EXHIBIT 13
(Cover)
We Know Technology.
We Know Your Business.
Annual Report 2003
(Inside front cover)
Company Profile
In 2003, CTG began our 38th 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 2,700 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 We Know Technology
6 We Know Healthcare
8 We Know Life Sciences
10 We Know Financial Services
12 We Know Industry
14 Consolidated Summary: Selected Financial Information
15 Management's Discussion and Analysis
22 Independent Auditors' Report
23 Consolidated Financial Statements
28 Notes to Consolidated Financial Statements
39 Corporate Information
40 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.
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Dear Fellow Shareholder:
2003 was the fourth and hopefully the final year of a prolonged and difficult
technology recession. In 2003, CTG again fared better than most of our
competitors due to our strategy that focuses on higher demand verticals where we
have significant experience, our vigilant attention to cost control and our
diverse business and client base. This strategy positions CTG well in a
recovering economy and an improving market for IT services. Current key
indicators in the markets and in our business do point to a modest recovery in
2004.
In 2003, CTG reported net income of $2.7 million, our highest level of
profitability since 1999. Diluted net income per share was $0.16 in 2003,
compared to net income before a cumulative change in accounting principle of
$0.08 per diluted share in 2002. Earnings per share in 2003 included a one-time
net benefit of $0.07 per share from a favorable tax ruling affecting our
European operations. Revenues of $252.3 million were approximately 96% of 2002
revenues of $263.3 million, an indicator that our top line began to stabilize in
2003. Debt at year-end 2003 was eliminated - a reduction of $8.5 million - and
represents the first time CTG has been out of debt since the February 1999
purchase of Elumen Solutions.
For CTG, 2003 was a solid year for our strategic staffing business and another
excellent year for our healthcare practice. We are continuing our strategy of
offering core IT services-staffing, application management, and
solutions-targeted to vertical markets that are significant consumers of
technology. In July 2003, we expanded our vertical practices to include life
sciences, a dynamic market where we have significant experience. Demand for
external IT support in the life sciences industry is being driven by industry
growth and the need to comply with 21 CFR Part 11, a Federal regulation
affecting companies manufacturing or selling products regulated by the Food and
Drug Administration.
In 2003, CTG performed work for 587 clients. We place great importance on
understanding our clients' business and IT needs because it enables us to better
respond to client needs and provide more effective technology support. CTG's
ability to do this has contributed enormously to the many strong, long-term
client relationships we have. We see this commitment contributing to our future
growth as customers increasingly look to their external technology service
providers to bring both industry knowledge and best industry practices to
technology support.
Two and a half years ago, we began the shift to our strategy that focuses on
bringing CTG's core competencies to vertical markets, which is based on the
model of our very successful healthcare practice, CTG Healthcare Solutions.
Today most of CTG's business comes from four major focused verticals: technology
service providers, financial services, healthcare, and life sciences. CTG's
vertical market focus also puts us in a good position to capitalize on positive
trends and emerging opportunities in each of these markets.
CTG's Vertical Market Opportunities
Technology service providers Technology service providers are a powerful and
growing vertical market. This group, which Gartner calls technology aggregators,
is expected to be responsible for procuring 50% of all IT services in the United
States within five years (Source: Gartner Group). CTG has a proven track record
of effectively supporting the needs of large technology service providers. We
primarily support this group by supplying IT talent to supplement internal
resources. CTG is ideally positioned to support this growing market because we
have effectively developed and executed the low cost/high service model of
providing IT talent to large technology service providers and users.
Healthcare As one of the largest providers of IT services to the healthcare
industry, CTG is already well-established on a national level in this very large
market with unique business and IT needs. We are strong in all healthcare
software packages used by providers, which is driving a higher level of
development and integration work as hospitals upgrade to newer software. Our
leadership position also positions us favorably as more providers are
outsourcing IT as they focus on their core business.
Financial services As an industry, financial services is one of the largest and
most frequent consumers of information technology. Technology drives many of the
advancements in productivity and service in this industry. We see our greatest
opportunities in this vertical in staffing and transitional outsourcing and have
a focus on smaller and mid-sized financial institutions. In CTG's European
operations, financial services is our largest vertical and provides a strong
foundation to grow our European business as the economy recovers and capital
spending increases.
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Life Sciences CTG Life Sciences Solutions, our newest vertical, supports a
dynamic industry where CTG has significant references and expertise. CTG Life
Sciences Solutions' clients include several industry leaders in the
pharmaceutical and biotechnology segments of this market. Our experience
developing 21 CFR Part 11 compliance solutions is opening doors for us in this
high-growth vertical market.
CTG's Opportunities in Industry
In addition to our four largest verticals, CTG also has significant experience
providing technology support to a variety of industries. Many of the
productivity advancements in domestic industry are a result of IT solutions that
support inventory and raw material management and logistics and distribution
systems. CTG brings significant experience in this solution set to both
industrial and retail companies which should favorably position us for new work
as the economy recovers and companies increase capital spending. Additionally,
because CTG has many years of experience in installing wireless capabilities in
plant, warehouse and retail environments, our ability to support this market is
enhanced as more companies employ wireless solutions in these environments.
CTG's Offshore Outsourcing Strategy
Apart from the economy and its impact on technology spending and employment,
offshore outsourcing emerged as the largest single issue in the IT services
market in 2003, a trend that will likely continue. CTG is responding to the
challenges and opportunities of offshore outsourcing by selectively partnering
with providers of offshore IT services, by focusing on transitional outsourcing
and by shifting our outsourcing focus to mid-sized companies.
Our strategy is to partner with offshore providers as needed and to make our
partnering decisions based on our customer-specific needs with geography a
secondary and flexible consideration. We think that this approach makes more
sense than purchasing at this time an offshore provider focused on one
geography, industry or technology.
CTG's long-time focus on transitional outsourcing mitigates some of the impact
the offshore factor is having on outsourcing providers. The significant initial
investment in establishing offshore application management support typically
does not make offshore a viable option for sunsetting applications. CTG has also
focused its application management marketing on mid-sized firms in industries
such as healthcare who are less inclined to go offshore for application
management support. In 2003, we added several new application management clients
in our healthcare practice and continue to see strong proposal activity for
outsourcing engagements from this market.
A Technology Turnaround Possible in 2004
Growth in capital expenditures and further reduction in unemployment are
essential for a full-fledged recovery in our business since capital investments
drive the solutions business and companies turn to external suppliers when IT
skills are difficult to find. Gains were made on both of these key economic
measures in 2003 with domestic capital spending increasing to 7% of GDP from
5.2% of GDP in 2002 and U.S. unemployment declining year over year from 6.0% to
5.7%. These improvements represent meaningful progress on the macroeconomic
front but additional improvement is needed to bring the market demand in our
industry closer to normal levels. We also see a benefit for us from the
consolidation and failures that have occurred in IT services and solutions firms
over the last three years.
From an internal perspective, several favorable signs in our business and
markets in 2003 also point toward further improvement aligning for 2004. CTG
experienced continued growth in staffing demand with six consecutive quarters of
improvement. We are also seeing a higher level of proposal activity for
application management and the fledgling signs of an increase in development and
integration work.
It has been a long and challenging four years for CTG and for our industry. CTG
is proud to be a technology recession survivor and to have reported consistent
operating profitability over the last two years, a claim few of our industry
peers can make. Going forward, we are in a very solid position to benefit from a
recovery in the economy and technology spending based on our high demand service
offerings and established client relationships with major technology users in
high demand vertical markets. CTG is also in a strong financial position-despite
the prolonged technology recession-with no debt and strong receivables and cash
flow.
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As the year begins, we are cautiously optimistic about a gradual recovery in the
economy and the IT services market and are looking for modest revenue growth and
further improvement in CTG's profits and margins this year. Our focus in 2004
will be on keeping CTG's business and financial results on track for renewed
growth and on improving our market valuation. We are feeling better about the
future than we have in some time and are confident that our vertical market
strategy remains the right direction to take CTG.
James R. Boldt
Chairman and Chief Executive Officer
We Know Technology CTG has over 37 years experience helping our clients use
technology to achieve and support their business objectives and needs. We
continually keep pace with advances in technology and today our expertise and
experience as a technology service provider provides us with a solid foundation
to support our core product set of IT staffing, application management, and
solutions. CTG's 2,700-person IT consulting organization offers our clients
capabilities in hardware, software, local and wide area networks, the Internet,
intranets, wireless devices, and the IT services that make computer applications
and systems productive and bring the power of technology to businesses.
Large technology service providers are increasingly becoming key aggregators of
IT talent and services, securing the staff and knowledge to support large-scale
engagements or complex solutions from a variety of sources. As a
well-established, mid-sized technology services firm with a significant
geographic presence in North America and western Europe, CTG is in a strong
position to support this growing vertical market. Additionally, many leading
technology firms are also turning to outside sources like CTG to manage or
support their internal IT services so they can focus on their core business of
developing, manufacturing, and marketing technology products and consulting
services.
Our common ground as technology professionals enables us to work closely and in
partnership with other IT companies, IS departments, and computer hardware and
software manufacturing and services companies. CTG brings teams to our
engagements with technology companies that include IT professionals with strong
skill levels and up-to-date training, complemented by an approach that
emphasizes teamwork and delivering to client requirements.
Typical support CTG provides to our customers in the technology market includes:
- - Large-scale and flexible technology staffing support
- - Assessments to identify and prioritize ways to better align business and
IT strategies
- - Web-enabled order entry system implementation, linking companies with
their supply chain
- - Planning services, technology recommendations, and design changes for
customer-driven applications
- - Evaluation, testing, and validation of applications
- - Implementation of corporate intranets and Internet infrastructures
- - Security architecture for corporate intranets for a global community of
users, involving design, development, and implementation
- - Integration services ranging from point-to-point applications to
enterprise application integration (EAI) and e-business
CTG's technology clients benefit from our experience and expertise in the
industry, and our ability to quickly and cost-effectively secure IT talent to
meet their requirements. For staffing contracts, we use a suite of staffing
methodologies, including fulfillment recruiting, subcontractor certification,
orientation, and reporting, to provide rapid response to a high volume of
requests for skilled IT professionals. As a result, we have become expert at
building pipelines to a qualified pool of candidates, enabling us to be prepared
when a large staffing requirement is presented to us. On the delivery side, we
use a wide variety of recognized industry methodologies, including project
management, software development, and quality assurance, to ensure that we
provide our technology industry clients support that is consistent with best
industry practices.
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CTG's structure, processes, and business model enable us to help large
companies augment their IT staffs quickly while reducing services costs. Our
experience and approach positions CTG to effectively support the growing number
of large technology service providers that aggregate technology services from a
wide range of sources on behalf of their clients.
Low cost and superior service have made CTG a leader in supporting the staffing
needs of large users.
We Know Healthcare CTG HealthCare Solutions(R) (CTGHS) is a leading provider of
IT consulting services to healthcare providers and payers in North America.
CTGHS currently serves approximately 275 healthcare clients. Our healthcare IT
consultants average over ten years of health care IT experience and many
previously worked for healthcare software vendors or in integrated delivery
networks or hospitals, providing in-depth industry experience and a valuable
shared perspective with healthcare clients.
CTGHS is recognized for our use of proven project management methodologies
geared to the healthcare industry and our ability to mobilize both healthcare
and IT expertise. Access to the consulting and knowledge resources of the entire
CTG organization enhances the competitive position of CTGHS as an IT provider to
the healthcare market. This capability enables us to offer an expanded and
comprehensive product set, including application management; system optimization
solutions; network design, implementation, and support; and HIPAA-related
services. In addition, we offer business planning solutions for the healthcare
industry that focus on strategic IT alignment, IT architecture planning,
technology assessment and selection, and business process modeling.
Our expertise with every major healthcare information system also contributes
significantly to our ability to serve the healthcare market. We maintain
separate practices for Cerner, IDX, McKesson, MEDITECH, PPMS, EPIC, and Siemens.
We also operate a dedicated practice for Systems Integration, reflecting the
importance of this solution set as the healthcare industry updates and links
systems.
The strength of our service offerings and our consulting organization enables us
to provide healthcare organizations and integrated delivery networks with
solutions that achieve both clinical and financial objectives, improving patient
care and service, while reducing costs and increasing efficiency. We also offer
healthcare clients a single source for comprehensive IT consulting and
enterprise-wide solutions. These competitive advantages, combined with our
leadership position and knowledge of the U.S. healthcare industry, position
CTGHS for continued growth serving this key vertical market.
Demand for technology is growing in this market at a double-digit pace because
healthcare organizations are increasingly turning to technology to balance the
need to control spiraling costs while providing higher standards of care
delivery. An increasing number of healthcare organizations are also outsourcing
IT to focus on their core business, which will be a key growth driver for CTG's
healthcare practice.
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Medical College of Georgia Health, Inc. MCG Health, Inc. (MCGHI) is a
not-for-profit corporation that operates the MCG Health System. Located in
Southeastern Georgia, the system incorporates a 483-bed adult hospital, a
149-bed children's hospital and 80 outpatient specialties. MCGHI decided to
update a major hospital information application responsible for facility
billing. Not only did the system need to be brought into compliance with HIPAA
mandates, but it was heavily customized, requiring extensive--and
costly--day-to-day maintenance.
CTG HealthCare Solutions' in-depth expertise in both HIPAA regulatory compliance
and the relevant technology made us the best choice to carry out these important
projects. Our specialists led several engagements that resolved MCGHI's business
issues by making the system fully HIPAA-ready while significantly reducing
customizations and associated maintenance costs, on time and within budget.
Since then, we've assisted with several additional IT projects for MCGHI,
including system implementations and upgrades and the integration of a new
patient access component with the original hospital information system--all
without negative impact to healthcare delivery or cash flow. A CTG Client Since
2001
CTG's application management support for Healthcare clients increased in 2003.
We Know Life Sciences CTG Life Sciences Solutions, our newest vertical practice,
is already CTG's third largest practice, an indicator of the strength of our
client relationships and the demand in this market. We work with many leading
pharmaceutical and biotechnology companies in the life sciences industry. This
dynamic market, which numbers approximately 4,000 companies in North America and
Europe, also includes medical device manufacturers and clinical trials and
contract research organizations. In addition to being a high-growth market, the
life sciences industry is one of the most profitable industry groups with
capital spending and external IT spending outpacing most other sectors.
This practice combines CTG's core service offerings with over 10 years
experience in the life sciences market and focuses on good automated
manufacturing practices (GAMP) and regulatory compliance solutions. For clients
in North America and Europe, CTG's Life Sciences Solutions' services include IT
and validation strategy, regulatory compliance, software and system development,
information security, adverse events reporting, audit services, process
manufacturing, and application maintenance outsourcing. We also have the
capability to provide life sciences clients support from remote solution
centers.
Global validation and remediation, with a focus on 21 CFR Part 11 compliance, is
currently the highest demand solution set in this vertical market. This
regulation, implemented by the Food and Drug Administration (FDA) in 1997,
established requirements for electronic records and signatures for all companies
that produce or distribute FDA-regulated products.
Because many life science companies do not have the internal resources to
perform the planning and validation needed to comply with FDA regulations such
as 21 CFR Part 11, there is a robust market for external support in the
compliance area. Since the electronic submission requirement for new drug
applications was implemented in 1997, CTG has completed a substantial amount of
this work for existing clients that provides us a solid foundation to market
this solution to prospective clients.
CTG support in the area of regulatory compliance provides IT and validation
strategy, managed services, and validation resources that deliver comprehensive
support for life sciences firms. In 2003, we packaged our validation solutions
in a new product, CAVS (CTG's automated validation and software development
system), which contributed to the growth CTG achieved last year in work
supporting the life sciences market.
CTG's strategy to continue a strong growth pace for our life sciences vertical
practice includes a continued focus on GAMP and regulatory compliance with an
expansion of our solutions offering over the next few years to include systems
for clinical trials, pharmacovigilance, adverse effects reporting, and CAPA
(corrective and preventive action) management.
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CTG brings significant regulatory compliance experience to its Life Sciences
clients.
We Know Financial Services CTG has a long and significant history as a provider
of technology support to the financial services industry. Our client references
in this vertical include banks, insurance companies, and securities brokerages,
and range from small local institutions to Global 1000 companies. We support
traditional financial services business functions, as well as activities such as
mergers and acquisitions integration, risk management, and e-commerce. In
addition to traditional transactional experience, CTG has extensive references
in consumer and mortgage lending, compliance, and fraud detection.
We provide financial services clients with support covering a full range of
mission-critical IT functions, including staffing, applications management,
helpdesk, infrastructure, data center, desktop support, and network management.
CTG supports a comprehensive software set used by the financial services
industry including the packages of AMS, ASC, ATM, Bell & Howell, Checkfree,
Computer Associates, Fair Isaac, Fiserv, IBM, Kofile, Mainsoft, M&I, Primary
Payment Systems, and Provenir. Our technical skills encompass virtually every
major hardware system and programming language used by the industry.
A key area of strength in this vertical is CTG's experience in integrating new
applications and technologies with existing systems, which is a high demand
solution set given the industry's diverse and changing mix of product sets and
the systems supporting them. We are also very effective at providing
transitional outsourcing to the financial services industry, where we typically
manage 'sunsetting' applications to allow the client's internal IT staff to
focus on implementing new applications.
CTG also brings significant international experience in financial services IT to
clients in this vertical market. Financial services represents our largest
vertical market in Europe, accounting for 27.6% of revenues in our European
operation. Our European financial services clients currently include
institutions in Belgium, the Netherlands and Luxembourg, which is a major
European banking center.
CTG excels at supporting the financial services market because of our deep
understanding of its business processes and how to use technology to enhance
service levels and productivity while lowering costs. Our ability to quickly
source specialized IT talent in large volume is valuable to this market based on
its significant, but variable need for supplemental IT support. CTG's
application management capabilities also enable us to take on outsourcing
engagements of a significant scale.
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Our growth focus in this vertical market is on expanding our business as an IT
staffing supplier to larger financial institutions and increasing the
application management work we perform for small-to-mid-sized banks and
financial services companies.
Fortis CTG's association with Fortis, an international banking, insurance, and
investment services provider, began in 2000 after its formation as the result of
a merger of ASLK and Generale Bank, itself a CTG client since 2000. While the
merger established Fortis as one of Europe's leading financial institutions, it
also confronted the new organization with a problem: two sets of
mission-critical applications operating on two different computing platforms.
CTG's widely-recognized installation and testing expertise, as well as our
relationship with Generale Bank, prompted Fortis to ask us to lead a project to
merge the disparate applications on a common operating platform.
Following the successful conclusion-on time and within budget-of that project,
Fortis and CTG have entered into an ongoing managed staffing agreement under
which CTG provides IT experts that fit skill profiles defined at the start of
the engagement. Fortis has the option to change the composition of the team and
expand or reduce it as necessary to accommodate seasonal demand or special
project requirements, while CTG takes full responsibility for training to ensure
the seamless integration of new team members. Our flexibility and attention to
quality, continuity, and knowledge transfer have earned CTG a strong client
approval rating from Fortis. A CTG Client Since 2000
CTG's Financial Services clients include U.S. and European banks and insurers.
We Know Industry CTG solutions and IT consultants support business operations in
a wide range of industries including retail, consumer products, food and
beverage, fragrances and cosmetics, household appliances, automotive and tire,
metals, and petrochemical. The breadth of our IT capabilities and industry
experience enhances CTG's appeal as an external provider of IT services and
solutions.
For our manufacturing clients, logistics, Internet-based supply chains, and
health safety, and environment (HSE) stand out as the solutions sets where we
have done the most work and where client demand is strongest. CTG's customer
relationship management (CRM) and vendor allowance solutions complement our
logistics capabilities for large retailers and help these clients increase gross
profit, same store sales, and average transaction size, while automating and
securing the maximum benefit from vendor allowance programs.
We view logistics as the foundation of supply chain management and a key
component of enterprise resource management. CTG develops customized,
'common-sense' distribution management systems that enhance productivity,
increase revenues, and reduce operational costs by an average of 30%. We also
deliver business solutions that optimize the enterprise-wide management of
inventory, resources, and facilities.
CTG's work automating distribution and warehouse facilities numbers in the
hundreds of facilities-ranging from less than 20,000 to over two million square
feet-in both North America and Europe. We design logistics and distribution
systems to integrate seamlessly into enterprise resource planning or legacy host
systems. Our logistic solutions are also designed to deliver real-time, critical
business information that managers can use to make tactical decisions that
achieve corporate initiatives, increase productivity, and reduce operating
costs. A key niche of CTG's logistics expertise is development of wireless
logistics solutions able to operate in challenging environments for radio
frequency systems.
We see the Internet as the backbone of an effective supply chain because it
supplies the most efficient mechanism for integrating all the organization's
suppliers of services, raw materials, and inventory with its business processes
and information systems. CTG also develops customized solutions specific to
client products, markets, and companies, which helps our manufacturing clients
maximize their return on investment thorough reduced inventories, greater
customer loyalty, lower operating costs and faster product development and
delivery.
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For most manufacturers, health, safety and environment (HSE) is a
mission-critical priority. CTG applications have helped HSE professionals more
effectively collect and report HSE information and use it for a variety of
purposes including hazard identification, root and contributing cause
determination, development and improvement of risk management, safety and
training programs, resource utilization, and comprehensive data collection and
reporting.
A unique advantage that CTG brings to our manufacturing clients is that we are
one of a very few IT services companies that has a Total Quality Management
program certified to ISO 9001-2000. Our ISO-certified status makes us an ideal
IT partner with manufacturing companies because these companies have typically
adopted ISO and value working with suppliers who are also ISO-compliant.
Lone Star Steel 2003 marked the ten-year anniversary of a highly successful
partnership between CTG and Texas-based Lone Star Steel Company, a world-leading
manufacturer and distributor of quality tubular products for energy, industrial,
and automotive applications. This year, CTG completed two major projects for
Lone Star: implementation of Oracle manufacturing software and installation of a
wireless communication network. The Oracle implementation concluded a three-year
collaboration in which CTG specialists worked closely with Lone Star Steel
business experts to tailor the applications to Lone Star's business processes
and integrate the various phases of its production lines.
Full utilization of the Oracle applications required extending networking
capability to all areas of the business, including the mill floor. Although the
mill's age and extreme conditions had previously made networking problematical,
CTG developed an innovative wireless solution that fully supported the Oracle
rollout. In fact, the wireless network's outstanding signal strength and
reliability were instrumental in the success of the implementation effort. Now
that the Oracle system is up and running, CTG and Lone Star are looking forward
to next year's challenge: harvesting the information provided by the new
applications to optimize Lone Star's bottom line. A CTG Client Since 1994
The breadth of our IT capabilities and Industry experience make CTG an ideal
external technology partner.
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CONSOLIDATED SUMMARY - FIVE-YEAR SELECTED FINANCIAL INFORMATION
CONSOLIDATED SUMMARY 2003 2002 2001 2000 1999
(amounts in millions, except per-share data)
OPERATING DATA
Revenue $252.3 $263.3 $320.2 $354.8 $486.3
Operating income (loss) $ 3.3 $ 4.0 $ 0.4 $ (5.6)** $ 30.8
Net income (loss) before cumulative effect
of change in accounting principle $ 2.7 $ 1.4 $ (2.2) $ (5.7)** $ 16.7
Net income (loss) $ 2.7 $(35.7)* $ (2.2) $ (5.7)** $ 16.7
Basic net income (loss) per share before cumulative
effect of change in accounting principle $ 0.16 $ 0.08 $(0.13) $(0.35)** $ 1.02
Basic net income (loss) per share $ 0.16 $(2.15)* $(0.13) $(0.35)** $ 1.02
Diluted net income (loss) per share before cumulative
effect of change in accounting principle $ 0.16 $ 0.08 $(0.13) $(0.35)** $ 1.00
Diluted net income (loss) per share $ 0.16 $(2.11)* $(0.13) $(0.35)** $ 1.00
Cash dividend per share $ -- $ -- $ -- $ 0.05 $ 0.05
FINANCIAL POSITION
Working capital $ 16.4 $ 16.6 $ 20.3 $ 12.5 $ 35.2
Total assets $ 96.4 $ 99.2 $149.5 $162.4 $199.2
Long-term debt $ -- $ 8.5 $ 15.5 $ 9.7 $ 31.4
Shareholders' equity $ 56.1 $ 52.4 $ 86.6 $ 88.8 $ 94.9
* 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
Revenue (in millions)
2003 $252.3
2002 $263.3
2001 $320.2
Operating Income (in millions)
2003 $3.3
2002 $4.0
2001 $0.4
Diluted Net Income (Loss) Per Share Before Cumulative Effect of Change in
Accounting Principle
2003 $0.16
2002 $0.08
2001 $(0.13)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations 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.
Several important factors should be taken into consideration when reviewing the
operational results of the Company either on a quarterly or annual basis. These
include:
THE ANTICIPATED DEMAND FOR INFORMATION TECHNOLOGY (IT) SERVICES
There has been a steady decline in demand in the technology services sector from
2000-2003 as a recession in the technology industry has negatively affected
spending for information technology services. While the Company believes that
demand has begun to increase, a continued decline in spending for IT services
may continue to adversely affect the Company's operating results in the future.
FOREIGN OPERATIONS
The Company has been negatively affected by weaker economic conditions in The
Netherlands, which have reduced demand and increased price competition for our
services. If weaker economic conditions continue for an extended time, our
ability to maintain or increase revenues in The Netherlands may be significantly
limited. We continue to assess whether additional cost cutting efforts may be
required and if various other strategies involving our operations in The
Netherlands would better position the Company to realize our current and future
objectives.
THE AVAILABILITY OF QUALIFIED PROFESSIONAL STAFF
The Company currently actively competes with other IT services providers for
qualified professional staff. The availability, or lack thereof, of qualified
professional staff may affect the Company's ability to provide services and meet
the needs of its customers in the future. An inability to fulfill customer
requirements due to a lack of available qualified staff may adversely impact the
operations of the Company in the future.
RATE AND WAGE INFLATION OR DEFLATION
While the rates at which the Company bills its customers for its services have
tended to stabilize in the later part of 2003, there has been a general decline
in these rates over recent years as a result of the technology recession
mentioned above. Additionally, the Company actively competes against many other
companies for business with new and existing clients. A continuation of the
recession and competitive pressures may lead to a further decline in the rates
that the Company bills its customers for its services, which may adversely
effect the Company's operating results in the future.
33
RESULTS OF OPERATIONS
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, 2003 2002 2001
(percentage of revenue)
Revenue 100.0% 100.0% 100.0%
Direct costs 73.3% 72.5% 71.4%
Selling, general, and administrative expenses 25.4% 26.0% 28.5%
----- ----- -----
Operating income 1.3% 1.5% 0.1%
Interest and other expense, net (0.2)% (0.6)% (1.1)%
----- ----- -----
Income (loss) before income taxes and cumulative effect
of change in accounting principle 1.1% 0.9% (1.0)%
Provision (benefit) for income taxes 0.0% 0.4% (0.3)%
----- ----- -----
Net income (loss) before cumulative effect of change
in accounting principle 1.1% 0.5% (0.7)%
Cumulative effect of change in accounting principle -- (14.1)% --
----- ----- -----
Net income (loss) 1.1% (13.6)% (0.7)%
===== ===== =====
2003 AS COMPARED TO 2002
In 2003, CTG recorded revenue of $252.3 million, a decrease of 4.2 percent when
compared to 2002 revenue of $263.3 million. Revenues from the Company's North
American operations totaled $212.1 million in 2003, a decrease of 6.5 percent
when compared to 2002 revenue of $226.8 million. Revenues from the Company's
European operations totaled $40.2 million, an increase of 10.1 percent when
compared to 2002 revenue of $36.5 million. The European revenue represented 16.0
and 13.8 percent of 2003 and 2002 consolidated revenue, respectively. The
Company's revenue includes reimbursable expenses billed to customers. These
expenses totaled $6.7 million and $6.8 million in 2003 and 2002, respectively.
Consistent in both North America and Europe, the consolidated year-over-year
revenue decrease is primarily a result of the ongoing recession in technology
related investments which has had an overall negative effect on customer
spending for information technology services. Although 2003 saw an increasing
demand for the IT staffing services provided by the Company, a general weakness
in demand for the other services offered by the Company resulted in the overall
decrease in revenue year-over-year. Additionally, a change in the mix of the
services provided to customers in 2003 towards providing more staffing services
led to an aggregate decline in the rates of approximately 6 percent for which
the Company bills its customers for its services.
34
Revenue was negatively impacted in Europe due to the technology recession;
however, this was fully offset by the strengthening of the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg, the countries in which
the Company's European subsidiaries operate. In the Netherlands, Belgium and
Luxembourg, the functional currency is the Euro, while in the United Kingdom,
the functional currency is the British pound. If there had been no change in
these foreign currency exchange rates from 2002 to 2003, European and total
consolidated revenues for 2003 would have been $8.1 million lower. Without these
exchange gains in Europe, total European revenue would have decreased $4.4
million or 12.1 percent from 2002.
In November 2003, the Company signed a contract with International Business
Machines (IBM) for one year as one of IBM's national technical service providers
for the United States. IBM has the right to extend the contract for three
additional one-year periods. This contract, and its predecessor, accounted for
approximately 89 percent of the services provided to IBM in 2003. In 2003, IBM
continued to be the Company's largest customer, accounting for $53.9 million or
21.4 percent of total revenue as compared to $51.9 million or 19.7 percent of
2002 revenue. The increase in demand for staffing services that the Company
experienced in 2003 was significantly impacted by IBM. However, this increase in
demand was partially offset by a decline in the rates that the Company billed
IBM for its services. The Company expects to continue to derive a significant
portion of its revenue from IBM in 2004 and in future years. While a decline in
revenue from IBM would have 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.
Direct costs, defined as costs for billable staff including billable
out-of-pocket expenses, were 73.3 percent of revenue in 2003 as compared to 72.5
percent of 2002 revenue. The increase in direct costs as a percentage of revenue
in 2003 as compared to 2002 is due to the shift to more staffing services in the
Company's sales mix 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 25.4 percent of revenue
in 2003 as compared to 26.0 percent of revenue in 2002. The decline in SG&A
expense year-over-year is due to the Company continuing to align and reduce its
cost structure to the current level of revenue.
Operating income was 1.3 percent of revenue in 2003 as compared to 1.5 percent
of revenue in 2002. Operating income from North American operations was $5.5
million and $7.7 million in 2003 and 2002, respectively, while European
operations recorded an operating loss of $(2.2) million and $(3.7) million in
2003 and 2002, respectively. Additionally, if there had been no change in the
European foreign currency exchange rates from 2002 to 2003, the operating loss
in Europe in 2003 would have been $0.5 million lower, or $(1.7) million.
Interest and other expense, net was (0.2) percent of revenue in 2003 and (0.6)
percent in 2002. The decrease as a percentage of revenue from 2002 to 2003 is
primarily due to lower average outstanding indebtedness balances and
significantly lower interest rates in 2003, interest income of $0.6 million
resulting from a tax ruling in the Netherlands which created a significant net
operating loss for tax purposes in the Netherlands on which the Company was due
interest, partially offset by a loss of approximately $(0.2) million on the sale
of the property held for sale in the second quarter of 2003. The provision for
income taxes was 4.1 percent in 2003 and 39.5 percent in 2002. The significant
decrease in the provision for taxes is primarily due to the tax ruling in the
Netherlands mentioned above, which resulted in a significant net operating loss
and a calculated refund of approximately $1.1 million of taxes previously paid.
The Dutch government has notified the Company that it will be receiving this
refund, and the interest on this refund, in the first quarter of 2004.
Net income for 2003 was 1.1 percent of revenue or $0.16 per diluted share,
compared to a loss of 13.6 percent of revenue or $(2.11) per diluted share in
2002. The 2002 loss includes the cumulative effect of the change in accounting
principle relating to the valuation of the Company's goodwill which totaled 14.1
percent of revenue, or $(2.19) per diluted share. Diluted earnings per share
were calculated using 16.8 and 16.9 million equivalent shares outstanding in
2003 and 2002, respectively. The decrease in equivalent shares outstanding in
2003 is due to a lesser dilutive effect of outstanding stock options.
35
ACCOUNTING STANDARDS PRONOUNCEMENTS AFFECTING 2003
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. The Company has reviewed
the provisions of this standard and determined that its adoption did not have a
significant effect on its financial position or results of operations for the
year ended December 31, 2003.
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies the financial accounting and reporting for derivative instruments,
including those embedded in other contracts, and for hedging activities under
FAS No. 133. The provisions of the statement, for the most part, were effective
for contracts entered into and hedging activities designated after June 30,
2003. The Company has reviewed the provisions of this statement and determined
that it did not have any effect on its financial position or results of
operations for the year ended December 31, 2003.
In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for how entities should measure and classify financial
instruments with characteristics of both liabilities and equity. The provisions
of this statement were effective for interim periods beginning after June 15,
2003. The Company has reviewed the provisions of this statement and determined
that it did not have any effect on its financial position or results of
operations for the year ended December 31, 2003.
During 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities," and a revision of this Interpretation in December 2003.
These Interpretations of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," address the consolidation by business enterprises of
certain variable interest entities. If applicable, the provisions of these
Interpretations were effective for interim periods beginning after June 15,
2003. The Company has reviewed the provisions of these Interpretations and
determined that they did not have any effect on its financial position or
results of operations for the year ended December 31, 2003.
During 2003, the Emerging Issues Task Force (EITF) issued Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." This Issue addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. The provisions of this Issue
were effective for interim periods beginning after June 15, 2003. The Company
has reviewed the provisions of this Issue and determined that those provisions
are consistent with the Company's existing policies, and therefore the
implementation of this Issue did not have a significant effect on the Company's
financial position or results of operations for the year ended December 31,
2003.
In December 2003, the FASB issued FAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Post Retirement Benefits." This revision of
FAS No. 132 requires additional disclosures about the assets, obligations, the
cash flows, and the net periodic benefit costs of defined benefit plans and
other defined benefit postretirement plans. The provisions of the statement, for
the most part, are effective for periods ending after December 15, 2003. The
Company has included these additional required disclosures, as applicable, in
the notes to its consolidated financial statements, including note 6, "Deferred
Compensation Benefits," and note 7, "Employee Benefits."
36
CRITICAL ACCOUNTING POLICIES
Goodwill Valuation - With the required 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. The remaining goodwill balance of $35.7 million,
relating to the company's North American operations, 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 both January 1, 2003 and 2004, 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 at both January 1, 2003 and 2004. 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.
Income Taxes - At December 31, 2003, the Company had approximately $5.0 million
of current and non-current net deferred tax assets recorded on its balance
sheet. The changes in deferred tax assets and liabilities from year to year are
determined based upon the changes in differences between the basis of assets and
liabilities for financial reporting purposes and the basis of assets and
liabilities for tax purposes, as measured by the enacted tax rates when these
differences are estimated to reverse. The Company has made certain assumptions
regarding the timing of the reversal of these assets and liabilities, and
whether taxable operating income in future periods will be sufficient to
recognize all or a part of any gross deferred tax asset of the Company.
During 2003, a court case was resolved in the plaintiffs favor in the
Netherlands, which created, for tax purposes, a significant net operating loss
for the Company's Dutch subsidiaries. A portion of that net operating loss was
carried back to years when the subsidiaries had taxable income, which resulted
in a tax refund of approximately $1.1 million, and interest of approximately
$0.6 million, due to the Company. The Company has recorded this refund and
interest in its operations in 2003, and expects to receive the total amount due
of approximately $1.7 million in the first quarter of 2004. In addition to this
refund, at December 31, 2003, the Company has a remaining deferred tax asset
resulting from the net operating loss in the Netherlands of approximately $3.8
million. The Company also has net operating loss benefits of approximately $1.4
million in various other countries where it does business. Management of the
Company has analyzed each country's tax position and determined that it is
unclear whether approximately $4.0 million of this total potential asset of $5.2
million will be realized at any point in the future. Accordingly, at December
31, 2003, the Company has offset the asset with a valuation allowance totaling
$4.0 million. In the future, the asset, and its potential realizability, will be
evaluated each quarter to determine if a portion of the valuation allowance
should be reversed. Any reversal of this valuation allowance in the future will
result in a reduction of the Company's effective tax rate. In 2003, a 1 percent
decrease in the effect tax rate would have equaled $29,000 of additional net
income.
The Company has also 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 condensed consolidated financial statements
pursuant to the rules and regulations of the Securities and Exchange Commission
(the SEC). Such estimates primarily relate to allowances for doubtful accounts
receivable, investment valuation, legal matters, and estimates of progress
toward completion and direct profit or loss on fixed-price contracts. Actual
results could differ from these estimates.
37
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
was a result of the ongoing recession in the technology sector that 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 were constrained in
2002, the Company continued to derive a significant portion of its revenue from
IBM in 2003. 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.
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 then 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.
38
ACCOUNTING STANDARDS PRONOUNCEMENTS AFFECTING 2002
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
management with the assistance of 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 related to the acquisition in February 1999 of the healthcare
information technology services provider Elumen Solutions, Inc. Although the
revenues and profits for this unit decreased in 2000 and 2001, in 2002 the
revenues and profits for that unit were 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 believed no additional impairment was
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 had
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 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 addressed 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. The adoption of this
standard did not impact the financial position or results of operations of the
Company.
39
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."
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities was $9.5 million and $4.6 million in 2003
and 2002, respectively. Net income in 2003 totaled $2.7 million, while other
non-cash adjustments, primarily consisting of depreciation expense, the loss on
sales of property and equipment and property held for sale, and deferred income
taxes, totaled $3.5 million. Additionally, accounts receivable decreased by $3.7
million as compared to December 31, 2002 primarily due to the timing of the
collection of outstanding balances near year-end 2003 which resulted in a
decrease in days sales outstanding to 63 days from 65 days at December 31, 2002.
Accounts payable decreased $0.2 million primarily due to the timing of certain
payments. Taxes receivable increased $1.0 million due to the tax refund
resulting from the change in the tax law in the Netherlands previously
mentioned, which resulted in a significant net operating loss and a calculated
refund of approximately $1.1 million of taxes previously paid. Advance billings
on contracts increased $0.8 million due to the timing of billings sent to
customers prior to December 31, 2003.
Cash flows from investing activities provided $0.6 million in 2003, primarily
from the sale of a company owned building, while using $1.8 million in 2002. In
2003, net property and equipment and property held for sale decreased
approximately $3.9 million. Additions to property and equipment were $1.7
million, offset by depreciation expense of $3.4 million and proceeds from the
sales of property and equipment and property held for sale of $2.3 million. The
Company utilized the proceeds from the sale of the property held for sale to
reduce its outstanding balance on its revolving line of credit. The Company has
no significant commitments for capital expenditures at December 31, 2003.
Financing activities used $8.2 million of cash in 2003. Net payments on
long-term revolving debt totaled $8.5 million, reducing the outstanding debt
under this agreement to $0 at December 31, 2003. The Company borrows or repays
this revolving debt as needed based upon its working capital obligations,
including the timing of the US bi-weekly payroll. Daily average borrowings under
this agreement for the fourth quarter of 2003 were $7.3 million. The Company
also received $0.2 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, 2003,
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 2003, 2002, or 2001.
At December 31, 2003, consolidated shareholders' equity totaled $56.1 million,
which is an increase of $3.8 million from December 31, 2002. The increase is
primarily due to net income of $2.7 million, and the favorable effect of foreign
currency translation of $1.3 million.
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 $44.9 million at December 31, 2003 will be
sufficient to meet foreseeable working capital, capital expenditure, and
possible stock repurchase needs, and to allow for future internal growth and
expansion. At this time, other than those noted below under the heading
"Contractual Obligations," the Company does not have any significant commitments
for expenditures in 2004.
The Company did not have any related party or off-balance sheet arrangements or
transactions during 2003, 2002, or 2001.
40
CONTRACTUAL OBLIGATIONS
A summary of the Company's contractual obligations at December 31, 2003 is as
follows:
(in millions) Less than 1-3 3-5 More than
Total 1 year years years 5 years
----- --------- ----- ----- --------
Long-term debt A $ -- $ -- $ -- $ -- $ --
Capital lease obligations B -- -- -- -- --
Operating lease obligations C 14.2 6.1 6.3 1.6 0.2
Purchase obligations D 0.3 0.3 -- -- --
Deferred compensation benefits
(United States) E 9.2 0.6 1.3 1.3 6.0
Deferred compensation benefits
(Europe) F -- -- -- -- --
Other long-term liabilities G 0.2 0.1 0.1 -- --
Total $23.9 $ 7.1 $ 7.7 $ 2.9 $ 6.2
A The Company has a committed revolving debt agreement with a bank group
totaling $45.0 million, due in May 2005. Borrowings under the agreement
are secured by certain of the Company's assets, and 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, 2003 and during 2003 and 2002, the Company was in compliance
with these covenants. The Company uses this facility to fund its working
capital obligations as needed, primarily including funding the US
bi-weekly payroll. There were no borrowings outstanding under this
agreement at December 31, 2003.
The Company currently has one outstanding letter of credit for less
than $0.1 million that collateralizes an office lease. The Company is also
committed to enter into a letter of credit in 2004 totaling less than $0.1
million to collateralize an employee benefit program.
B The Company does not have any, and is not committed to enter any capital
lease obligations at this time.
C Operating lease obligations relate to the rental of office space, office
equipment, and automobiles leased in our European operations. Total rental
expense under operating leases in 2003, 2002, and 2001 was approximately
$8.4 million, $8.5 million, and $9.6 million, respectively.
D The Company is currently obligated to spend approximately $ 0.3 million in
2004 for computer-based training courses.
E The Company is committed for deferred compensation benefits in the United
States under two plans. The Executive Supplemental Benefit Plan (ESBP)
provides a current and certain former key executives with deferred
compensation benefits. The ESBP was amended as of November 30, 1994 to
freeze benefits for participants at that time. Currently, 10 individuals
are receiving benefits under this plan. The ESBP is deemed to be unfunded
as the Company has not specifically identified Company assets to be used
to discharge the deferred compensation benefit liabilities.
The Company also has a non-qualified defined-contribution deferred
compensation plan for certain key executives. There were no contributions
to this plan in 2003, and only one executive currently has a vested
balance under the plan.
F The Company maintains a contributory defined-benefit plan for its
employees located in the Netherlands. This plan was curtailed on January
1, 2003 for additional contributions. As this plan is fully funded at
December 31, 2003, the Company does not anticipate making any additional
payments to fund the Plan.
G The Company has other long-term liabilities totaling $0.2 million,
reflecting the cost for access to informational databases provided by a
vendor to the Company.
41
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Computer Task Group, Incorporated
Buffalo, New York
We have audited the accompanying consolidated balance sheet of Computer Task
Group, Incorporated and subsidiaries as of December 31, 2003, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
accompanying balance sheet of Computer Task Group, Incorporated as of December
31, 2002, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the years ended 2002 and 2001 were
audited by other auditors whose report thereon dated February 5, 2003, was
unqualified and included an explanatory paragraph that described the change in
the company's method of accounting for goodwill discussed in Note 1 to the
consolidated financial statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computer Task Group,
Incorporated and subsidiaries as of December 31, 2003, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
Buffalo, New York
February 4, 2004
42
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Computer Task Group, Incorporated
Buffalo, New York
We have audited the accompanying consolidated balance sheet of Computer Task
Group, Incorporated and subsidiaries (the "Company") as of December 31, 2002,
and the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the two 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 the results of their operations
and their cash flows for each of the two 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
43
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2003 2002 2001
(amounts in thousands, except per-share data)
Revenue $ 252,341 $ 263,276 $ 320,213
Direct costs 184,880 190,736 228,461
Selling, general, and administrative expenses 64,199 68,518 91,338
--------- --------- ---------
Operating income 3,262 4,022 414
Interest and other income 661 242 638
Interest and other expense (1,061) (2,012) (4,335)
--------- --------- ---------
Income (loss) before income taxes and
cumulative effect of change in accounting principle 2,862 2,252 (3,283)
Provision (benefit) for income taxes 118 890 (1,081)
--------- --------- ---------
Net income (loss) before cumulative effect
of change in accounting principle 2,744 1,362 (2,202)
Cumulative effect of change in accounting principle -- (37,038) --
========= ========= =========
Net income (loss) $ 2,744 $ (35,676) $ (2,202)
========= ========= =========
Basic net income (loss) per share:
Net income (loss) before cumulative effect
of change in accounting principle $ 0.16 $ 0.08 $ (0.13)
Cumulative effect of change in accounting principle -- (2.23) --
========= ========= =========
Basic net income (loss) per share $ 0.16 $ (2.15) $ (0.13)
========= ========= =========
Diluted net income (loss) per share:
Net income (loss) before cumulative effect
of change in accounting principle $ 0.16 $ 0.08 $ (0.13)
Cumulative effect of change in accounting principle -- (2.19) --
========= ========= =========
Diluted net income (loss) per share $ 0.16 $ (2.11) $ (0.13)
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
44
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 2002
(amounts in thousands, except share balances)
ASSETS
Current assets:
Cash and temporary cash investments $ 2,534 $ 69
Accounts receivable, net 41,554 43,696
Prepaids and other 2,538 2,253
Income taxes receivable 1,239 153
Deferred income taxes 502 623
--------- ---------
Total current assets 48,367 46,794
Property and equipment, net of accumulated depreciation 7,187 8,939
Property held for sale -- 2,190
Goodwill 35,678 35,678
Deferred income taxes 4,511 4,412
Other assets 704 1,171
--------- ---------
Total assets $ 96,447 $ 99,184
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,837 $ 6,520
Accrued compensation 19,334 19,139
Advance billings on contracts 1,167 359
Other current liabilities 4,581 4,163
--------- ---------
Total current liabilities 31,919 30,181
Long-term debt -- 8,497
Deferred compensation benefits 8,337 7,786
Other long-term liabilities 60 350
--------- ---------
Total liabilities 40,316 46,814
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 111,333 111,465
Retained earnings 40,441 37,697
Less: Treasury stock of 6,148,990 shares at cost (31,416) (31,416)
Stock Trusts of 4,152,119
and 4,246,337 shares at cost, respectively (58,446) (58,848)
Accumulated other comprehensive loss:
Foreign currency adjustment (4,840) (6,116)
Minimum pension liability adjustment (1,211) (682)
--------- ---------
Accumulated other comprehensive loss (6,051) (6,798)
--------- ---------
Total shareholders' equity 56,131 52,370
--------- ---------
Total liabilities and shareholders' equity $ 96,447 $ 99,184
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
45
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2003 2002 2001
(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,744 $(35,676) $ (2,202)
Adjustments:
Depreciation expense 3,392 3,903 4,638
Amortization expense -- -- 3,975
Change in accounting principle -- 37,038 --
Deferred income taxes (75) 216 2,145
Tax benefit on stock option exercises 4 -- 27
Loss on sales of property and equipment and
property held for sale 220 142 80
Deferred compensation 22 (499) (589)
Changes in assets and liabilities:
Decrease in accounts receivable 3,670 8,347 5,531
(Increase) decrease in prepaids and other (122) 736 (104)
(Increase) decrease in income taxes receivable (983) 102 (3,769)
(Increase) decrease in other assets 467 (489) (30)
Decrease in accounts payable (200) (2,100) (4,147)
Decrease in accrued compensation (357) (5,387) (1,778)
Increase (decrease) in advance billings on contracts 808 (112) (171)
Increase (decrease) in other current liabilities 191 (1,480) (4,442)
Decrease in other long-term liabilities (290) (187) (174)
-------- -------- --------
Net cash provided by (used in) operating activities 9,491 4,554 (1,010)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,689) (1,849) (4,204)
Proceeds from sales of fixed assets 2,283 22 88
-------- -------- --------
Net cash provided by (used in) investing activities 594 (1,827) (4,116)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) long-term revolving debt, net (8,497) (7,015) 5,812
Proceeds from Employee Stock Purchase Plan 215 331 510
Purchase of stock for treasury -- (6) (6)
Proceeds from other stock plans 51 24 124
-------- -------- --------
Net cash provided by (used in) financing activities (8,231) (6,666) 6,440
-------- -------- --------
Effect of exchange rate changes on cash
and temporary cash investments 611 646 (514)
-------- -------- --------
Net increase (decrease) in cash and temporary
cash investments 2,465 (3,293) 800
-------- -------- --------
Cash and temporary cash investments at beginning of year 69 3,362 2,562
Cash and temporary cash investments at end of year $ 2,534 $ 69 $ 3,362
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
46
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, 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)
Employee Stock Purchase Plan share issuance -- -- (99) -- -- --
Stock Option Plan share issuance -- -- (33) -- -- --
Comprehensive income (loss):
Net income -- -- -- 2,744 -- --
Foreign currency adjustment -- -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- --
------ ------- --------- -------- ----- --------
Total comprehensive income (loss) -- -- -- 2,744 -- --
------ ------- --------- -------- ----- --------
BALANCE AS OF DECEMBER 31, 2003 27,018 $ 270 $ 111,333 $ 40,441 6,149 $(31,416)
MINIMUM
FOREIGN PENSION TOTAL
STOCK TRUSTS CURRENCY LIABILITY SHAREHOLDERS'
(amounts in thousands, except share data) SHARES AMOUNT ADJUSTMENT ADJUSTMENT EQUITY
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
Employee Stock Purchase Plan share issuance (73) 314 -- -- 215
Stock Option Plan share issuance (21) 88 -- -- 55
Comprehensive income (loss):
Net income -- -- -- -- 2,744
Foreign currency adjustment -- -- 1,276 -- 1,276
Minimum pension liability adjustment -- -- -- (529) (529)
----- --------- --------- --------- ---------
Total comprehensive income (loss) -- -- 1,276 (529) 3,491
----- --------- --------- --------- ---------
BALANCE AS OF DECEMBER 31, 2003 4,152 $ (58,446) $ (4,840) $ (1,211) $ 56,131
The accompanying notes are an integral part of these consolidated financial
statements.
47
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, investment valuation, legal matters, 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 time-and-materials and monthly fee
contracts as hours are expended and costs are incurred. Fixed-price contracts
accounted for under the percentage-of-completion method represented
approximately 3 percent of 2003, 2 percent of 2002, and 1 percent of 2001
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. As required, the Company
includes billable expenses in its accounts as both revenue and direct costs.
These billable expenses totaled $ 6.7 million, $6.8 million, and $8.1 million in
2003, 2002 and 2001, respectively.
In 2003, the Emerging Issues Task Force (EITF) issued Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables." This Issue addresses certain aspects
of the accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. The provisions of this Issue were
effective for interim periods beginning after June 15, 2003. The Company has
reviewed the provisions of this Issue and determined that those provisions are
consistent with the Company's existing policies, and therefore the
implementation of this Issue did not have a significant effect on the Company's
financial position or results of operations for the period ended December 31,
2003.
Accounts receivable is reconciled to the consolidated balance sheet at December
31, 2003 and 2002 as follows:
December 31 2003 2002
(amounts in thousands) -------- --------
Accounts receivable, gross $ 42,866 $ 45,266
Allowance for doubtful accounts (1,225) (1,170)
Projects reserve (87) (400)
-------- --------
Accounts receivable, net $ 41,554 $ 43,696
======== ========
Bad debt expense (benefit) in 2003, 2002 and 2001 was $0.4 million, $(0.6)
million, and $(0.3) million, respectively. The benefit balances in 2002 and 2001
reflect the favorable resolution of several significant accounts during those
years that had been expensed in prior years.
48
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, 2003 and 2002, the carrying amounts of the Company's financial
instruments, which include cash and temporary cash investments ($2.5 million and
$0.1 million, respectively), accounts receivable, net ($41.6 million and $43.7
million, respectively), prepaid and other assets ($2.5 million and $2.3 million,
respectively), accounts payable ($6.8 million and $6.5 million, respectively),
and long-term debt ($0 and $8.5 million, respectively), 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." The Company adopted these standards as
of January 1, 2002.
In conjunction with the adoption of FAS No. 142, the initial valuation of the
business unit for which the Company's goodwill relates was completed in 2002 by
management with the assistance of 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 related to the acquisition in February 1999 of the healthcare
information technology services provider Elumen Solutions, Inc. Although the
revenues and profits for this unit decreased in 2000 and 2001, in 2002 the
revenues and profits for that unit were 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 valuation 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 2002
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 both January 1, 2003 and 2004, the Company completed its annual valuation
of the business unit to which the Company's goodwill relates. These valuations
indicated that the estimated fair value of the business unit exceeded the
carrying value of this unit in both 2003 and 2004. Accordingly, the Company
believes no additional impairment is required to be recorded in its consolidated
financial results.
49
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, 2003, 2002, and 2001 is
as follows:
FOR THE YEAR ENDED DECEMBER 31, 2003 2002 2001
(amounts in thousands, except per-share data)
NET INCOME (LOSS):
Net income (loss) before cumulative
effect of change in accounting principle $ 2,744 $ 1,362 $ (2,202)
Cumulative effect of change
in accounting principle -- (37,038) --
---------- ---------- ----------
Net income (loss) 2,744 (35,676) (2,202)
Goodwill amortization -- -- 3,975
---------- ---------- ----------
Adjusted net income (loss) $ 2,744 $ (35,676) $ 1,773
========== ========== ==========
BASIC NET INCOME (LOSS) PER SHARE:
Income (loss) before cumulative effect
of change in accounting principle $ 0.16 $ 0.08 $ (0.13)
Cumulative effect of change
in accounting principle -- (2.23) --
---------- ---------- ----------
Reported basic net income (loss) per share 0.16 (2.15) (0.13)
Goodwill amortization -- -- 0.24
---------- ---------- ----------
Adjusted basic net income (loss) per share $ 0.16 $ (2.15) $ 0.11
========== ========== ==========
DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) before cumulative effect
of change in accounting principle $ 0.16 $ 0.08 $ (0.13)
Cumulative effect of change
in accounting principle -- (2.19) --
---------- ---------- ----------
Reported diluted net income (loss) per share 0.16 (2.11) (0.13)
Goodwill amortization -- -- 0.24
---------- ---------- ----------
Adjusted diluted net income (loss) per share $ 0.16 $ (2.11) $ 0.11
========== ========== ==========
The change in the goodwill balance on the consolidated balance sheets for 2003
and 2002 is as follows:
2003 2002
Goodwill, beginning of year $ 35,678 $ 73,121
Cumulative effect of change in accounting principle -- (37,038)
Other -- (405)
-------- --------
Goodwill, end of year $ 35,678 $ 35,678
======== ========
The remaining goodwill balance at December 31, 2003 of $35.7 million is included
in the Company's North American segment.
50
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets 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 2002, the Company began to actively market one of its owned properties
for sale, and 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. The property was subsequently sold during the second quarter of 2003
for approximately $2.2 million. The Company recorded an additional loss of
approximately $(0.2) million at the time of the sale.
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. 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 levels of historical taxable income or loss, and
projections for future taxable income or loss over the years in which the
deferred tax assets are deductible, management believes at December 31, 2003
that it is more likely than not that the Company will not realize a portion of
the benefits of these deductible differences in the future. Accordingly, a
valuation allowance has been established for certain of the Company's deferred
tax assets representing net operating losses in several of its foreign units.
See Note 4. Income Taxes.
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, 2003, 2002, and 2001, the tax expense (benefit)
associated with the minimum pension liability adjustment was $0.4 million, $0.1
million, and $(0.2), respectively.
51
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 income (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 9, "Stock Option Plans."
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:
2003 2002 2001
(amounts in thousands, except per-share data)
Net income (loss), as reported $ 2,744 $ (35,676) $ (2,202)
Stock-based employee compensation expense as
calculated under the fair value
method for all awards, net of tax (1,148) (1,380) (2,204)
========== ========== ==========
Pro forma net income (loss) $ 1,596 $ (37,056) $ (4,406)
========== ========== ==========
Basic net income (loss) per share:
As reported $ 0.16 $ (2.15) $ (0.13)
========== ========== ==========
Pro forma $ 0.10 $ (2.24) $ (0.27)
========== ========== ==========
Diluted net income (loss) per share:
As reported $ 0.16 $ (2.11) $ (0.13)
========== ========== ==========
Pro forma $ 0.09 $ (2.19) $ (0.27)
========== ========== ==========
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,
as the Company does not partake in derivative or hedging activities, the
adoption of the standards had no effect on the consolidated financial
statements, and required minimal disclosure by the Company.
52
NET INCOME (LOSS) PER SHARE
Basic and diluted earnings (loss) per share (EPS) for the years ended December
31, 2003, 2002, and 2001 are as follows:
NET WEIGHTED- EARNINGS
FOR THE YEAR ENDED INCOME AVERAGE (LOSS)
(amounts in thousands, except per-share data) (LOSS) SHARES PER SHARE
DECEMBER 31, 2003
Basic EPS $ 2,744 16,663 $ 0.16
Dilutive effect of outstanding stock options -- 183 --
-------- ------ ------
Diluted EPS $ 2,744 16,846 $ 0.16
======== ====== ======
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)
======== ======
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)
======== ====== ======
Weighted-average shares represent the average of issued shares less treasury
shares and less the shares held in the Stock Trusts. In 2003 and 2002, the
dilutive effect of outstanding stock options was 183,000 and 328,000
weighted-average shares, respectively. As the Company had a net loss in 2001,
the dilutive effect of outstanding stock options totaling 125,000
weighted-average shares at December 31, 2001 was not included in the diluted EPS
calculation.
Options to purchase 1.6 million, 1.8 million, and 2.5 million shares of common
stock were outstanding at December 31, 2003, 2002, and 2001, 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.
53
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 2003, 2002, and 2001 amounted to $0.5 million, $1.6
million, and $3.9 million, respectively, while net income tax payments totaled
$1.1 million, $1.9 million, and $0.7 million for the respective years.
ACCOUNTING STANDARDS PRONOUNCEMENTS
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. The Company has reviewed
the provisions of this standard and determined that its adoption did not have a
significant effect on its financial position or results of operations for the
year ended December 31, 2003.
In April 2003, the FASB issued FAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." This statement amends and
clarifies the financial accounting and reporting for derivative instruments,
including those embedded in other contracts, and for hedging activities under
FAS No. 133. The provisions of the statement, for the most part, were effective
for contracts entered into and hedging activities designated after June 30,
2003. The Company has reviewed the provisions of this statement and determined
that it did not have any effect on its financial position or results of
operations for the year ended December 31, 2003.
In May 2003, the FASB issued FAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This statement
establishes standards for how entities should measure and classify financial
instruments with characteristics of both liabilities and equity. The provisions
of this statement were effective for interim periods beginning after June 15,
2003. The Company has reviewed the provisions of this statement and determined
that it did not have any effect on its financial position or results of
operations for the year ended December 31, 2003.
During 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities," and a revision of this Interpretation in December 2003.
These Interpretations of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," address the consolidation by business enterprises of
certain variable interest entities. If applicable, the provisions of these
Interpretations were effective for interim periods beginning after June 15,
2003. The Company has reviewed the provisions of these Interpretations and
determined that they did not have any effect on its financial position or
results of operations for the year ended December 31, 2003.
During 2003, the Emerging Issues Task Force (EITF) issued Issue No. 00-21,
"Revenue Arrangements with Multiple Deliverables." This Issue addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. The provisions of this Issue
were effective for interim periods beginning after June 15, 2003. The Company
has reviewed the provisions of this Issue and determined that those provisions
are consistent with the Company's existing policies, and therefore the
implementation of this Issue did not have a significant effect on the Company's
financial position or results of operations for the year ended December 31,
2003.
In December 2003, the FASB issued FAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Post Retirement Benefits." This revision of
FAS No. 132 requires additional disclosures about the assets, obligations, the
cash flows, and the net periodic benefit costs of defined benefit plans and
other defined benefit postretirement plans. The provisions of the statement, for
the most part, were effective for periods ending after December 15, 2003. The
Company has included theses additional required disclosures, as applicable, in
the notes to its consolidated financial statements, including note 6, "Deferred
Compensation Benefits," and note 7, "Employee Benefits."
54
2. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2003 and 2002 are summarized as follows:
DECEMBER 31, USEFUL LIFE 2003 2002
(years) (amounts in thousands)
Land -- $ 378 $ 886
Buildings 30 4,456 7,065
Equipment 2-5 15,047 17,668
Furniture 5-10 5,204 5,160
Software 2-5 8,615 7,965
Leasehold improvements 10 2,788 2,511
-------- --------
36,488 41,255
Less accumulated depreciation (29,301) (30,126)
-------- --------
$ 7,187 $ 11,129
======== ========
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 were 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.
During 2002, the Company began to actively market for sale the third building it
owned, and had 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. The property was subsequently sold during the second quarter of 2003
for approximately $2.2 million. The Company recorded an additional loss of
approximately $(0.2) million at the time of the sale.
3. DEBT
During 2002, the Company amended and restated its existing revolving line of
credit agreement (Agreement). At that time, the new Agreement had a borrowing
limit of $50 million. During December 2003, the Company paid off a $5 million
term loan, which reduced the overall borrowing limit of the Agreement to $45
million. The Agreement is due in May 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, 2003 and during 2003 and 2002, the
Company was in compliance with these covenants. At December 31, 2003 and 2002,
there were $0 and $8.4 million outstanding, respectively, under the Company's
revolving credit agreement. Additionally, at both December 31, 2003 and 2002,
there was $0.1 million outstanding under one letter of credit under this
agreement.
The maximum amounts outstanding under the revolving credit agreements during
2003, 2002, and 2001 were $20.7 million, $29.7 million, and $40.0 million,
respectively. Average bank borrowings outstanding for the years 2003, 2002, and
2001 were $12.4 million, $20.5 million, and $29.7 million, respectively, and
carried weighted-average interest rates of 3.4 percent, 4.1 percent, and 7.5
percent, respectively.
The Company owed $0 and $0.1 million at December 31, 2003 and 2002,
respectively, under capital lease agreements. The 2002 amount was included in
the Company's long-term debt balance at December 31, 2002.
55
4. INCOME TAXES
The provision (benefit) for income taxes for 2003, 2002, and 2001 consists of
the following:
(amounts in thousands) 2003 2002 2001
DOMESTIC AND FOREIGN COMPONENTS OF INCOME
(LOSS) BEFORE INCOME TAXES ARE AS FOLLOWS:
Domestic $ 6,048 $ 6,126 $ 162
Foreign (3,186) (3,874) (3,445)
------- ------- -------
$ 2,862 $ 2,252 $(3,283)
======= ======= =======
THE PROVISION (BENEFIT)
FOR INCOME TAXES
CONSISTS OF:
Current tax:
U.S. federal $ 908 $ 494 $(1,388)
Foreign (1,084) (524) (2,657)
U.S. state and local 545 592 819
------- ------- -------
369 562 (3,226)
Deferred tax:
U.S. federal (204) 197 1,837
U.S. state and local (47) 131 308
------- ------- -------
(251) 328 2,145
------- ------- -------
$ 118 $ 890 $(1,081)
======= ======= =======
THE EFFECTIVE AND STATUTORY INCOME
TAX RATE CAN BE RECONCILED AS FOLLOWS:
Tax at statutory rate of 34 percent $ 973 $ 765 $(1,116)
Rate differential -- -- --
State tax, net of federal benefits 360 415 541
Expenses for which no tax benefit (expense) is available 21 (70) 1,097
Change in estimate of non-deductible expenses (500) (215) (1,642)
Non taxable income (413) -- --
Foreign tax ruling (3,270) -- --
Valuation allowance 4,043 -- --
Tax refund related to tax settlement (1,084) -- --
Other, net (12) (5) 39
------- ------- -------
$ 118 $ 890 $(1,081)
======= ======= =======
Effective income tax rate 4.1% 39.5% (32.9)%
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.
During 2003, a court case was resolved in the plaintiff's favor in the
Netherlands, which created, for tax purposes, a significant net operating loss
for the Company's Dutch subsidiaries. A portion of that net operating loss was
carried back to years when the subsidiaries had taxable income, which resulted
in a tax refund of approximately $1.1 million, and interest of $0.6 million on
that refund, due to the Company. The Company has recorded this refund and
interest in its operations in 2003, and expects to receive the amount due in the
first quarter of 2004.
56
The Company's deferred tax assets and liabilities at December 31, 2003 and 2002
consist of the following:
DECEMBER 31, 2003 2002
(amounts in thousands)
Assets
Deferred compensation $ 3,260 $ 3,015
Loss carryforwards 5,225 1,048
Accruals deductible for tax
purposes when paid 100 319
Allowance for doubtful accounts 402 290
Amortization 1,037 1,156
------- -------
Gross deferred tax assets 10,024 5,828
Liabilities
Depreciation 724 550
Amortization 30 81
Other, net 214 162
------- -------
Gross deferred tax liabilities 968 793
Deferred tax assets valuation allowance 4,043 --
------- -------
Net deferred tax assets $ 5,013 $ 5,035
======= =======
Net deferred assets and liabilities are
recorded at December 31, 2003
and 2002 as follows:
Net current assets $ 502 $ 623
Net non-current assets 4,511 4,412
------- -------
Net deferred tax assets $ 5,013 $ 5,035
======= =======
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 levels of historical taxable income or loss, and projections for future
taxable income or loss over the years in which the deferred tax assets are
deductible, at December 31, 2003 management believes that it is more likely than
not that the Company will not realize a portion of the benefits of these
deductible differences in the future.
The Company has a remaining deferred tax asset resulting from the net operating
loss in the Netherlands of approximately $3.8 million. The Company also has net
operating loss benefits of approximately $1.4 million in various other countries
where it does business. Management of the Company has analyzed each country's
tax position and determined that it is unclear whether approximately $4.0
million of this total potential asset of $5.2 million will be realized at any
point in the future. Accordingly, at December 31, 2003, the Company has offset
the asset with a valuation allowance totaling $4.0 million. In the future, the
asset, and its potential realizability, will be evaluated each quarter to
determine if a portion of the valuation allowance should be reversed.
Undistributed earnings of the Company's foreign subsidiaries were minimal at
December 31, 2003, 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 2003, 2002, and 2001, 13,000, 3,000, and 26,000 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 $4,000, $2,000, and $27,000 in 2003, 2002, and 2001, respectively. These tax
benefits have also been recognized in the consolidated balance sheets as a
reduction of current taxes payable.
57
5. LEASE COMMITMENTS
At December 31, 2003, the Company was obligated under a number of long-term
operating leases. Minimum future obligations under such leases are summarized as
follows:
YEAR ENDING DECEMBER 31,
(amounts in thousands)
2004 $ 6,124
2005 3,843
2006 2,507
2007 1,288
2008 313
Later years 156
--------
Minimum future obligations $ 14,231
========
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 2003, 2002, and 2001 was approximately $ 8.4 million, $8.5
million, and $9.6 million, respectively.
6. 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 the year ended December 31, 2003, 2002, and 2001
for the ESBP is as follows:
NET PERIODIC PENSION COST - ESBP 2003 2002 2001
(amounts in thousands)
Interest cost $ 538 $ 586 $ 692
Amortization of unrecognized
net loss 22 7 30
----- ----- -----
Net periodic pension cost $ 560 $ 593 $ 722
===== ===== =====
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. The Plan was curtailed for additional contributions in
January 2003.
Net periodic pension cost for the twelve month period ended September 26, 2003,
September 27, 2002, and September 28, 2001 for the NDBP is as follows:
NET PERIODIC PENSION COST - NDBP 2003 2002 2001
(amounts in thousands)
Service cost $ 110 $ 278 $ 228
Interest cost 216 237 160
Expected return on plan assets (251) (227) (189)
Amortization of actuarial loss -- 14 --
----- ----- -----
Net periodic pension cost 75 302 199
Employee contributions 60 199 149
----- ----- -----
Net retirement cost $ 15 $ 103 $ 50
===== ===== =====
58
The change in benefit obligation and reconciliation of fair value of plan assets
for the year ended December 31, 2003 and 2002 for the ESBP, and for the twelve
month period ended September 26, 2003 and September 27, 2002 for the NDBP are as
follows:
ESBP NDBP
CHANGES IN BENEFIT OBLIGATION 2003 2002 2003 2002
(amounts in thousands)
Benefit obligation at
beginning of year $ 8,272 $ 8,660 $ 3,969 $ 4,505
Service cost, net -- -- 50 79
Interest cost 538 586 216 237
Amortization of unrecognized net loss -- 7 -- 14
Employee contributions -- -- 60 199
Benefits paid (880) (1,147) (16) (14)
Adjustment to minimum liability 903 166 -- --
Curtailment gain -- -- (579) --
Actuarial (gain) loss -- -- (142) (1,285)
Effect of exchange rate changes -- -- 763 234
------- ------- ------- -------
Benefit obligation at end of period 8,833 8,272 4,321 3,969
------- ------- ------- -------
RECONCILIATION OF FAIR
VALUE OF PLAN ASSETS
Fair value of plan assets at beginning of year -- -- 3,590 3,643
Expected return on plan assets -- -- 251 227
Employer contributions -- -- 348 392
Employee contributions -- -- 60 199
Benefits paid -- -- (16) (14)
Unrecognized net loss -- -- (95) (1,059)
Effect of exchange rate changes -- -- 689 202
------- ------- ------- -------
Fair value of plan assets at end of year -- -- 4,827 3,590
------- ------- ------- -------
(Funded) unfunded status 8,833 8,272 (506) 379
Unrecognized net actuarial gain (2,018) (1,137) (5) (348)
------- ------- ------- -------
Accrued benefit cost (asset) $ 6,815 $ 7,135 $ (511) $ 31
------- ------- ------- -------
Weighted-average discount rate 6.25% 6.75% 5.00% 5.00%
Salary increase rate -- -- 4.00% 4.00%
Expected return on plan assets -- -- 5.50% 5.50%
For the ESBP, the accumulated benefit obligation at December 31, 2003 and 2002
was $8.8 million and $8.3 million, respectively. 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 does not anticipate making contributions to the plan
in 2004 and future years to fund the plan.
59
Benefit payments for the ESBP are expected to be paid in future years as
follows:
YEAR ENDING DECEMBER 31,
(amounts in thousands)
2004 $ 638
2005 665
2006 655
2007 676
2008 664
2009-2013 3,543
--------
$ 6,841
========
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 2003, 2002, or 2001.
7. 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 $1.6 million, $1.4 million, and $1.9
million for 2003, 2002, and 2001, respectively.
OTHER RETIREMENT PLANS
The Company maintains various retirement plans other than the NDBP discussed in
Note 6, covering substantially all of the remaining European employees. Company
contributions charged to operations were $0.4 million in 2003, $0.4 million in
2002, and $0.2 million in 2001.
60
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 2003, 2002, and 2001 is as follows:
NET PERIODIC POSTRETIREMENT
BENEFIT COST 2003 2002 2001
(amounts in thousands)
Interest cost $ 35 $ 28 $ 17
Amortization of transition amount 29 29 29
Amortization of gain -- (14) (33)
--------- --------- ---------
$ 64 $ 43 $ 13
========= ========= =========
The change in postretirement benefit obligation at December 31, 2003 and 2002 is
as follows:
CHANGE IN POSTRETIREMENT
BENEFIT OBLIGATION 2003 2002
(amounts in thousands)
Postretirement benefit obligation
at beginning of year $ 560 $ 418
Interest cost 35 28
Amortization of transition amount 29 29
Benefits paid (47) (52)
Amortization of gain -- (14)
Adjustment to unrecognized transition obligation (30) (14)
Adjustment to unrecognized gain 90 165
--------- ---------
Postretirement benefit obligation at end of year 637 560
Fair value of plan assets at end of year -- --
--------- ---------
Funded status 637 560
Unrecognized transition obligation (263) (292)
Unrecognized gain (57) 32
--------- ---------
Accrued postretirement benefit cost $ 317 $ 300
--------- ---------
Weighted-average discount rate 6.25% 6.75%
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 11% percent for
medical and 6% percent for dental in 2004, gradually declining to 5 percent by
the year 2010 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 $43,000 at December 31, 2003,
and the net periodic cost by $2,600 for the year. A one-percentage-point
decrease in the healthcare cost trend would decrease the accumulated
postretirement benefit obligation by $38,000 at December 31, 2003, and the net
periodic pension cost by $2,300 for the year.
61
8. 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 closing 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, 2003, approximately 265,000
shares remain unissued under the Plan, of the total of 11.5 million shares that
had been authorized under the Plan. During 2003, 2002, and 2001, approximately
73,000, 84,000, and 142,000 shares, respectively, were purchased under the plan
at an average price of $2.92, $3.93, and $3.59 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, 2003, all shares remaining in the SECT were unallocated and, therefore, are
not considered outstanding for purposes of calculating earnings per share.
SECT activity for 2003, 2002, and 2001 is as follows:
2003 2002 2001
(amounts in thousands)
Share balance at beginning of year 4,187 4,279 4,449
Shares purchased -- -- --
Shares released:
Stock option plans (21) (8) (28)
Employee Stock Purchase Plan (73) (84) (142)
------ ------ ------
Share balance at end of year 4,093 4,187 4,279
====== ====== ======
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 2003,
2002, and 2001, no shares were purchased or released by the trust.
62
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.
9. 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.
The per-option weighted-average fair value on the date of grant of stock options
granted in 2003, 2002, and 2001, using the Black-Scholes option pricing model,
was $1.85, $2.70, and $2.17, respectively. The fair value of the options at the
date of grant was estimated with the following weighted-average assumptions:
2003 2002 2001
Expected life (years) 3.5 3.8 4.0
Dividend yield 0.0% 0.0% 0.0%
Risk-free interest rate 2.3% 3.5% 4.4%
Expected volatility 84.9% 82.6% 70.9%
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 income (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.
63
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:
(amounts in thousands, except per share data) 2003 2002 2001
Net income (loss), as reported $ 2,744 $ (35,676) $ (2,202)
Stock-based employee compensation
expense as calculated under the fair
value method for all awards, net of tax (1,148) (1,380) (2,204)
------------ ------------ ------------
Pro forma net income (loss) $ 1,596 $ (37,056) $ (4,406)
=========== =========== ===========
Basic net loss per share:
As reported $ 0.16 $ (2.15) $ (0.13)
=========== =========== ===========
Pro forma $ 0.10 $ (2.24) $ (0.27)
=========== =========== ===========
Diluted net income (loss) per share:
As reported $ 0.16 $ (2.11) $ (0.13)
=========== =========== ===========
Pro forma $ 0.09 $ (2.19) $ (0.27)
=========== =========== ===========
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, 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
Granted 517,000 $ 3.13 -- --
Exercised (15,000) $ 2.35 (5,625) $ 2.88
Canceled, expired, and forfeited (161,500) $ 3.92 (170,750) $15.16
--------- ------ --------- ------
OUTSTANDING AT DECEMBER 31, 2003 1,995,250 $ 3.40 1,201,375 $14.13
At December 31, 2003 and 2002, the number of options exercisable under the
Equity Plan was 615,000 and 362,250, respectively, and the weighted-average
exercise price of those options was $3.37 and $3.35, respectively. At December
31, 2003 and 2002, the number of options exercisable under the 1991 Plan was
1,019,875 and 1,012,063, respectively, and the weighted-average exercise price
of those options was $15.38 and $16.50, respectively.
A summary of the range of exercise prices and the weighted-average remaining
contractual life of outstanding options at December 31, 2003 for the Equity and
1991 Plans is as follows:
OPTIONS WEIGHTED-AVERAGE
RANGE OF OUTSTANDING AT WEIGHTED-AVERAGE REMAINING CONTRACTUAL
EXERCISE PRICES DECEMBER 31, 2003 EXERCISE PRICE LIFE (YEARS)
EQUITY PLAN $1.40 to $1.96 280,000 $1.60 7.9
$2.24 to $3.18 1,163,000 $2.98 9.4
$4.16 to $7.49 552,250 $5.18 9.4
1991 PLAN $2.88 166,125 $2.88 5.3
$5.13 to $6.13 276,500 $5.94 8.7
$9.44 35,200 $9.44 0.6
$14.88 to $21.94 626,500 $18.41 3.7
$26.06 to $37.19 97,050 30.94 4.3
At December 31, 2003, there were 989,750 and 0 shares available for grant under
the Equity Plan and 1991 Plan, respectively.
64
In 2003 and 2002, the Company received stock for treasury valued at $ 0 and
$6,000 from employees through stock option exercise transactions.
10. SIGNIFICANT CUSTOMER
International Business Machines (IBM) is the Company's largest customer. IBM
accounted for $53.9 million or 21.4 percent, $51.9 million or 19.7 percent, and
$78.3 million or 24.5 percent of consolidated 2003, 2002, and 2001 revenue,
respectively. The Company's accounts receivable from IBM at December 31, 2003
and 2002 amounted to $12.2 million and $11.6 million, respectively. No other
customer accounted for more than 10 percent of revenue in 2003, 2002, or 2001.
11. 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.
12. 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 geographical areas are the same as
those described in Note 1, "Summary of Significant Accounting Policies." CTG
evaluates the performance of its geographical areas 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
(amounts in thousands) 2003 2002 2001
REVENUE
North America $ 212,075 $ 226,824 $ 273,724
Europe 40,266 36,452 46,489
--------- --------- ---------
Total revenue $ 252,341 $ 263,276 $ 320,213
========= ========= =========
DEPRECIATION AND AMORTIZATION
North America $ 1,638 $ 1,921 $ 6,052
Europe 707 754 1,076
Corporate and other 1,047 1,228 1,485
--------- --------- ---------
Total depreciation and amortization $ 3,392 $ 3,903 $ 8,613
========= ========= =========
OPERATING INCOME (LOSS)
North America $ 18,401 $ 19,577 $ 15,618
Europe (2,236) (3,698) (2,399)
Corporate and other (12,903) (11,857) (12,805)
--------- --------- ---------
Total operating income $ 3,262 $ 4,022 $ 414
========= ========= =========
IDENTIFIABLE ASSETS
North America $ 73,958 $ 79,816 $ 127,227
Europe 12,544 9,866 10,958
Corporate and other 9,945 9,502 11,303
--------- --------- ---------
Total identifiable assets $ 96,447 $ 99,184 $ 149,488
========= ========= =========
CAPITAL EXPENDITURES
North America $ 922 $ 832 $ 2,065
Europe 292 589 710
Corporate and other 475 428 1,429
--------- --------- ---------
Total capital expenditures $ 1,689 $ 1,849 $ 4,204
========= ========= =========
65
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTERS
(amounts in thousands, except per-share data) FIRST SECOND THIRD FOURTH TOTAL
2003
Revenue $ 63,862 $ 64,057 $ 61,141 $ 63,281 $ 252,341
Direct costs 47,154 46,834 44,757 46,135 184,880
--------- --------- --------- --------- ---------
Gross profit 16,708 17,223 16,384 17,146 67,461
Selling, general, and administrative expenses 16,286 15,988 15,588 16,337 64,199
--------- --------- --------- --------- ---------
Operating income 422 1,235 796 809 3,262
Interest and other income (expense), net (198) (445) (210) 453 (400)
--------- --------- --------- --------- ---------
Income before income taxes 224 790 586 1,262 2,862
Provision (benefit) for income taxes 94 332 246 (554) 118
--------- --------- --------- --------- ---------
Net income $ 130 $ 458 $ 340 $ 1,816 $ 2,744
Basic net income per share $ 0.01 $ 0.03 $ 0.02 $ 0.11 $ 0.16
Diluted net income per share $ 0.01 $ 0.03 $ 0.02 $ 0.11 $ 0.16
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
Provision for income taxes 293 438 92 67 890
--------- --------- --------- --------- ---------
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) $ (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)
66
CORPORATE INFORMATION
STOCK MARKET INFORMATION
STOCK PRICE HIGH LOW
YEAR ENDED DECEMBER 31, 2003
Fourth Quarter $ 4.41 $ 3.30
Third Quarter $ 3.80 $ 2.51
Second Quarter $ 2.92 $ 1.93
First Quarter $ 4.09 $ 2.00
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
The Company's common shares are traded on the New York Stock Exchange under the
symbol CTG, commonly abbreviated Cptr Task.
On February 23, 2004, there were 2,880 record holders of the Company's common
shares. The Company did not pay a dividend from 2001 to 2003. 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 5, 2004 in
Buffalo, New York, for shareholders of record on March 26, 2004.
FORM 10-K AND COMPANY CODE OF ETHICS, COMMITTEE CHARTERS AND GOVERNANCE POLICIES
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, including the
Company's code of ethics, committee charters and governance policies, which are
filed with the Securities and Exchange Commission, may be obtained without
charge either through its website at www.ctg.com/investors 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
KPMG LLP
12 Fountain Plaza, Suite 601
Buffalo, NY 14202
67
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
Chairman of the Board of Assurant, Inc.
Daniel J. Sullivan
President and CEO of FedEx Ground
Officers
G. David Baer - Executive Vice President
James R. Boldt - Chairman and Chief Executive Officer
Arthur W. Crumlish - Senior Vice President, Strategic Staffing Services
Stephen D'Anna - Vice President, Operations, North America
Gregory M. Dearlove - Senior Vice President and Chief Financial Officer
N. Clair Detraz - Vice President, Strategic Planning and Marketing,
CTG Healthcare Solutions(R)
Paul F. Dimouro - Senior Vice President, Operations
Catherine Gallagher - Vice President, Consulting, CTG Healthcare Solutions(R)
Filip J.L. Gyde - Senior Vice President and General Manager, CTG Europe
Michael E. Lippman - Vice President, Sales, CTG Healthcare Solutions(R)
Michael J. McNees - Vice President, CTG Life Sciences Solutions(R)
Thomas J. Niehaus - Senior Vice President and General Manager, CTG HealthCare
Solutions(R)
Peter P. Radetich - Senior Vice President, Secretary, and General Counsel
Rick N. Sullivan - Vice President, Western Region, Strategic Staffing Services
68
(Inside back cover)
(Photos)
Board of Directors
George B. Beitzel
James R. Boldt
Randall L. Clark
R. Keith Elliott
Randolph A. Marks
Dr. John M. Palms
Daniel J. Sullivan
Officers
From left to right
Stephen D'Anna
Rick N. Sullivan
N. Clair Detraz
Thomas J. Niehaus
From left to right
Paul F. Dimouro
G. David Baer
Gregory M. Dearlove
From left to right
Michael E. Lippman
Peter P. Radetich
Catherine Gallagher
From left to right
Arthur W. Crumlish
Michael J. McNees
Filip J.L. Gyde
(Back Cover)
CTG
800 Delaware Avenue
Buffalo, New York 14209-2094
716.882.8000
800.992.5350
www.ctg.com
0554-AR-04
69