diluted net income per share by $0.09
Revenue (in millions)
$354.8
$320.2
$263.3
00 01 02
Operating Income (loss) (in millions)
$4.0
$0.4
$(1.5)*
00 01 02
Diluted Net Income (loss) Per Share Before Cumulative Effect of
Change in Accounting Principle
$0.08
$(0.13)
$(0.17)*
00 01 02
* Excludes the net expense of a restructuring charge, which increased
operating loss by $4.2 million and diluted net loss per share by $0.18
30
Management's Discussion and Analysis of
Results of Operations and Financial Condition
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 (IT) 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 table below sets
forth data as contained on the consolidated statements of operations, with the
percentage information calculated as a percentage of consolidated revenues.
Year ended December 31, 2002 2001 2000
(percentage of revenue)
Revenue 100.0% 100.0% 100.0%
Direct costs 72.5% 71.4% 71.4%
Selling, general, and administrative
expenses, less restructuring charge
in 2000 26.0% 28.5% 29.0%
Restructuring charge 0.0% 0.0% 1.2%
Operating income (loss) 1.5% 0.1% (1.6)%
Interest and other expense, net (0.6)% (1.1)% (0.9)%
Income (loss) before income taxes
and cumulative effect of change
in accounting principle 0.9% (1.0)% (2.5)%
Provision (benefit) for income taxes 0.4% (0.3)% (0.9)%
Net income (loss) before
cumulative effect of change
in accounting principle 0.5% (0.7)% (1.6)%
Cumulative effect of change
in accounting principle (14.1)% -- --
Net loss (13.6)% (0.7)% (1.6)%
2002 as compared to 2001
In 2002, CTG recorded revenue of $263.3, a decrease of 17.8 percent when
compared to 2001 revenue of $320.2 million. The year-over-year revenue decrease
is a result of the ongoing recession in the technology sector that has had a
significant negative effect on customer spending for information technology
services. North American revenue decreased by $46.9 million or 17.1 percent in
2002 as compared to 2001, while revenue from European operations decreased by
$10.0 million or 21.6 percent. European revenues were 13.8 percent and 14.5
percent of total Company revenues in 2002 and 2001, respectively.
The 2001 to 2002 revenue decline was slightly offset by the weakening of the
U.S. dollar as compared to the currencies of the Netherlands, Belgium, the
United Kingdom, and Luxembourg, the countries in which the Company's European
subsidiaries operate. If there had been no change in these foreign currency
exchange rates from 2001 to 2002, total consolidated revenues would have been
$1.7 million lower. In November 2000, the Company signed a contract with IBM for
three years as one of IBM's national technical service providers for the United
States. This contract covered 95 percent of the total services provided to IBM
by the company in 2002. In 2002, IBM continued to be the Company's largest
customer, accounting for $51.9 million or 19.7 percent of total revenue as
compared to $78.3 million or 24.5 percent of 2001 revenue. Although revenues
from IBM have been constrained in 2002, the Company expects to continue to
derive a significant portion of its revenue from IBM in 2003 and future years.
While the decline in revenue from IBM has had a negative 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 diversity of the projects performed for
IBM and the number of locations and divisions involved.
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Direct costs, defined as costs for billable staff including billable
out-of-pocket expenses, were 72.5 percent of revenue in 2002 as compared to 71.4
percent of 2001 revenue. The increase in direct costs as a percentage of revenue
in 2002 as compared to 2001 is primarily due to the costs, including severance,
associated with the reduction of unutilized personnel in the Company's European
operations and the recession previously mentioned, which has adversely affected
the rates at which the Company bills customers for its services.
Selling, general, and administrative (SG&A) expenses were 26.0 percent of
revenue in 2002 as compared to 28.5 percent of revenue in 2001. During 2002, due
to the adoption of Financial Accounting Standard (FAS) No. 142, "Goodwill and
Other Intangible Assets," the Company discontinued the amortization of its
existing goodwill. In 2001, such amortization totaled $4.0 million, or $0.24
basic and diluted earnings per share. If such amortization expense were excluded
from the 2001 balances, SG&A expense as a percentage of revenue would have been
27.3 percent in 2001. The decline in SG&A expense year over year is due to the
Company continuing to align its cost structure to the current level of revenue.
Operating income from North American and Corporate operations was $7.7 million
and $2.8 million in 2002 and 2001, respectively, while European operations
recorded an operating loss of $3.7 million and $2.4 million in 2002 and 2001,
respectively. Interest and other expense, net was (0.6) percent of revenue in
2002 and (1.1) percent in 2001. The decrease as a percentage of revenue from
2001 to 2002 is primarily due to lower average outstanding indebtedness balances
and lower interest rates in 2002. The provision (benefit) for income taxes was
39.5 percent in 2002 and (32.9) percent in 2001. The 2001 effective rate was
favorably impacted by the resolution of both domestic and foreign tax matters.
Net loss for 2002 was (13.6) percent of revenue or $(2.11) per diluted share,
compared to a net loss of (0.7) percent of revenue or $(0.13) per diluted share
in 2001. Net income before the cumulative effect of change in accounting
principle for 2002 was 0.5 percent of revenue or $0.08 per diluted share,
compared to a loss of (0.7) percent of revenue or $(0.13) per diluted share in
2001. Diluted earnings per share were calculated using 16.9 million and 16.4
million equivalent shares outstanding in 2002 and 2001, respectively. The
increase in equivalent shares outstanding in 2002 is due to additional
weighted-average shares outstanding and the dilutive effect of outstanding stock
options.
In July 2001, the Financial Accounting Standards Board (FASB) issued FAS No.
141, "Business Combinations," and FAS No. 142, "Goodwill and Other Intangible
Assets." These standards made significant changes to the accounting for business
combinations, goodwill, and intangible assets. FAS No. 141 eliminated the
pooling-of-interests method of accounting for business combinations with limited
exceptions for combinations initiated prior to July 1, 2001. In addition, it
clarified the criteria for recognition of intangible assets apart from goodwill.
This standard was effective for business combinations completed after June 30,
2001.
FAS No. 142 discontinued the practice of amortizing goodwill and
indefinite-lived intangible assets and initiated a review, at least annually,
for impairment. Intangible assets with a determinable useful life will continue
to be amortized over their useful lives. FAS No. 142 applies to existing
goodwill and intangible assets, and such assets acquired after June 30, 2001.
FAS No. 142 was effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company adopted this standard as of January 1, 2002, and no
longer amortizes its existing goodwill since that date.
In conjunction with the adoption of FAS No. 142, the initial valuation of the
business unit to which the Company's goodwill relates was completed by an
independent appraisal company. Such valuation indicated that the carrying value
of the business unit was greater than the determined fair value. The goodwill on
the Company's balance sheet primarily relates to the acquisition in February
1999 of the healthcare information technology services provider Elumen
Solutions, Inc. Although the revenues and profits for this unit dipped in 2000
and 2001, in 2002 the revenues and profits for that unit are similar to when the
acquisition was completed in 1999. However, the valuation of technology
companies in 1999 was relatively high as compared to the valuations at the
beginning of 2002. Accordingly, as a result of the independent appraisal which
considered the fair market values of similar companies, the Company recorded a
$37.0 million non-cash charge for impairment of goodwill in that business unit
in the Company's year-to-date financial results, as a cumulative effect of a
change in accounting principle. There was no tax associated with this
impairment, as the amortization of this goodwill was not deductible for tax
purposes.
As of January 1, 2003, the Company completed its annual valuation of the
business unit to which the Company's goodwill relates. This valuation indicated
that the estimated fair value of the business unit exceeded the carrying value
of this unit. Accordingly, the Company believes no additional impairment is
required to be recorded in its consolidated financial results.
In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses the accounting and reporting for
the impairment or disposal of long-lived assets. The Company adopted this
standard effective January 1, 2002. During the first quarter of 2002, the
Company began to actively market one of its owned properties for sale, and has
classified this property as held for sale on its consolidated balance sheet.
During 2002, the Company made an adjustment of approximately $0.1 million to the
carrying value of this asset in order to write down the property's value to the
anticipated net fair value.
32
During the first quarter of 2002, based upon new interpretive guidance issued
for the accounting for billable expenses under Emerging Issues Task Force issue
No. D-103, "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred," the Company began to record its billable
expenses on a gross basis as both revenue and direct costs, rather than on a net
basis. Such costs totaled $6.8 million and $8.1 million in 2002 and 2001,
respectively. The 2001 revenue and direct cost balances on the consolidated
statement of operations have been restated from those which were previously
reported.
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which addresses the accounting and reporting for
costs associated with the exit from or disposal of a portion of a company's
operations. The provisions of this standard are effective for any exit or
disposal activities initiated after December 31, 2002. At this time, the
adoption of this standard is not expected to impact the financial position or
results of operations of the Company.
In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." This standard provides alternative
methods of transition for a voluntary change to the fair value-based method of
accounting for stock-based employee compensation. Additionally, the standard
also requires prominent disclosures in the Company's financial statements about
the method of accounting used for stock-based employee compensation, and the
effect of the method used when reporting financial results. The provisions of
this standard are effective for financial statements for fiscal years ending
after December 15, 2002. As allowed by FAS No. 123, "Accounting for Stock-Based
Compensation," the Company continues to apply Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations when accounting for its stock option plans. No compensation cost
has been recognized in these consolidated financial statements for outstanding
stock options. As required, the Company has applied the additional disclosure
provisions as prescribed by FAS No. 148, which can be found in Footnote No. 1
under the heading "Stock-Based Employee Compensation."
Critical Accounting Policies
The SEC issued Financial Reporting Release No. 60, "Cautionary Advice Regarding
Disclosure of Critical Accounting Policies" (FR No. 60) in December 2001 that
requires companies to disclose those accounting policies that include estimates
that could be of a critical nature. In evaluating FR No. 60, CTG has determined
that its sole critical accounting estimate involves the valuation of its
existing goodwill balance. As previously discussed, FAS No. 142 discontinued the
practice of amortizing goodwill and indefinite-lived intangible assets and
initiated a review, at least annually, for impairment. With the adoption of FAS
No. 142 in 2002, CTG recorded a charge of $37.0 million, representing the
cumulative effect of the change in accounting principle. Going forward, the
remaining goodwill balance will be evaluated annually, or more frequently if
facts and circumstances indicate impairment may exist. These evaluations will be
based on estimates and assumptions that may analyze the appraised value of
similar transactions from which the goodwill arose, the appraised value of
similar companies, or estimates of future discounted cash flows. The estimates
and assumptions on which the Company's evaluations are based necessarily involve
judgments and are based on currently available information, any of which could
prove wrong or inaccurate when made, or become wrong or inaccurate as a result
of subsequent events.
As of January 1, 2003, the Company completed its annual valuation of the
business unit to which the Company's goodwill relates. This valuation indicated
that the estimated fair value of the business unit exceeded the carrying value
of this unit. Accordingly, the Company believes no additional impairment is
required to be recorded in its consolidated financial results. Changes in future
valuations, however, could lead to additional impairment charges.
2001 as compared to 2000
In 2001, CTG recorded revenue of $320.2 million, a decrease of 9.8 percent when
compared to 2000 revenue of $354.8 million. North American revenue decreased by
$19.6 million or 6.7 percent during the year, while revenue from European
operations decreased by $15.0 million or 24.4 percent. European revenues were
14.5 percent and 17.3 percent of total Company revenues in 2001 and 2000,
respectively. The companywide decrease in revenue in 2001 from 2000 was
primarily due to the continued economic slowdown throughout 2001, which
negatively affected the purchase of IT services by companies worldwide. This
economic slowdown also continued throughout 2002. Additionally, the
year-over-year decline was due to a help desk contract in Europe that ended in
the second quarter of 2000.
The 2000-to-2001 year-to-year revenue decline rate was slightly impacted by the
strengthening of the U.S. dollar as compared to the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg, the countries in which
the Company's European subsidiaries operate. If there had been no change in
these foreign currency exchange rates from 2000 to 2001, total consolidated
revenues would have been $1.8 million higher in 2001, resulting in a
year-to-year consolidated revenue decline of 9.3 percent. This additional $1.8
million increase in European revenue would have decreased the European revenue
decline to 21.5 percent. Conversely, in 2002, the strength of the U.S. dollar
diminished as compared to the respective currencies of the countries in which
the Company operates in Europe.
In November 2000, the Company signed a contract with IBM for three years as one
of IBM's national technical service providers for the United States. This
contract covered 93 percent of the total services provided to IBM by the Company
in 2001. In 2001, IBM continued to be the Company's largest customer, accounting
for $78.3 million or 24.5 percent of total revenue as compared to $95.4 million
or 26.9 percent of 2000 revenue. Revenues from IBM were constrained in 2001 and
continue to be constrained in 2002.
33
Direct costs, defined as costs for billable staff, were 71.4 percent of revenue
in both 2001 and 2000. Although revenue declined during 2001, the Company was
able to maintain its direct costs-to-revenue percentage from 2000, primarily due
to maintaining the utilization of its billable employees.
Selling, general, and administrative expenses were 28.5 percent of revenue in
2001 compared to 29.0 percent of revenue in 2000. While actual selling, general,
and administrative expenses decreased year over year by $11.5 million or 11.2
percent, the decrease as a percentage of revenue from 2000 to 2001 was nominal
due to the revenue decline discussed above. The Company was able to reduce
expenses in 2001 by implementing reductions to better align the Company's cost
structure with current revenue levels.
During 2000, the Company recorded a net pre-tax restructuring charge of $4.2
million. On an after-tax basis, the charge totaled $3.0 million or $0.18 per
diluted share. The restructuring plan was completed by the end of March 2001.
There was no restructuring charge in either 2001 or 2002.
Operating income (loss) was 0.1 percent of revenue in 2001 compared to (1.6)
percent of revenue in 2000. Without the restructuring charge in 2000, the
operating loss would have been (0.4) percent of revenue. The year-over-year
increase in operating income as a percentage of revenue was primarily due to
implementing the expense reductions noted above. Operating income from North
American and Corporate operations increased by $10.9 million from 2000 to 2001.
European operations recorded an operating loss of $(2.4) million in 2001 as
compared to operating income of $2.4 million in 2000.
Interest and other expense, net was (1.1) percent of revenue for 2001 and (0.9)
percent in 2000. The increase as a percentage of revenue was due to an increase
in interest expense related to outstanding long-term debt and the revenue
decline discussed above. The benefit for income taxes calculated as a percentage
of loss before income taxes was (32.9) percent in 2001 and (34.8) percent in
2000.
Net loss for 2001 was (0.7) percent of revenue, or $(0.13) basic and diluted
loss per share, compared to (1.6) percent of revenue, or $(0.35) basic and
diluted loss per share in 2000. Earnings per share was calculated using 16.4
million (basic and diluted earnings per share) and 16.2 million (basic and
diluted earnings per share) equivalent shares outstanding in 2001 and 2000,
respectively.
During the first quarter of 2002, based upon new interpretive guidance issued
for the accounting for billable expenses under Emerging Issues Task Force issue
No. D-103, "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred," the Company began to record its billable
expenses on a gross basis as both revenue and direct costs, rather than on a net
basis. Such costs totaled $8.1 million and $9.1 million in 2001 and 2000,
respectively. The 2001 and 2000 revenue and direct cost balances on the
consolidated statement of operations have been restated by these amounts from
those which were previously reported.
Financial Condition and Liquidity
Cash provided by operating activities was $4.6 million in 2002. Net loss totaled
$(35.7) million, while the non-cash adjustment for the change in accounting
principle totaled $37.0 million, and other non-cash adjustments, primarily
consisting of depreciation expense and deferred income taxes, totaled $4.3
million. Accounts receivable decreased by $8.3 million as compared to December
31, 2001 due primarily to lower revenues in 2002 and the timing of the
collection of outstanding balances near year-end 2002. Accounts payable
decreased $2.1 million, and other current liabilities decreased $1.5 million,
primarily due to the timing of certain payments. Accrued compensation decreased
$5.4 million due to the timing of the U.S. bi-weekly payroll, fewer total
employees, and the timing of certain payments.
Net property and equipment and property held for sale decreased $2.0 million.
Additions to property and equipment were $1.8 million, offset by depreciation
expense of $3.9 million and foreign currency translation adjustments of $0.1
million. The Company has no significant commitments for capital expenditures at
December 31, 2002.
Financing activities used $6.7 million of cash in 2002. Net payments on
long-term revolving debt totaled $7.0 million, and the Company received $0.3
million from employees for stock purchased under the Employee Stock Purchase
Plan.
The Company is authorized to repurchase a total of 3.4 million shares of its
common stock for treasury and the Company's stock trusts. At December 31, 2002,
approximately 3.2 million shares have been repurchased under the authorizations,
leaving 0.2 million shares authorized for future purchases. No share purchases
were made in 2002.
At December 31, 2002, consolidated shareholders' equity totaled $52.4 million,
which is a decrease of $34.2 million or 39.5 percent from December 31, 2001. The
decrease is primarily due to the 2002 net income before the cumulative effect of
change in accounting principle of $1.4 million and the effect of foreign
currency translation of $1.2 million, and is offset by the $37.0 million
non-cash charge for impairment of goodwill.
34
The Company believes existing internally available funds, cash potentially
generated by operations, and available borrowings under the Company's revolving
line of credit, totaling approximately $41.6 million at December 31, 2002, will
be sufficient to meet foreseeable working capital, capital expenditure, and
possible stock repurchase requirements, and to allow for future internal growth
and expansion. The Company is nominally exposed to market risk in the normal
course of its business operations. The Company has $8.5 million of borrowings at
December 31, 2002 under its revolving credit agreement, which exposes the
Company to risk of earnings or cash flow loss due to changes in market interest
rates. Based upon average bank borrowings of $20.5 million during 2002, a one
percentage point increase or decrease in market interest rates would increase or
decrease the Company's interest expense by $205,000. Additionally, as the
Company sells its services in North America and Europe, financial results could
be negatively affected by weak economic conditions in those markets.
The Company did not have any related party transactions during 2002, 2001, or
2000.
35
Independent Auditors' Report
To the Board of Directors and Shareholders of
Computer Task Group, Incorporated
Buffalo, New York
We have audited the accompanying consolidated balance sheets of Computer Task
Group, Incorporated and subsidiaries ("the Company") as of December 31, 2002 and
2001, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2002. 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 in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Computer Task Group, Incorporated
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. As discussed in Note 1 to the consolidated
financial statements, in 2002 the Company changed its method of accounting for
goodwill to conform to Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets."
Deloitte & Touche LLP
Buffalo, New York
February 5, 2003
36
Consolidated Statements of Operations
Year ended December 31, 2002 2001 2000
(amounts in thousands, except per-share data)
Revenue $ 263,276 $ 320,213 $ 354,846
Direct costs 190,736 228,461 253,498
Selling, general, and administrative expenses 68,518 91,338 102,836
Restructuring charge -- -- 4,157
Operating income (loss) 4,022 414 (5,645)
Interest and other income . 242 638 288
Interest and other expense (2,012) (4,335) (3,322)
Income (loss) before income taxes and
cumulative effect of change in accounting principle 2,252 (3,283) (8,679)
Provision (benefit) for income taxes 890 (1,081) (3,018)
Net income (loss) before cumulative effect
of change in accounting principle 1,362 (2,202) (5,661)
Cumulative effect of change in accounting principle (37,038) -- --
Net loss $ (35,676) $ (2,202) $ (5,661)
Basic net income (loss) per share:
Net income (loss) before cumulative effect
of change in accounting principle $ 0.08 $ (0.13) $ (0.35)
Cumulative effect of change in accounting principle (2.23) -- --
Basic net loss per share $ (2.15) $ (0.13) $ (0.35)
Diluted net income (loss) per share:
Net income (loss) before cumulative effect
of change in accounting principle $ 0.08 $ (0.13) $ (0.35)
Cumulative effect of change in accounting principle (2.19) -- --
Diluted net loss per share $ (2.11) $ (0.13) $ (0.35)
The accompanying notes are an integral part of these consolidated financial
statements.
37
Consolidated Balance Sheets
December 31, 2002 2001
(amounts in thousands, except share balances)
Assets
Current assets:
Cash and temporary cash investments $ 69 $ 3,362
Accounts receivable, net 43,696 50,920
Prepaids and other 2,406 2,958
Deferred income taxes 623 1,089
Total current assets 46,794 58,329
Property and equipment, net of accumulated depreciation 8,939 13,082
Property held for sale 2,190 --
Goodwill 35,678 73,121
Deferred income taxes 4,412 4,274
Other assets 1,171 682
Total assets $ 99,184 $ 149,488
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable . $ 6,520 $ 8,193
Accrued compensation 19,139 24,133
Advance billings on contracts 359 471
Other current liabilities 3,555 5,221
Total current liabilities 29,573 38,018
Long-term debt 8,497 15,512
Deferred compensation benefits 8,394 8,794
Other long-term liabilities 350 537
Total liabilities 46,814 62,861
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 111,465 111,500
Retained earnings 37,697 73,373
Less: Treasury stock of 6,148,990 and
6,147,810 shares at cost, respectively (31,416) (31,410)
Stock Trusts of 4,246,337
and 4,338,000 shares at cost, respectively (58,848) (59,239)
Accumulated other comprehensive income:
Foreign currency adjustment (6,116) (7,284)
Minimum pension liability adjustment (682) (583)
Accumulated other comprehensive income (6,798) (7,867)
Total shareholders' equity 52,370 86,627
Total liabilities and shareholders' equity $ 99,184 $ 149,488
The accompanying notes are an integral part of these consolidated financial
statements.
38
Consolidated Statements of Cash Flows
Year ended December 31, 2002 2001 2000
(amounts in thousands)
Cash flows from operating activities:
Net loss $(35,676) $ (2,202) $ (5,661)
Adjustments:
Depreciation expense 3,903 4,638 4,607
Amortization expense -- 3,975 5,089
Change in accounting principle 37,038 -- --
Deferred income taxes 216 2,145 832
Tax benefit on stock option exercises -- 27 68
Loss on sales, disposals, or
impairment of fixed assets 142 80 43
Deferred compensation forfeitures (499) (589) (280)
Changes in assets and liabilities:
Decrease in accounts receivable 8,347 5,531 21,226
(Increase) decrease in prepaids and other 736 (104) (44)
(Increase) decrease in other assets (489) (30) 12
Increase (decrease) in accounts payable (2,100) (4,147) 3,171
Decrease in accrued compensation (5,387) (1,778) (2,529)
Increase (decrease) in income taxes payable 102 (3,769) (6,545)
Decrease in advance billings on contracts (112) (171) (119)
Decrease in other current liabilities (1,480) (4,442) (1,650)
Decrease in other long-term liabilities (187) (174) (74)
Net cash provided by (used in) operating activities 4,554 (1,010) 18,146
Cash flows from investing activities:
Additions to property and equipment (1,849) (4,204) (5,052)
Proceeds from sales of fixed assets 22 88 30
Net cash used in investing activities (1,827) (4,116) (5,022)
Cash flows from financing activities:
Proceeds from (payments on)
long-term revolving debt, net (7,015) 5,812 (21,680)
Proceeds from Employee
Stock Purchase Plan 331 510 714
Purchase of stock for treasury (6) (6) (125)
Proceeds from other stock plans 24 124 1,272
Dividends paid -- -- (810)
Net cash provided by (used in) financing activities (6,666) 6,440 (20,629)
Effect of exchange rate changes on cash
and temporary cash investments 646 (514) (617)
Net increase (decrease) in cash and temporary
cash investments (3,293) 800 (8,122)
Cash and temporary cash investments
at beginning of year 3,362 2,562 10,684
Cash and temporary cash investments
at end of year $ 69 $ 3,362 $ 2,562
The accompanying notes are an integral part of these consolidated financial
statements.
39
Consolidated Statements of Changes in Shareholders' Equity
Capital in
Common Stock Excess of Retained Treasury Stock
(amounts in thousands, except share data) Shares Amount Par Value Earnings Shares Amount
Balance as of December 31, 1999 27,018 $ 270 $ 110,895 $ 82,046 6,142 $ (31,279)
Employee Stock Purchase Plan share issuance -- -- 229 -- -- --
Stock Option Plan share issuance -- -- 134 -- 5 (125)
Other share issuance -- -- 306 -- -- --
Restricted Stock Plan - share cancellation -- -- -- -- -- --
Cash dividends - $.05 per share -- -- -- (810) -- --
Comprehensive income (loss):
Net loss -- -- -- (5,661) -- --
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- --
Total comprehensive income (loss) -- -- -- (5,661) -- --
Balance as of December 31, 2000 27,018 270 111,564 75,575 6,147 (31,404)
Employee Stock Purchase Plan share issuance -- -- (96) -- -- --
Stock Option Plan share issuance -- -- 32 -- 1 (6)
Comprehensive income (loss):
Net loss -- -- -- (2,202) -- --
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- --
Total comprehensive income (loss) -- -- -- (2,202) -- --
Balance as of December 31, 2001 27,018 270 111,500 73,373 6,148 (31,410)
Employee Stock Purchase Plan share issuance -- -- (27) -- -- --
Stock Option Plan share issuance -- -- (8) -- 1 (6)
Comprehensive income (loss):
Net loss -- -- -- (35,676) -- --
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- --
Total comprehensive income (loss) -- -- -- (35,676) -- --
Balance as of December 31, 2002 27,018 $ 270 $ 111,465 $ 37,697 6,149 $ (31,416)
Unearned
Portion Foreign Minimum Total
Stock Trusts of Restricted Currency Pension Shareholders
(amounts in thousands, except share data) Shares Amount Stock Adjustment Adjustment Equity
Balance as of December 31, 1999 4,823 $ (61,306) $ (43) $ (4,786) $ (873) $ 94,924
Employee Stock Purchase Plan share issuance (113) 485 -- -- -- 714
Stock Option Plan share issuance (71) 302 -- -- -- 311
Other share issuance (131) 555 -- -- -- 861
Restricted Stock Plan - share cancellation -- -- 43 -- -- 43
Cash dividends - $.05 per share -- -- -- -- -- (810)
Comprehensive income (loss):
Net loss -- -- -- -- -- (5,661)
Foreign currency adjustment -- -- -- (1,620) -- (1,620)
Minimum pension liability adjustment -- -- -- -- 31 31
Total comprehensive income (loss) -- -- -- (1,620) 31 (7,250)
Balance as of December 31, 2000 4,508 (59,964) -- (6,406) (842) 88,793
Employee Stock Purchase Plan share issuance (142) 606 -- -- -- 510
Stock Option Plan share issuance (28) 119 -- -- -- 145
Comprehensive income (loss):
Net loss -- -- -- -- -- (2,202)
Foreign currency adjustment -- -- -- (878) -- (878)
Minimum pension liability adjustment -- -- -- -- 259 259
Total comprehensive income (loss) -- -- -- (878) 259 (2,821)
Balance as of December 31, 2001 4,338 (59,239) -- (7,284) (583) 86,627
Employee Stock Purchase Plan share issuance (84) 358 -- -- -- 331
Stock Option Plan share issuance (8) 33 -- -- -- 19
Comprehensive income (loss):
Net loss -- -- -- -- -- (35,676)
Foreign currency adjustment -- -- -- 1,168 -- 1,168
Minimum pension liability adjustment -- -- -- -- (99) (99)
Total comprehensive income (loss) -- -- -- 1,168 (99) (34,607)
Balance as of December 31, 2002 4,246 $ (58,848) $ -- $ (6,116) $ (682) $ 52,370
The accompanying notes are an integral part of these consolidated financial
statements.
40
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), located
primarily in North America and Europe. All intercompany accounts and
transactions have been eliminated. Certain amounts in the prior years'
consolidated financial statements and notes have been reclassified to conform to
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
consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America. Such estimates primarily
relate to the valuation of goodwill, allowances for doubtful accounts receivable
and deferred tax assets, a reserve for projects, and estimates of progress
toward completion and direct profit or loss on fixed-price contracts. Actual
results could differ from those estimates.
CTG operates in one industry segment, providing information technology (IT)
professional services to its clients. The services provided include flexible and
strategic staffing and the planning, design, implementation, and maintenance of
comprehensive IT solutions.
Revenue and Cost Recognition
The Company primarily recognizes revenue on monthly fee and time-and-materials
contracts as hours are expended and costs are incurred. Fixed-price contracts
accounted for under the percentage-of-completion method represented
approximately 2 percent of 2002, 1 percent of 2001, and 2 percent of 2000
revenue, respectively. The amount of revenue recorded is a factor of 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 labor and material costs and those indirect costs related to contract
performance. Selling, general, and administrative costs are charged to expense
as incurred. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. In addition to an allowance
for doubtful accounts receivable of approximately $1.2 million and $2.4 million
at December 31, 2002 and 2001, respectively, accounts receivable is further
reduced by a reserve for projects of $0.4 million at December 31, 2002 and $0.5
million at December 31, 2001. The decrease in the allowance for doubtful
accounts from 2001 to 2002 is primarily due to the resolution of several
significant accounts during 2002 totaling approximately $1.0 million.
Fair Value of Financial Instruments
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
At December 31, 2002 and 2001, the carrying amounts of the Company's financial
instruments, which include cash and temporary cash investments, accounts
receivable, other assets, accounts payable, and long-term debt, approximate fair
value.
Property and Equipment
Property and equipment are generally stated at historical cost less accumulated
depreciation (see "Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of"). Depreciation is computed using the straight-line method based on
estimated useful lives of one year to 30 years, and begins after an asset has
been put into service. The cost of property or equipment sold or otherwise
disposed of, along with related accumulated depreciation, is eliminated from the
accounts, and the resulting gain or loss is reflected in current earnings.
Maintenance and repairs are charged to expense when incurred, while significant
betterments to existing assets are capitalized.
Goodwill
In July 2001, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard (FAS) No. 141, "Business Combinations," and FAS No. 142,
"Goodwill and Other Intangible Assets." These standards made significant changes
to the accounting for business combinations, goodwill, and intangible assets.
FAS No. 141 eliminated the pooling-of-interests method of accounting for
business combinations with limited exceptions for combinations initiated prior
to July 1, 2001. In addition, it clarified the criteria for recognition of
intangible assets apart from goodwill. This standard was effective for business
combinations completed after June 30, 2001.
FAS No. 142 discontinued the practice of amortizing goodwill and
indefinite-lived intangible assets and initiated a review, at least annually,
for impairment. Intangible assets with a determinable useful life will continue
to be amortized over their useful lives. FAS No. 142 applies to existing
goodwill and intangible assets, and such assets acquired after June 30, 2001.
FAS No. 142 was effective for fiscal years beginning after December 15, 2001.
Accordingly, the Company adopted this standard as of January 1, 2002, and no
longer amortizes its existing goodwill since that date.
41
In conjunction with the adoption of FAS No. 142, "Goodwill and Other Intangible
Assets," the initial valuation of the business unit for which the Company's
goodwill relates was completed by an independent appraisal company. Such
valuation indicated that the carrying value of the business unit was greater
than the determined fair value. The goodwill on the Company's balance sheet
primarily relates to the acquisition in February 1999 of the healthcare
information technology services provider Elumen Solutions, Inc. Although the
revenues and profits for this unit dipped in 2000 and 2001, in 2002 the revenues
and profits for that unit are similar to when the acquisition was completed in
1999. However, the valuation of technology companies in 1999 was relatively high
as compared to the valuations at the beginning of 2002. Accordingly, as a result
of the independent appraisal which considered the fair market values of similar
companies, the Company recorded a $37.0 million non-cash charge for impairment
of goodwill in that business unit in the Company's year-to-date financial
results, as a cumulative effect of a change in accounting principle. There was
no tax associated with this impairment as the amortization of this goodwill was
not deductible for tax purposes.
As of January 1, 2003, the Company completed its annual valuation of the
business unit to which the Company's goodwill relates. This valuation indicated
that the estimated fair value of the business unit exceeded the carrying value
of this unit. Accordingly, the Company believes no additional impairment is
required to be recorded in its consolidated financial results.
FAS No. 142 also discontinued the practice of amortizing goodwill and
indefinite-lived intangible assets. The effect of the amortization of the
Company's existing goodwill on net income (loss), and basic and diluted net
income (loss) per share for the years ended December 31, 2002, 2001, and 2000 is
as follows:
For the year ended December 31, 2002 2001 2000
(amounts in thousands, except per-share data)
Net income (loss):
Net income (loss) before
cumulative effect of change
in accounting principle $ 1,362 $ (2,202) $ (5,661)
Cumulative effect of change
in accounting principle (37,038) -- --
Net loss (35,676) (2,202) (5,661)
Goodwill amortization -- 3,975 5,089
Adjusted net income (loss) $ (35,676) $ 1,773 $ (572)
Basic net income (loss) per share:
Income (loss) before cumulative effect
of change in accounting principle $ 0.08 $ (0.13) $ (0.35)
Cumulative effect of change
in accounting principle (2.23) -- --
Reported basic net loss per share (2.15) (0.13) (0.35)
Goodwill amortization -- 0.24 0.31
Adjusted basic net income
(loss) per share $ (2.15) $ 0.11 $ (0.04)
Diluted net income (loss) per share:
Income (loss) before cumulative effect
of change in accounting principle $ 0.08 $ (0.13) $ (0.35)
Cumulative effect of change
in accounting principle (2.19) -- --
Reported diluted net loss per share (2.11) (0.13) (0.35)
Goodwill amortization -- 0.24 0.31
Adjusted diluted net income
(loss) per share $ (2.11) $ 0.11 $ (0.04)
42
The change in the goodwill balance on the consolidated balance sheets for 2002
and 2001 is as follows:
2002 2001
-------- ---------
Goodwill, beginning of year $ 73,121 $ 77,157
Amortization -- (3,975)
Cumulative effect of change
in accounting principle (37,038) --
Other (405) --
Effect of foreign currency -- (61)
Goodwill, end of year $ 35,678 $ 73,121
The remaining goodwill balance at December 31, 2002 of $35.7 million is included
in the Company's North American segment.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of by sale are reported at the lower of the
carrying amount or fair value less costs to sell.
During the first quarter of 2002, the Company began to actively market one of
its owned properties for sale, and has therefore classified this property as
held for sale on the consolidated balance sheet as of December 31, 2002. During
the 2002 third quarter, the Company made an adjustment of approximately $0.1
million to the carrying value of this asset in order to write down the
property's value to the anticipated net fair value.
In 2000, as part of a restructuring charge (see Note 2, "Restructuring"), the
Company re-evaluated its amortization of certain of its identifiable intangibles
for impairment. The asset was reduced by approximately $0.8 million. There were
no adjustments to long-lived assets or identifiable intangibles in 2001.
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 deferred compensation,
loss carryforwards, non-deductible accrued expenses, goodwill, and accelerated
depreciation.
Tax credits, if any, are accounted for as a reduction of the income tax
provision in the year in which they are realized (flow-through method). For the
years ended December 31, 2002, 2001, and 2000, the tax expense (benefit)
associated with the minimum pension liability adjustment was $0.1 million,
$(0.2) million, and $0, respectively.
Stock-Based Employee Compensation
The Company accounts for its stock-based employee compensation plans in
accordance with the provisions of FAS No. 123, "Accounting for Stock-Based
Compensation," and FAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," which allows entities to continue to apply the
recognition and measurement provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, no stock-based employee compensation cost is reflected
in the net loss of the Company for the periods presented in these consolidated
financial statements, as all options granted by the Company had an exercise
price that was equal to or greater than the underlying common stock at the date
of grant. See Note 10, "Stock Option Plans."
43
The following table details the effect on net loss and basic and diluted net
loss per share as if the Company had adopted the fair value recognition
provisions of FAS No. 123 as they apply to stock-based employee compensation:
2002 2001 2000
(amounts in thousands, except per-share data)
Net loss, as reported $(35,676) $(2,202) $(5,661)
Stock-based employee
compensation expense as
calculated under the fair value
method for all awards, net of tax 1,581 2,204 2,581
Pro forma net loss $(37,257) $(4,406) $(8,242)
Basic net loss per share:
As reported $ (2.15) $ (0.13) $ (0.35)
Pro forma $ (2.25) $ (0.27) $ (0.51)
Diluted net loss per share:
As reported . $ (2.11) $ (0.13) $ (0.35)
Pro forma $ (2.21) $ (0.27) $ (0.51)
Pro forma amounts for compensation cost may not be indicative of the effects on
earnings for future years.
Derivatives
On January 1, 2001, the Company adopted the provisions of FAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," and those of FAS
No. 137 and FAS No. 138, which deferred the effective date and amended FAS No.
133, respectively. These standards provide accounting and reporting guidelines
for derivative investments, including those embedded in other contracts, and for
hedging activities. The Company evaluated each of these standards and compared
the guidance provided to its current accounting practices, and determined that
the adoption of the standards had no effect on the consolidated financial
statements and required minimal disclosure by the Company.
44
Net Income (Loss) Per Share
Basic and diluted earnings per share (EPS) for the years ended December 31,
2002, 2001, and 2000 are as follows:
Net Weighted- Earnings
Income Average (Loss)
(amounts in thousands, except per-share data) (Loss) Shares per Share
For the year ended
December 31, 2002
Basic EPS
Net income before cumulative effect
of change in accounting principle $ 1,362 16,567 $ 0.08
Cumulative effect of change in
accounting principle (37,038) 16,567 (2.23)
Net loss $(35,676) 16,567 $(2.15)
Diluted EPS
Net income before cumulative effect
of change in accounting principle $ 1,362 16,895 $ 0.08
Cumulative effect of change in
accounting principle (37,038) 16,895 (2.19)
Net loss $(35,676) 16,895 $(2.11)
For the year ended
December 31, 2001
Basic EPS $ (2,202) 16,435 $(0.13)
Dilutive effect of
outstanding stock options -- -- --
Diluted EPS $ (2,202) 16,435 $(0.13)
For the year ended
December 31, 2000
Basic EPS $ (5,661) 16,187 $(0.35)
Dilutive effect of
outstanding stock options -- -- --
Diluted EPS $ (5,661) 16,187 $(0.35)
Weighted-average shares represent the average of issued shares less treasury
shares and less the shares held in the Stock Trusts. In 2002, the dilutive
effect of outstanding stock options was 328,000 weighted-average shares. As the
Company had a net loss in 2001 and 2000, the dilutive effect of outstanding
stock options, totaling 125,000 and 85,000 weighted-average shares at December
31, 2001 and 2000, respectively, were not included in the diluted EPS
calculation.
Options to purchase 1,794,652, 2,484,936, and 2,031,764 shares of common stock
were outstanding at December 31, 2002, 2001, and 2000, respectively, but were
not included in the computation of diluted earnings per share, as the options'
exercise price was greater than the average market price of the common shares.
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 with a maturity of three months or less.
Interest paid during 2002, 2001, and 2000 amounted to $1.6 million, $3.9
million, and $2.3 million, respectively, while net income tax payments totaled
$1.9 million, $0.7 million, and $1.6 million for the respective years.
45
Accounting Standards Pronouncements
In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses the accounting and reporting for
the impairment or disposal of long-lived assets other than goodwill and other
intangible assets. The Company adopted this standard effective January 1, 2002.
During the first quarter of 2002, the Company began to actively market one of
its owned properties for sale, and has classified this property as held for sale
on its consolidated balance sheet. During 2002, the Company made an adjustment
of approximately $0.1 million to the carrying value of this asset in order to
write down the property's value to the anticipated net fair value.
During the first quarter of 2002, based upon new interpretive guidance issued
for the accounting for billable expenses under Emerging Issues Task Force issue
No. D-103, "Income Statement Characterization of Reimbursements Received for
Out-of-Pocket Expenses Incurred," the Company began to record its billable
expenses on a gross basis as both revenue and direct costs, rather than on a net
basis. Such costs totaled $6.8 million, $8.1 million, and $9.1 million in 2002,
2001, and 2000, respectively. The 2001 and 2000 revenue and direct cost balances
on the consolidated statement of operations have been restated by these amounts
from those which were previously reported.
In June 2002, the FASB issued FAS No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities," which addresses the accounting and reporting for
costs associated with the exit from or disposal of a portion of a company's
operations. The provisions of this standard are effective for any exit or
disposal activities initiated after December 31, 2002. At this time, the
adoption of this standard is not expected to impact the financial position or
results of operations of the Company.
In December 2002, the FASB issued FAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" (FAS No. 148). This standard provides
alternative methods of transition for a voluntary change to the fair value-based
method of accounting for stock-based employee compensation. Additionally, the
standard also requires prominent disclosures in the Company's financial
statements about the method of accounting used for stock-based employee
compensation, and the effect of the method used when reporting financial
results. The provisions of this standard are effective for financial statements
for fiscal years ending after December 15, 2002. As allowed by FAS No. 123,
"Accounting for Stock-Based Compensation," the Company continues to apply
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations when accounting for its stock option
plans. No compensation cost has been recognized in these consolidated financial
statements for outstanding stock options. As required, the Company has applied
the additional disclosure provisions as prescribed by FAS No. 148.
2. Restructuring
In the first quarter of 2000, the Company recorded a pre-tax restructuring
charge of $5.7 million. The charge primarily consisted 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. During the third quarter of 2000, the
Company recorded, on a pre-tax basis, a restructuring credit of $1.5 million,
primarily consisting of a reduction in the estimated amount of severance and
related costs to be paid in Europe. On an after-tax basis, the restructuring
charge equaled $3.0 million or $0.18 per diluted share. The Company completed
its restructuring plan by the end of March 2001.
3. Property and Equipment
Property and equipment at December 31, 2002 and 2001 are summarized as follows:
<Caption>
December 31, 2002 2001
- ------------ ------- -------
(amounts in thousands)
Land $ 886 $ 886
Buildings 7,065 6,999
Equipment 17,668 18,747
Furniture 5,160 5,506
Software 7,965 6,995
Leasehold improvements 2,511 2,364
41,255 41,497
Less accumulated depreciation (30,126) (28,415)
$11,129 $13,082
</Table>
At December 31, 2002, property and equipment of $11,129 is included in the
consolidated balance sheet as property and equipment of $8,939 and property held
for sale of $2,190.
At December 31, 2002, the Company owned three buildings, two of which are in use
by the Company as Corporate offices. During 2002, the third building, with a net
fair value of $2.2 million, was leased to a third party for approximately eight
months, which ended in August 2002. Receipts under this lease were approximately
$0.2 million in 2002.
46
During 2002, the Company began to actively market for sale the third building it
owns, and has classified this property as held for sale on the consolidated
balance sheet at December 31, 2002. During the third quarter of 2002, the
Company made an adjustment of approximately $0.1 million to the carrying value
of this building in order to adjust the property's value to the anticipated net
fair value.
4. Debt
During 2002, the Company amended and restated its existing revolving line of
credit agreement (Agreement). The new Agreement has a borrowing limit of $50
million and is due in 2005. The Agreement has interest rates ranging from 25 to
200 basis points over the prime rate and 125 to 300 basis points over Libor, and
provides certain of the Company's assets as security for outstanding borrowings.
The Company is required to meet certain financial covenants in order to maintain
borrowings under the Agreement, pay dividends, and make acquisitions. At
December 31, 2002 and 2001, there were $8.4 million and $15.2 million
outstanding, respectively, under the Company's revolving credit agreements.
Additionally, at December 31, 2002 and 2001, there were $0.1 million and $0.2
million of outstanding letters of credit, respectively, under these agreements.
The maximum amounts outstanding under the revolving credit agreements during
2002, 2001, and 2000 were $29.7 million, $40.0 million, and $44.9 million,
respectively. Average bank borrowings outstanding for the years 2002, 2001, and
2000 were $20.5 million, $29.7 million, and $32.6 million, respectively, and
carried weighted-average interest rates of 4.1 percent, 7.5 percent, and 7.6
percent, respectively. The Company owed $0.1 million and $0.3 million at
December 31, 2002 and 2001, respectively, under capital lease agreements. These
amounts are included in the Company's long-term debt balance at December 31,
2002 and 2001.
The carrying amount of long-term debt, as determined by a comparison to similar
instruments, approximates fair value at December 31, 2002.
47
5. Income Taxes
The provision (benefit) for income taxes for 2002, 2001, and 2000 consists of
the following:
2002 2001 2000
(amounts in thousands)
Domestic and foreign
components of income
(loss) before income
taxes are as follows:
Domestic $ 6,126 $ 162 $ (8,766)
Foreign (3,874) (3,445) 87
$ 2,252 $ (3,283) $ (8,679)
The provision (benefit)
for income taxes
consists of:
Current tax:
U.S. federal $ 494 $ (1,388) $ (4,131)
Foreign (524) (2,657) 14
U.S. state and local 592 819 290
562 (3,226) (3,827)
Deferred tax:
U.S. federal 197 1,837 763
U.S. state and local 131 308 46
328 2,145 809
$ 890 $ (1,081) $ (3,018)
The effective and
statutory income tax
rate can be reconciled
as follows:
Tax at statutory rate
of 34 percent $ 765 $ (1,116) $ (2,951)
Rate differential - - (86)
State tax, net of
federal benefits 415 541 161
Expenses for which no
tax benefit (expense)
is available (70) 1,097 2,095
Change in estimate of
non-deductible expenses (215) (1,642) (2,187)
Other, net (5) 39 (50)
$ 890 $ (1,081) $ (3,018)
Effective income tax rate 39.5% (32.9%) (34.8%)
The change in estimate of non-deductible expenses includes adjustments to the
Company's tax accruals due to the favorable resolution or expected resolution of
both domestic and foreign tax matters that had previously been in process.
The Company's deferred tax assets and liabilities at December 31, 2002 and 2001
consist of the following:
December 31, 2002 2001
(amounts in thousands)
Assets
Deferred compensation $ 3,015 $ 3,161
Loss carryforwards 1,048 721
Accruals deductible for tax
purposes when paid 319 537
Allowance for doubtful accounts 290 694
Amortization 1,156 1,275
Gross deferred tax assets 5,828 6,388
48
Liabilities
Depreciation 550 524
Amortization 81 81
Other, net 162 420
Gross deferred tax liabilities 793 1,025
Deferred tax assets valuation allowance -- --
Net deferred tax assets $ 5,035 $ 5,363
Net deferred assets and liabilities
are recorded at December 31, 2002
and 2001 as follows:
Net current assets $ 623 $ 1,089
Net non-current assets 4,412 4,274
Net deferred tax assets $ 5,035 $ 5,363
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 in 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 at December 31, 2002. Accordingly, no
valuation allowance is required.
Undistributed earnings of the Company's foreign subsidiaries were minimal at
December 31, 2002, and are considered to be indefinitely reinvested.
Accordingly, no provision for U.S. federal and state income taxes has been
provided thereon. Upon distribution of these earnings in the form of dividends
or otherwise, the Company would be subject to both U.S. income taxes (subject to
an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries. In the event that the other foreign entities'
earnings were distributed, it is estimated that U.S. federal and state income
taxes, net of foreign credits, would be immaterial. In 2002, 2001, and 2000,
3,000, 26,000, and 62,000 shares of common stock, respectively, were issued
through the exercise of non-qualified stock options or through the disqualifying
disposition of incentive stock options. The total tax benefit to the Company
from these transactions, which is credited to capital in excess of par value
rather than recognized as a reduction of income tax expense, was $2,000,
$27,000, and $68,000 in 2002, 2001, and 2000, respectively. These tax benefits
have also been recognized in the consolidated balance sheets as a reduction of
current taxes payable.
6. Lease Commitments
At December 31, 2002, the Company was obligated under a number of long-term
operating leases. Minimum future obligations under such leases are summarized as
follows:
<Table>
<Caption>
Year ending December 31,
(amounts in thousands)
2003 $ 6,813
2004 5,285
2005 3,393
2006 1,042
2007 629
Later years 936
Minimum future obligations $ 18,098
</Table>
The operating lease obligations relate to the rental of office space, office
equipment, and automobiles leased in Europe. Total rental expense under such
operating leases for 2002, 2001, and 2000 was approximately $8.5 million, $9.6
million, and $10.7 million, respectively.
49
7. Deferred Compensation Benefits
The Company maintains a non-qualified defined-benefit Executive Supplemental
Benefit Plan (ESBP) that provides a current and certain former 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, to freeze benefits for participants at that time.
Net periodic pension cost for 2002, 2001, and 2000 for the ESBP is as follows:
Net Periodic Pension Cost - ESBP 2002 2001 2000
(amounts in thousands)
Interest cost $ 586 $ 692 $ 675
Amortization of unrecognized
net loss 7 30 35
Net periodic pension cost $ 593 $ 722 $ 710
The Company also maintains a contributory defined-benefit plan for its employees
located in the Netherlands (NDBP). Benefits paid are a function of a percentage
of career average pay.
Net periodic pension cost for 2002, 2001, and 2000 for the NDBP is as follows:
Net Periodic Pension Cost - NDBP 2002 2001 2000
(amounts in thousands)
Service cost $ 278 $ 228 $ 466
Interest cost 237 160 224
Expected return on plan assets (227) (189) (220)
Amortization of actuarial loss 14 -- 117
Net periodic pension cost 302 199 587
Employee contributions 199 149 364
Net retirement cost $ 103 $ 50 $ 223
50
The change in benefit obligation and reconciliation of fair value of plan assets
for 2002 and 2001 for the ESBP and the NDBP are as follows:
ESBP NDBP
Changes in Benefit
Obligation 2002 2001 2002 2001
(amounts in thousands)
Benefit obligation at
beginning of year $ 8,660 $ 9,443 $ 4,505 $3,995
Service cost, net -- -- 79 79
Interest cost 586 692 237 160
Amortization of
unrecognized net loss 7 30 14 --
Employee contributions -- -- 199 149
Benefits paid (1,147) (1,073) (14) (6)
Adjustment to
minimum liability 166 (432) -- --
Actuarial (gain) loss -- -- (1,285) 128
Effect of exchange
rate changes -- -- 234 --
Benefit obligation at
end of period 8,272 8,660 3,969 4,505
Reconciliation of Fair
Value of Plan Assets
Fair value of plan assets
at beginning of year -- -- 3,643 3,646
Expected return on
plan assets -- -- 227 189
Employer contributions -- -- 392 (149)
Employee contributions -- -- 199 149
Benefits paid -- -- (14) (6)
Unrecognized net gain
(loss) -- -- (1,059) (186)
Effect of exchange
rate changes -- -- 202 --
Fair value of plan assets
at end of year -- -- 3,590 3,643
Unfunded status 8,272 8,660 379 862
Unrecognized net
actuarial loss (1,137) (971) (348) (558)
Accrued benefit cost $ 7,135 $ 7,689 $ 31 $ 304
Weighted-average
discount rate 6.75% 7.00% 5.00% 5.00%
Salary increase rate -- -- 4.00% 4.00%
Expected return on
plan assets -- -- 5.50% 5.50%
For the ESBP, benefits paid to participants are funded by the Company as needed.
The plan is deemed unfunded as the Company has not specifically identified
Company assets 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 for those participants.
The Company maintains a non-qualified defined-contribution deferred compensation
plan for certain key executives. The Company contributions to this plan, if any,
are based on annually defined financial performance objectives. There were no
contributions to the plan in 2002, 2001, or 2000.
51
8. Employee Benefits
401(k) Profit-Sharing Retirement Plan
The Company maintains a contributory 401(k) profit-sharing retirement plan
covering substantially all U.S. employees. Company contributions, which are
discretionary, consist of cash, and may include the Company's stock, were funded
and charged to operations in the amounts of $1.4 million, $1.9 million, and $2.6
million for 2002, 2001, and 2000, respectively.
Other Retirement Plans
The Company maintains various retirement plans other than the NDBP discussed in
Note 7, covering substantially all of the remaining European employees. Company
contributions charged to operations were $0.4 million in 2002, $0.2 million in
2001, and $0.1 million in 2000.
Other Postretirement Benefits
The Company provides limited healthcare and life insurance benefits to one
current and eight retired employees and their spouses, totaling 14 participants,
pursuant to contractual agreements.
Net periodic postretirement benefit cost for 2002, 2001, and 2000 is as follows:
Net Periodic Postretirement
Benefit Cost 2002 2001 2000
(amounts in thousands)
Interest cost $ 28 $ 17 $ 35
Amortization of transition amount 29 29 29
Amortization of gain (14) (33) (10)
$ 43 $ 13 $ 54
The change in postretirement benefit obligation at December 31, 2002 and 2001 is
as follows:
Change in Postretirement
Benefit Obligation 2002 2001
(amounts in thousands)
Postretirement benefit obligation
at beginning of year $ 418 $ 237
Interest cost 28 17
Amortization of transition amount 29 29
Benefits paid (52) (42)
Amortization of gain (14) (33)
Adjustment to unrecognized transition obligation (14) (29)
Adjustment to unrecognized gain 165 239
Postretirement benefit obligation at end of year 560 418
Fair value of plan assets at end of year -- --
Funded status 560 418
Unrecognized transition obligation (292) (322)
Unrecognized gain 32 213
Accrued postretirement benefit cost $ 300 $ 309
Weighted-average discount rate 6.75% 7.00%
Salary increase rate -- --
Benefits paid to participants are funded by the Company as needed.
The rate of increase in healthcare costs is assumed to be 9 percent for medical
and 7 percent for dental in 2003, gradually declining to 5 percent by the year
2007 and remaining at that level thereafter. Increasing the assumed healthcare
cost trend rate by one percentage point would increase the accumulated
postretirement benefit obligation by $30,000 at December 31, 2002, and the net
periodic cost by $2,000 for the year. A one-percentage-point decrease in the
healthcare cost trend would decrease the accumulated postretirement benefit
obligation by $26,000 at December 31, 2002, and the net periodic pension cost by
$2,000 for the year.
52
9. Shareholders' Equity
Employee Stock Purchase Plan
Under the Company's First Employee Stock Purchase Plan (Plan), employees may
apply up to 10 percent of their compensation to purchase the Company's common
stock. Shares are purchased at the market price on the business day preceding
the date of purchase. During 2001, an additional 0.5 million shares were
authorized under the Plan. As of December 31, 2002, 338,000 shares remain
unissued under the Plan, of the total of 11.5 million shares that had been
authorized under the Plan. During 2002, 2001, and 2000, 84,000, 142,000, and
113,000 shares, respectively, were purchased under the plan at an average price
of $3.93, $3.59, and $6.29 per share, respectively.
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, other than Company-provided employee benefit
plans, and 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 Shareholder Rights Plan was
amended in 1999 to provide that the rights expire in November 2008. The rights
may be redeemed by the Company at a price of $.01 per right.
Stock Trusts
The Company maintains a Stock Employee Compensation Trust (SECT) to provide
funding for existing employee stock plans and benefit programs. Shares are
purchased by and released from the SECT by the trustee of the SECT at the
request of the compensation committee of the Board of Directors. As of December
31, 2002, all shares remaining in the SECT were unallocated and, therefore, are
not considered outstanding for purposes of calculating earnings per share.
SECT activity for 2002, 2001, and 2000 is as follows:
2002 2001 2000
(amounts in thousands)
Share balance at beginning of year 4,279 4,449 4,764
Shares purchased -- -- --
Shares released:
Stock option plans (8) (28) (71)
Employee Stock Purchase Plan (84) (142) (113)
Other stock plans -- -- (131)
Share balance at end of year 4,187 4,279 4,449
During 1999, the Company created an Omnibus Stock Trust (OST) to provide funding
for various employee benefit programs. During 1999, the OST purchased 59,000
shares for $1 million. Shares are released from the OST by the trustee at the
request of the compensation committee of the Board of Directors. During 2002,
2001, and 2000, no shares were purchased or released by the trust.
Restricted Stock Plan
Under the Company's Restricted Stock Plan, 800,000 shares of restricted stock
may be granted to certain key employees. During 2000, all outstanding restricted
stock grants were canceled.
10. Stock Option Plans
On April 26, 2000, the shareholders approved the Company's Equity Award Plan
(Equity Plan). Under the provisions of the plan, stock options, stock
appreciation rights, and other awards may be granted or awarded to employees and
directors of the Company. The compensation committee of the Board of Directors
determines the nature, amount, pricing, and vesting of the grant or award. All
options and awards remain in effect until the earlier of the expiration,
exercise, or surrender date.
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. Under the
provisions of the plan, options may be granted to employees and directors of the
Company. 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 four
annual installments of 25 percent of the shares covered by the grant, beginning
one year from the date of grant, and expire six years after becoming
exercisable. Nonqualified stock options generally become exercisable in either
four or five annual installments of 20 or 25 percent of the shares covered by
the grant, beginning one year from the date of grant, and expire up to 15 years
from the date of grant. All options remain in effect until the earlier of the
expiration, exercise, or surrender date.
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The per-option weighted-average fair value on the date of grant of stock options
granted in 2002, 2001, and 2000, using the Black-Scholes option pricing model,
was $2.70, $2.17, and $3.72, respectively. The fair value of the options at the
date of grant was estimated with the following weighted-average assumptions:
2002 2001 2000
Expected life (years) 3.8 4.0 4.0
Dividend yield 0.0% 0.0% 1.0%
Risk-free interest rate 3.5% 4.4% 6.1%
Expected volatility 82.6% 70.9% 58.5%
The Company accounts for its stock-based employee compensation plans in
accordance with the provisions of FAS No. 123, "Accounting for Stock-Based
Compensation," and FAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure," which allows entities to continue to apply the
recognition and measurement provisions of Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. No stock-based employee compensation cost is reflected in the
net loss of the Company for the periods presented in these consolidated
financial statements, as all options granted by the Company had an exercise
price that was equal to or greater than the underlying common stock at the date
of grant.
The following table details the effect on net income (loss) and basic and
diluted net income (loss) per share as if the Company had adopted the fair value
recognition provisions of FAS No. 123 as they apply to stock-based employee
compensation:
2002 2001 2000
Net loss, as reported $ (35,676) $ (2,202) $ 5,661)
Stock-based employee compensation
expense as calculated under the
fair value method for all awards, net of tax 1,581 2,204 2,581
Pro forma net loss $ (37,257) $ (4,406) $ (8,242)
Basic net loss per share:
As reported $ (2.15) $ (0.13) $ (0.35)
Pro forma $ (2.25) $ (0.27) $ (0.51)
Diluted net loss per share:
As reported $ (2.11) $ (0.13) $ (0.35)
Pro forma $ (2.21) $ (0.27) $ (0.51)
Pro forma amounts for compensation cost may not be indicative of the effects on
earnings for future years. A summary of stock option activity under these plans
is as follows:
Equity Plan Weighted-Average 1991 Plan Weighted-Average
Options Exercise Price Options Exercise Price
Outstanding at December 31, 1999 -- -- 1,857,551 $ 18.48
Granted 265,000 $ 4.10 1,222,500 $ 8.62
Exercised -- -- (70,576) $ 5.19
Canceled, expired, and forfeited -- -- (867,350) $ 17.73
Outstanding at December 31, 2000 265,000 $ 4.10 2,142,125 $ 13.59
Granted 1,298,000 $ 3.53 226,000 $ 5.94
Exercised -- -- (27,450) $ 4.43
Canceled, expired, and forfeited (266,000) $ 4.87 (676,250) $ 10.09
Outstanding at December 31, 2001 1,297,000 $ 3.38 1,664,425 $ 14.13
Granted 498,000 $ 4.47 -- --
Exercised -- -- (7,650) $ 3.19
Canceled, expired, and forfeited (140,250) $ 5.56 (279,025) $ 14.01
Outstanding at December 31, 2002 1,654,750 $ 3.52 1,377,750 $ 14.21
54
At December 31, 2002 and 2001, the number of options exercisable under the
Equity Plan was 362,250 and 64,000, respectively, and the weighted-average
exercise price of those options was $3.35 and $3.16, respectively. At December
31, 2002 and 2001, the number of options exercisable under the 1991 Plan was
1,012,063 and 933,988, respectively, and the weighted-average exercise price of
those options was $16.50 and $18.14, respectively.
A summary of the range of exercise prices and the weighted-average remaining
contractual life of outstanding options at December 31, 2002 for the Equity and
1991 Plans is as follows:
Options Weighted-Average
Range of. Outstanding at Weighted-Average Remaining Contractual
Exercise Prices December 31, 2002 Exercise Price Life (years)
Equity Plan $1.40....to $1.96 280,000 $ 1.60 8.9
$2.35....to $3.08 755,000 $ 2.83 10.8
$4.35....to $7.49 619,750 $ 5.23 9.6
1991 Plan $2.88....to $3.75 199,000 $ 2.88 6.3
$5.13....to $6.13 279,250 $ 5.94 9.7
$8.00....to $9.44 41,200 $ 9.23 2.5
$12.50...to $18.44 443,000 $15.63 4.4
$21.81...to $30.31 400,300 $23.74 5.0
$37.19... 15,000 $37.19 7.0
At December 31, 2002, there were 1,345,250 and 0 shares available for grant
under the Equity Plan and 1991 Plan, respectively. In both 2002 and 2001, the
Company received stock for treasury valued at $6,000 from employees through
stock option exercise transactions.
11. Significant Customer
International Business Machines (IBM) is the Company's largest customer. IBM
accounted for $51.9 million or 19.7 percent, $78.3 million or 24.5 percent, and
$95.4 million or 26.9 percent of consolidated 2002, 2001, and 2000 revenue,
respectively. The Company's accounts receivable from IBM at December 31, 2002
and 2001 amounted to $11.6 million and $17.7 million, respectively. No other
customer accounted for more than 10 percent of revenue in 2002, 2001, or 2000.
12. Litigation
The Company is involved in litigation arising in the normal course of business.
In the opinion of management, an adverse outcome to any of this litigation would
not have a material effect on the financial condition of the Company.
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13. Segment Information
The Company operates in one industry segment, providing information technology
(IT) professional services to its clients. The services provided include
flexible and strategic staffing and the planning, design, implementation, and
maintenance of comprehensive IT solutions. All of the Company's revenues are
generated from these services. CTG's two reportable segments are based on
geographical areas, which is consistent with prior years and prior to the
adoption of FAS No. 131.
The accounting policies of the individual segments are the same as those
described in Note 1, "Summary of Significant Accounting Policies." CTG evaluates
the performance of its segments at the operating income level. Corporate and
other identifiable assets consist principally of cash and temporary cash
investments and other assets.
Financial Information Relating to Domestic and Foreign Operations
2002 2001 2000
(amounts in thousands)
Revenue
North America $ 226,824 $ 273,724 $ 293,339
Europe 36,452 46,489 61,507
Total revenue $ 263,276 $ 320,213 $ 354,846
Depreciation and Amortization
North America $ 1,921 $ 6,052 $ 7,300
Europe 754 1,076 834
Corporate and other 1,228 1,485 1,562
Total depreciation and amortization $ 3,903 $ 8,613 $ 9,696
Operating Income (loss)
North America $ 19,577 $ 15,618 $ 8,127
Europe (3,698) (2,399) 2,410
Corporate and other (11,857) (12,805) (16,182)
Total operating income (loss) $ 4,022 $ 414 $ (5,645)
Identifiable Assets
North America $ 79,816 $ 127,227 $ 133,841
Europe 9,866 10,958 15,947
Corporate and other 9,502 11,303 12,579
Total identifiable assets $ 99,184 $ 149,488 $ 162,367
Capital Expenditures
North America $ 832 $ 2,065 $ 2,914
Europe 589 710 693
Corporate and other 428 1,429 1,445
Total capital expenditures $ 1,849 $ 4,204 $ 5,052
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14. Quarterly Financial Data (Unaudited)
Quarters
(amounts in thousands, except per-share data) First Second Third Fourth Total
2002
Revenue $ 69,894 $ 67,667 $ 62,149 $ 63,566 $263,276
Direct costs 50,149 48,986 45,250 46,351 190,736
Gross profit 19,745 18,681 16,899 17,215 72,540
Selling, general, and administrative expenses 17,943 17,374 16,399 16,802 68,518
Operating income 1,802 1,307 500 413 4,022
Interest and other expense, net 1,060 198 267 245 1,770
Income before income taxes
and cumulative effect of change
in accounting principle 742 1,109 233 168 2,252
Net income before cumulative effect of
Change in accounting principle 449 671 141 101 1,362
Cumulative effect of change in
accounting principle (37,038) -- -- -- (37,038)
Net income (loss) per share $(36,589) $ 671 $ 141 $ 101 $(35,676)
Basic net income per share
before cumulative effect of change
in accounting principle $ 0.03 $ 0.04 $ 0.01 $ 0.01 $ 0.08
Cumulative effect of change in
accounting principle (2.24) -- -- -- (2.23)
Basic net income (loss) per share $ (2.21) $ 0.04 $ 0.01 $ 0.01 $ (2.15)
Diluted net income per share
before cumulative effect of change
in accounting principle $ 0.03 $ 0.04 $ 0.01 $ 0.01 $ 0.08
Cumulative effect of change in
accounting principle (2.19) -- -- -- (2.19)
Diluted net income (loss) per share $ (2.16) $ 0.04 $ 0.01 $ 0.01 $ (2.11)
2001
Revenue $ 84,763 $ 86,113 $ 77,122 $ 72,215 $320,213
Direct costs 61,183 61,449 54,780 51,049 228,461
Gross profit 23,580 24,664 22,342 21,166 91,752
Selling, general, and administrative expenses 26,802 23,225 21,275 20,036 91,338
Operating income (loss) (3,222) 1,439 1,067 1,130 414
Interest and other expense, net (727) (1,406) (808) (756) (3,697)
Income (loss) before income taxes (3,949) 33 259 374 (3,283)
Net income (loss) $ (1,380) $ (1,357) $ 182 $ 353 $ (2,202)
Basic net income (loss) per share $ (0.08) $ (0.08) $ 0.01 $ 0.02 $ (0.13)
Diluted net income (loss) per share $ (0.08) $ (0.08) $ 0.01 $ 0.02 $ (0.13)
57
Corporate Information
Stock Market Information
Stock Price High Low
Year ended December 31, 2002
Fourth Quarter $ 3.85 $ 2.50
Third Quarter $ 5.05 $ 2.70
Second Quarter $ 5.83 $ 4.15
First Quarter $ 6.08 $ 3.75
Year ended December 31, 2001
Fourth Quarter $ 3.98 $ 1.30
Third Quarter $ 3.85 $ 2.00
Second Quarter $ 6.40 $ 3.45
First Quarter $ 7.13 $ 3.88
The Company's common shares are traded on the New York Stock Exchange under the
symbol CTG, commonly abbreviated Cptr Task. On February 12, 2003, there were
3,182 record holders of the Company's common shares. The Company did not pay a
dividend in 2002 or 2001. The Company paid an annual cash dividend of $.05 per
share from 1993 to 2000 and, prior to that, paid $.025 per share annually since
1976 plus a 10 percent share dividend in 1980.
Annual Meeting
The annual meeting of shareholders has been scheduled for May 8, 2003 in
Buffalo, New York, for shareholders of record on March 26, 2003.
Form 10-K Available
Copies of the Company's Form 10-K Annual Report, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports, which are
filed with the Securities and Exchange Commission, may be obtained without
charge either through its website at www.ctg.com or upon written or verbal
request to: Computer Task Group, Incorporated Investor Relations Department 800
Delaware Avenue Buffalo, NY 14209-2094 (716) 887-7400
Transfer Agent and Registrar
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 EquiServe:
EquiServe Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
(781) 575-3170 (MA residents)
(800) 730-4001
(781) 828-8813 (fax)
www.equiserve.com
Independent Certified Public Accountants
Deloitte & Touche LLP
Key Bank Tower, Suite 250
50 Fountain Plaza
Buffalo, NY 14202
58
CTG Board of Directors
George B. Beitzel
Retired Senior Vice President and Director of IBM
James R. Boldt
Chairman and CEO of CTG
Randall L. Clark
Chairman of Dunn Tire Corporation
R. Keith Elliott
Retired Chairman and CEO of Hercules Incorporated
Randolph A. Marks
Co-Founder of CTG and Retired Chairman of American Brass Company
Dr. John M. Palms
Professor of Physics and former President of the University of South Carolina
Daniel J. Sullivan
President and CEO of FedEx Ground
Stephen D'Anna, Rick N. Sullivan, Newton H. Parkes, Thomas J. Niehaus
Paul F. Dimouro, G. David Baer, Gregory M. Dearlove
Arthur W. Crumlish, Peter P. Radetich, Filip J.L. Gyde, Alex P. Alexander
CTG Officers
Alex P. Alexander - Vice President, CTG Retail SolutionsTM
G. David Baer - Executive Vice President and Co-Founder
James R. Boldt - Chairman and Chief Executive Officer
Arthur W. Crumlish - Vice President, Strategic Staffing Services
Stephen D'Anna - Vice President, Operations, North America
Gregory M. Dearlove - Vice President and Chief Financial Officer
Paul F. Dimouro - Vice President, Operations
Filip J.L. Gyde - Vice President and General Manager, CTG Europe
Thomas J. Niehaus - Vice President and General Manager, CTG HealthCare
Solutions(R)
Newton H. Parkes - Vice President and General Manager, North America
Peter P. Radetich - Vice President, Secretary, and General Counsel
Rick N. Sullivan - Vice President, Western Region, Strategic Staffing Services
CTG
800 Delaware Avenue
Buffalo, New York 14209-2094
716.882.8000
800.992.5350
www.ctg.com
0554-AR-03
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