UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 1, 2005
Commission file number 1-9410
COMPUTER TASK GROUP, INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-0912632
- -------------------------------------------- ----------------------------------
(State of incorporation) (IRS Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
- -------------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 882-8000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Number of shares of common stock outstanding:
Shares outstanding
Title of each class at August 5, 2005
- ----------------------- ------------------
Common stock, par value
$.01 per share 20,780,034
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
2005 2004 2005 2004
--------- --------- --------- ---------
(amounts in thousands, except per share data)
Revenue $ 72,910 $ 59,047 $ 141,593 $ 120,494
Direct costs 56,505 43,196 108,675 88,049
Selling, general and administrative expenses 15,247 15,033 30,832 30,196
--------- --------- --------- ---------
Operating income 1,158 818 2,086 2,249
Interest and other income 3 14 24 57
Interest and other expense (375) (199) (618) (369)
--------- --------- --------- ---------
Income from continuing operations before
income taxes 786 633 1,492 1,937
Provision (benefit) for income taxes 163 (34) 385 488
--------- --------- --------- ---------
Income from continuing operations 623 667 1,107 1,449
Loss from discontinued operations (including loss on
disposal of $3.8 million in 2004) - (62) - (4,378)
--------- --------- --------- ---------
Net income (loss) $ 623 $ 605 $ 1,107 $ (2,929)
========= ========= ========= =========
Basic net income (loss) per share:
Continuing operations $ 0.04 $ 0.04 $ 0.07 $ 0.09
Discontinued operations - 0.00 - (0.27)
--------- --------- --------- ---------
Basic net income (loss) per share $ 0.04 $ 0.04 $ 0.07 $ (0.18)
========= ========= ========= =========
Diluted net income (loss) per share:
Continuing operations $ 0.04 $ 0.04 $ 0.06 $ 0.08
Discontinued operations - 0.00 - (0.25)
--------- --------- --------- ---------
Diluted net income (loss) per share $ 0.04 $ 0.04 $ 0.06 $ (0.17)
========= ========= ========= =========
Weighted average shares outstanding:
Basic 16,801 16,744 16,807 16,731
Diluted 17,029 17,235 17,136 17,239
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 1, DECEMBER 31,
2005 2004
--------- ------------
(amounts in thousands)
ASSETS
Current Assets:
Cash and temporary cash investments $ 2,686 $ 4,488
Accounts receivable, net of allowances of $1,286,000 and $1,327,000
in 2005 and 2004, respectively 65,069 46,771
Prepaids and other 2,239 2,103
Income taxes receivable 306 113
Deferred income taxes 1,877 2,020
--------- ------------
Total current assets 72,177 55,495
Property and equipment, net of accumulated depreciation of $24,854,000
and $24,618,000 in 2005 and 2004, respectively 6,724 6,075
Goodwill 35,678 35,678
Deferred income taxes 4,009 4,249
Other assets 1,931 1,846
--------- ------------
Total assets $ 120,519 $ 103,343
========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,034 $ 9,263
Accrued compensation 20,905 16,831
Advance billings on contracts 1,514 1,922
Other current liabilities 5,498 5,287
Current portion of long-term debt - 4,650
--------- ------------
Total current liabilities 35,951 37,953
Long-term debt 18,800 -
Deferred compensation benefits 8,591 8,570
Other long-term liabilities 699 336
--------- ------------
Total liabilities 64,041 46,859
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 111,265 111,272
Retained earnings 40,104 38,997
Less: Treasury stock of 6,233,390 and 6,148,990 shares at cost, respectively (31,711) (31,416)
Stock Trusts of 4,037,493 and 4,057,857 shares at cost, respectively (57,958) (58,045)
Accumulated other comprehensive loss:
Foreign currency adjustment (4,080) (3,205)
Minimum pension liability adjustment (1,412) (1,389)
--------- ------------
Accumulated other comprehensive loss (5,492) (4,594)
--------- ------------
Total shareholders' equity 56,478 56,484
--------- ------------
Total liabilities and shareholders' equity $ 120,519 $ 103,343
========= ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWO QUARTERS ENDED
JULY 1, JULY 2,
2005 2004
-------- ---------
(amounts in thousands)
Cash flows from operating activities:
Net income (loss) $ 1,107 $ (2,929)
Loss from discontinued operations - (4,378)
-------- ---------
Income from continuing operations 1,107 1,449
Adjustments:
Depreciation expense 1,377 1,410
Deferred income taxes 311 (577)
Tax benefit on stock option exercises 1 16
Loss on sales of property and equipment 13 29
Deferred compensation (2) (27)
Changes in assets and liabilities:
Increase in accounts receivable (19,459) (4,171)
Increase in prepaids and other (199) (1,041)
Decrease in income taxes 215 2,595
Decrease in other assets 317 208
Decrease in accounts payable (500) (2,446)
Increase (decrease) in accrued compensation 4,559 (2,745)
Decrease in advance billings on contracts (407) (159)
Increase (decrease) in other current liabilities 417 (285)
Increase (decrease) in other long-term liabilities 27 (60)
-------- ---------
Net cash used in operating activities (12,223) (5,804)
-------- ---------
Cash flows from investing activities:
Additions to property and equipment (2,206) (1,034)
Proceeds from sales of property and equipment 79 7
-------- ---------
Net cash used in investing activities (2,127) (1,027)
-------- ---------
Cash flows from financing activities:
Proceeds from long-term revolving debt, net 14,150 6,649
Change in cash overdraft, net (427) (206)
Purchase of stock for treasury (295) -
Debt issuance costs (481) -
Proceeds from Employee Stock Purchase Plan 74 90
Proceeds from other stock plans 5 96
-------- ---------
Net cash provided by financing activities 13,026 6,629
-------- ---------
Net cash from discontinued operations - (1,971)
Effect of exchange rate changes on cash and temporary cash investments (478) (95)
-------- ---------
Net decrease in cash and temporary cash investments (1,802) (2,268)
Cash and temporary cash investments at beginning of year 4,488 5,197
-------- ---------
Cash and temporary cash investments at end of quarter $ 2,686 $ 2,929
======== =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
COMPUTER TASK GROUP, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included herein reflect,
in the opinion of the management of Computer Task Group, Incorporated ("CTG" or
"the Company"), all normal recurring adjustments necessary to present fairly the
condensed consolidated financial position, results of operations and cash flows
for the periods presented. Certain amounts in the prior period's condensed
consolidated financial statements have been reclassified to conform to the
current year presentation.
2. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to the
SEC rules and regulations. Management believes that the information and
disclosures provided herein are adequate to present fairly the consolidated
financial position, results of operations and cash flows of the Company. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's latest Annual Report on Form 10-K and Form 10-K/A
filed with the SEC.
3. DISPOSITION OF OPERATIONS
During the first quarter of 2004, the Company disposed of its Dutch
operating subsidiary, CTG Nederland B.V., in a transaction in which the Company
sold the subsidiary's stock and transferred the unit's business, staff, and
lease and equipment obligations to the unit's management team. The effective
date of the disposition was January 1, 2004, and the transaction has been
treated as discontinued operations in these condensed consolidated financial
statements. As part of the transaction, the Company retained the assets and
liabilities related to the defined-benefit plan for its previous employees in
The Netherlands. At the time of the disposition, the net assets of the plan
totaled approximately $0.5 million. This unit had previously been included in
the financial results of the Company's European operations.
The loss from discontinued operations resulting from this divestiture
totaled approximately $4.4 through the first two quarters of 2004, with
approximately $4.3 million of that loss incurred in the first quarter of 2004.
The loss in the first two quarters of 2004 included a loss on disposal of
approximately $3.8 million, and approximately $0.5 million from a foreign
currency adjustment which had previously been reported as a direct charge to
shareholders' equity. The assets divested in this transaction totaled
approximately $2.5 million, including $2.2 million of current assets (primarily
accounts receivable of $1.6 million), and non-current assets of $0.3 million
consisting of the net value of property and equipment. The liabilities divested
in the transaction totaled approximately $0.9 million of current liabilities.
5
4. NET INCOME (LOSS) PER SHARE
Basic and diluted earnings (loss) per share information is as follows:
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
2005 2004 2005 2004
------- ---------- ------- ----------
(amounts in thousands, except per share data)
Weighted-average number of shares outstanding
during period 16,801 16,744 16,807 16,731
Common Stock equivalents - Incremental
shares under stock option plans 228 491 329 508
------- ---------- ------- ----------
Number of shares on which diluted earnings
per share is based 17,029 17,235 17,136 17,239
======= ========== ======= ==========
Income from continuing operations $ 623 $ 667 $ 1,107 $ 1,449
Loss from discontinued operations - (62) - (4,378)
------- ---------- ------- ----------
Net income (loss) $ 623 $ 605 $ 1,107 $ (2,929)
======= ========== ======= ==========
Basic net income (loss) per share:
Continuing operations $ 0.04 $ 0.04 $ 0.07 $ 0.09
Discontinued operations - 0.00 - (0.27)
------- ---------- ------- ----------
Total basic income (loss) per share $ 0.04 $ 0.04 $ 0.07 $ (0.18)
======= ========== ======= ==========
Diluted net income (loss) per share:
Continuing operations $ 0.04 $ 0.04 $ 0.06 $ 0.08
Discontinued operations - 0.00 - (0.25)
------- ---------- ------- ----------
Total diluted income (loss) per share $ 0.04 $ 0.04 $ 0.06 $ (0.17)
======= ========== ======= ==========
Options to purchase 2.3 million and 1.7 million shares of common stock
were outstanding at July 1, 2005 and July 2, 2004, respectively, but were not
included in the computation of diluted earnings (loss) per share as the options
exercise price was greater than the average market price of the common shares.
5. COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive loss totaled $(5,492,000) and $(4,594,000)
at July 1, 2005 and December 31, 2004, respectively. Total comprehensive income
(loss) information is as follows:
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
2005 2004 2005 2004
------- --------- ------- -------
(amounts in thousands)
Net income (loss) $ 623 $ 605 $ 1,107 $(2,929)
Foreign currency (513) (48) (875) (87)
Foreign currency - disposition of Dutch operations - - - 532
Minimum pension liability - - (23) -
------- --------- ------- -------
Comprehensive income (loss) $ 110 $ 557 $ 209 $(2,484)
======= ========= ======= =======
6
6. INCOME TAXES
The estimated effective tax rate (ETR) used to calculate the provision for
income taxes from continuing operations was 25.8% in 2005. The ETR is calculated
quarterly based upon current assumptions relating to the full years estimated
operating results, and various tax related items. The ETR rate in 2005 was
reduced primarily due to several items that created tax benefits in the first
and second quarter of 2005 totaling approximately $234,000. One item in the
first quarter of 2005 was related to a net increase of approximately $108,000 in
the cash surrender value for company owned life insurance policies that had not
previously been recorded, and which created a tax benefit of approximately
$44,000. Additionally, in the second quarter of 2005 the Company released
$167,000 from its tax reserves, primarily due to a change in judgment and
settlement of open items. Without these items, the Company's ETR in 2005 would
be approximately 41.5%.
During the quarter ended July 1, 2005, the Company changed its method of
accounting for reporting changes in liabilities in interim periods resulting
from changes in judgments or settlements of tax exposure items. The Company had
previously accounted for such changes in judgments or settlements as adjustments
to the estimated annual ETR. However, effective for the second quarter of 2005
the Company has now changed its method of accounting for such changes in
judgments or settlements so that they are recorded as discrete items in the
interim period in which the change occurs. This newly adopted accounting method
is preferable as it more appropriately reflects the impact of the change on the
Company's consolidated operations and financial position at the time of the
change. As a result of the change in method of accounting, income tax expense
was reduced in total by $114,000, or less than $0.01 per diluted share in both
the second quarter of 2005 and the year-to-date period ended July 1, 2005. If
the Company had implemented the discrete method of accounting for changes in tax
exposure items during the quarter ended July 2, 2004, income tax expense would
have been reduced in total by $272,000, or less than $0.02 per diluted share in
both the second quarter of 2004 and the year-to-date period ended July 2, 2004.
7. DEBT
On April 20, 2005, the Company entered into a new revolving credit
agreement (Agreement) which allows the Company to borrow up to $35 million. This
new Agreement has a term of three years and expires in April 2008. Accordingly,
the Company has recorded its outstanding indebtedness at July 1, 2005 of $18.8
million as long-term debt. The Agreement has interest rates ranging from 0 to 75
basis points over the prime rate and 150 to 225 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 July 1,
2005, the Company was in compliance with these covenants.
8. DEFERRED COMPENSATION AND OTHER BENEFITS
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 ESBP is as follows:
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
NET PERIODIC PENSION COST - ESBP 2005 2004 2005 2004
--------- --------- --------- ---------
(amounts in thousands)
Interest cost $ 128 $ 129 $ 256 $ 273
Amortization of unrecognized net loss 27 22 54 44
--------- --------- --------- ---------
Net periodic pension cost $ 155 $ 151 $ 310 $ 317
========= ========= ========= =========
7
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 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 2005 and future years to fund the
ESBP.
The Company also retained a contributory defined-benefit plan for its
previous employees located in The Netherlands (NDBP) when the Company disposed
of its subsidiary, CTG Nederland B.V., in the first quarter of 2004. 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 benefit for the NDBP is as follows:
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
NET PERIODIC PENSION COST (BENEFIT) - NDBP 2005 2004 2005 2004
--------- --------- --------- ---------
(amounts in thousands)
Interest cost $ 62 $ 55 $ 126 $ 109
Expected return on plan assets (78) (67) (157) (133)
--------- --------- --------- ---------
Net periodic pension benefit $ (16) $ (12) $ (31) $ (24)
========== ========= ========== =========
The Company does not anticipate making contributions to the NDBP in 2005
or future years as the NDBP is currently over-funded.
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 amount of $0.5 million and $0.4 million for the
quarters ended July 1, 2005 and July 2, 2004, respectively. The Company's
contributions for the two quarters ended July 1, 2005 and July 2, 2004 was $1.0
million and $0.9 million, respectively.
OTHER RETIREMENT PLANS
The Company maintains various other defined contribution retirement plans
other than the NDBP discussed above, covering substantially all of the remaining
European employees. Company contributions charged to operations were less than
$0.1 million in each of the quarters ended July 1, 2005 and July 2, 2004, and
$0.1 million in each of the two quarters ended July 1, 2005 and July 2, 2004.
8
OTHER POSTRETIREMENT BENEFITS
The Company provides limited healthcare and life insurance benefits to one
current and nine retired employees and their spouses, totaling 16 participants,
pursuant to contractual agreements.
Net periodic postretirement benefit cost is as follows:
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
NET PERIODIC POSTRETIREMENT BENEFIT COST 2005 2004 2005 2004
--------- --------- --------- ---------
(amounts in thousands)
Interest cost $ 9 $ 9 $ 18 $ 18
Amortization of transition amount 7 7 14 12
--------- --------- --------- ---------
Net periodic postretirement benefit cost $ 16 $ 16 $ 32 $ 30
========= ========= ========= =========
No adjustments were made to the net periodic postretirement benefit cost
indicated above due to Medicare reform as the amounts were deemed to be
insignificant. The Company does not anticipate making contributions to fund the
plan in 2005 or future years.
9. 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. No stock-based employee compensation cost is reflected in the
net income (loss) of the Company for the periods presented in these condensed
consolidated financial statements, as all options granted by the Company had an
exercise price that was equal to or greater than the underlying common stock at
the date of grant.
The following table details the effect on net income (loss) and basic and
diluted net income (loss) per share as if the Company had adopted the fair value
recognition provisions of FAS No. 123 as they apply to stock-based employee
compensation:
FOR THE TWO
FOR THE QUARTER ENDED QUARTERS ENDED
JULY 1, JULY 2, JULY 1, JULY 2,
2005 2004 2005 2004
---------- ---------- ---------- ----------
(amounts in thousands, except per share data)
Net income (loss), as reported $ 623 $ 605 $ 1,107 $ (2,929)
Stock-based employee compensation
expense as calculated under the fair
value method for all awards, net of tax (289) (265) (589) (546)
---------- ---------- ---------- ----------
Pro forma net income (loss) $ 334 $ 340 $ 518 $ (3,475)
========== ========== ========== ==========
Basic net income (loss) per share:
As reported $ 0.04 $ 0.04 $ 0.07 $ (0.18)
========== ========== ========== ==========
Pro forma $ 0.02 $ 0.02 $ 0.03 $ (0.21)
========== ========== ========== ==========
Diluted net income (loss) per share:
As reported $ 0.04 $ 0.04 $ 0.06 $ (0.17)
========== ========== ========== ==========
Pro forma $ 0.02 $ 0.02 $ 0.03 $ (0.20)
========== ========== ========== ==========
Pro forma amounts for compensation cost may not be indicative of the
effects on earnings for future quarters. The Company's pro forma amounts of
compensation expense, net of tax, are calculated using the straight-line method
of calculating expense for the pro rata vesting that occurs for the Company's
outstanding stock options.
9
10. TREASURY STOCK
During the second quarter of 2005, the Company authorized an additional
buyback of 1.0 million shares, bringing the total authorizations to repurchase
shares of its common stock for treasury and the Company's stock trusts to 2.4
million shares. During the second quarter of 2005, the Company used $0.3 million
to purchase approximately 0.1 million shares of its stock for treasury. At July
1, 2005, approximately 1.3 million shares have been repurchased in total under
the authorizations, leaving 1.1 million shares authorized for future purchases.
11. ACCOUNTING STANDARDS PRONOUNCEMENTS
In December 2004, the FASB issued FAS No. 123 (revised 2004), "Share-Based
Payment." This FAS establishes standards for the accounting for transactions in
which the Company exchanges its equity instruments for goods or services. The
standard requires the Company to measure the cost of employee services received
in exchange for awards of equity instruments based upon the grant date fair
value of the award. Currently, the Company only issues stock options in exchange
for employee and director services. Under the new standard, the calculated cost
of the equity awards will be recognized in the Company's results of operations
over the period in which an employee or director is required to provide the
services for the award. Compensation cost will not be recognized for employees
or directors that do not render the requisite services.
Currently, the Company accounts for its stock-based employee compensation
plans as allowed under current guidance and does not record compensation cost in
its statements of operations for stock-based compensation. This new standard is
effective for the Company as of the beginning of its next fiscal year beginning
after June 15, 2005 (January 1, 2006). The Company is currently in the process
of evaluating the effect on its financial condition and results of operations of
the adoption of this new standard.
In May 2005, the FASB issued FAS No. 154, "Accounting Changes and
Corrections of Errors." This FAS replaces Accounting Principles Board (APB)
Opinion No. 20, "Accounting Changes," and FAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements." This new FAS changes the requirements
for the accounting for and reporting of a change in accounting principle, as
well as carrying forward some of the guidance in the previous statements. This
new standard is effective for the Company for accounting changes and corrections
of errors made in fiscal years beginning after December 31, 2005. The Company is
currently in the process of evaluating the effect on its financial condition and
results of operations of the adoption of this new standard.
10
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER AND TWO QUARTERS ENDED JULY 1, 2005
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements by management and the
Company that are subject to a number of risks and uncertainties. The
forward-looking statements contained in the report are based on information as
of the date of this report. The Company assumes no obligation to update these
statements based on information from and after the date of this report.
Generally, forward-looking statements include words or phrases such as
"anticipates," "believes," "estimates," "expects," "intends," "plans,"
"projects," "could," "may," "might," "should," "will" and words and phrases of
similar impact. The forward-looking statements include, but are not limited to,
statements regarding future operations, industry trends or conditions and the
business environment, and statements regarding future levels of, or trends in,
revenue, operating expenses, capital expenditures, and financing. The
forward-looking statements are made pursuant to safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Numerous factors could cause
actual results to differ materially from those in the forward-looking
statements, including the following: (i) industry conditions, including
fluctuations in demand for IT services, (ii) the availability to the Company of
qualified professional staff, (iii) industry competition, (iv) rate and wage
inflation or deflation, (v) risks associated with operating in foreign
jurisdictions, (vi) the impact of current and future laws and government
regulation, as well as repeal or modification of same, affecting the IT
solutions and staffing industry, taxes and the Company's operations in
particular, (vii) renegotiations, nullification, or breaches of contracts with
customers, vendors, subcontractors or other parties, (viii) consolidation among
the Company's competitors or customers, and (ix) the risks described elsewhere
herein and from time to time in the Company's reports to the Securities and
Exchange Commission.
Several important factors should be taken into consideration when
reviewing the operational results. These include:
THE ANTICIPATED DEMAND FOR INFORMATION TECHNOLOGY (IT) SERVICES
There was a steady decline in demand in the technology services sector
from the second half of 1999 through 2003 as a recession in the technology
industry negatively affected spending for information technology services. The
Company believes that staffing demand began to increase in 2004, and has
returned to more normalized levels for the first time in five years. However,
declines in spending for IT services in 2005 and in future years may again
adversely affect the Company's operating results in the future as it has in the
past.
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 billed its customers for its services
has somewhat stabilized, there had been a general decline in these rates over
recent years as a result of the technology recession mentioned above. The
Company has experienced several reductions in the rates for which it bills for
services for one significant customer in the past several years. Additionally,
the Company actively competes against many other companies for business with new
and existing clients. 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.
11
SIGNIFICANT CUSTOMER RELATIONSHIP
In the second quarter of 2005, International Business Machines (IBM) was the
Company's largest customer, accounting for $26.9 million or 36.8% of total
consolidated revenue. During 2005, the Company signed an addendum to the
Technical Services Agreement it has with IBM making it a predominant supplier to
IBM's Systems and Technology Group. This addendum has an expiration date of
December 31, 2007. The Company expects to continue to derive a significant
portion of its revenue from IBM in the remainder of 2005 and in future years.
However, a decline or the loss of the revenue from IBM would have a significant
negative effect on the Company's revenue and profits. No other customer
accounted for more than 10% of the Company's revenue in either the second
quarter or year-to-date period in 2005 or 2004.
INTERNATIONAL OPERATIONS
The Company has operations in the United States and Canada in North
America, and in Belgium, the United Kingdom and Luxembourg in Europe. The
Company's foreign operations are subject to currency fluctuations, legislation
and tax law changes, and economic climates that are different than that of the
United States. Although the Company actively manages these foreign operations,
economic conditions or other changes beyond the Company's control may negatively
effect the Company's overall operating results.
OPERATIONS
The Company operates in one industry segment, providing IT staffing
solutions services to its clients. These services include IT Staffing,
Application Management Outsourcing, and IT Solutions. CTG provides these three
primary services to all of the markets that it serves. The services provided
typically encompass the IT business solution life cycle, including phases for
planning, developing, implementing, managing, and ultimately maintaining the IT
solution. A typical customer is an organization with large, complex information
and data processing requirements. The Company promotes a portion of its services
through four vertical market focus areas: Technology Service Providers,
Financial Services, HealthCare, and Life Sciences.
RESULTS OF OPERATIONS
The table below sets forth data as contained on the condensed consolidated
statements of operations, with the percentage information calculated as a
percentage of consolidated revenues. All activities related to the Company's
Dutch subsidiary, CTG Nederland B.V., which was sold during the first quarter of
2004, have been removed from the Company's individual accounts and subsequently
combined and included on the line entitled "Loss from discontinued operations."
FOR THE QUARTER ENDED
JULY 1, JULY 2,
2005 2004
------------------- -------------------
Revenue 100.0% $ 72,910 100.0% $ 59,047
Direct costs 77.5% 56,505 73.2% 43,196
Selling, general, and administrative expenses 20.9% 15,247 25.4% 15,033
------ -------- ----- --------
Operating income 1.6% 1,158 1.4% 818
Interest and other expense, net (0.5)% (372) (0.3)% (185)
------ -------- ----- --------
Income from continuing operations before income taxes 1.1% 786 1.1% 633
Provision (benefit) for income taxes 0.2% 163 0.0% (34)
------ -------- ----- --------
Income from continuing operations 0.9% 623 1.1% 667
Loss from discontinued operations - - (0.1)% (62)
------ -------- ----- --------
Net income 0.9 % $ 623 1.0% $ 605
====== ======== ===== ========
12
FOR THE TWO QUARTERS ENDED
JULY 1, JULY 2,
2005 2004
------------------ ------------------
Revenue 100.0% $ 141,593 100.0% $ 120,494
Direct costs 76.8% 108,675 73.1% 88,049
Selling, general, and administrative expenses 21.7% 30,832 25.0% 30,196
----- --------- ----- ---------
Operating income 1.5% 2,086 1.9% 2,249
Interest and other expense, net (0.4)% (594) (0.3)% (312)
----- --------- ----- ---------
Income from continuing operations before income taxes 1.1% 1,492 1.6% 1,937
Provision for income taxes 0.3% 385 0.4% 488
----- --------- ----- ---------
Income from continuing operations 0.8% 1,107 1.2% 1,449
Loss from discontinued operations - - (3.6)% (4,378)
----- --------- ----- ---------
Net income (loss) 0.8% $ 1,107 (2.4)% $ (2,929)
===== ========= ===== =========
In the second quarter of 2005, the Company recorded revenue of $72.9
million, an increase of 23.5% compared to revenue of $59.0 million recorded in
the second quarter of 2004. Revenue from the Company's North American operations
totaled $61.1 million in the second quarter of 2005, an increase of 25.5% when
compared to 2004 second quarter revenue of $48.7 million. Revenue from the
Company's European operations in the second quarter of 2005 totaled $11.8
million, an increase of 14.6% when compared to 2004 revenue of $10.3 million.
The European revenue represented 16.2% and 17.5% of 2005 and 2004 consolidated
revenue, respectively. The Company's revenue includes reimbursable expenses
billed to customers. These expenses totaled $2.2 million and $2.1 million in the
second quarter of 2005 and 2004, respectively.
For the first half of 2005, the Company recorded revenue of $141.6
million, an increase of 17.5% compared to revenue of $120.5 recorded in the
first half of 2004. Revenues from the Company's North American operations
totaled $116.9 million in the 2005 year-to-date period, as compared to $100.0
million in the comparable 2004 period. The Company's European operations
accounted for $24.7 million or 17.4% of year-to-date 2005 consolidated revenue,
as compared to $20.5 million or 17.0% in the comparable 2004 period.
Reimbursable expenses billed to customers totaled $4.6 million and $3.7 million
in the year-to-date periods in 2005 and 2004, respectively.
In North America, the revenue increase in 2005 over 2004 is primarily the
result of adding approximately 41% additional billable staff in total during the
first two quarter's of 2005, which included significantly expanding a staffing
client relationship.
The significant increase in revenue in the Company's European operations
in 2005 as compared to 2004 was primarily due to the addition of a large health
care project in the United Kingdom that did not begin until the second quarter
of 2004 and an increase in demand in 2005 for the testing services offered by
the Company. Additionally, the increase in year-over-year revenue was in part
due to the strength of the currencies of Belgium, the United Kingdom, and
Luxembourg, the countries in which the Company's European subsidiaries operate.
In Belgium and Luxembourg, the functional currency is the Euro, while in the
United Kingdom the function currency is the British pound. Had there been no
change in these exchange rates from 2004 to 2005, total European revenue would
have been approximately $1.0 million lower, or $23.7 million as compared to the
$24.7 million reported.
In the second quarter of 2005, IBM was the Company's largest customer,
accounting for $26.9 million or 36.8% of total revenue as compared to $13.0
million or 22.0% of second quarter 2004 revenue. For the 2005 year-to-date
period, revenues from IBM were $48.7 million or 34.4% of consolidated revenue as
compared to $27.1 million or 22.5% of consolidated 2004 revenue. A significant
portion of the additional staff the Company added in the first two quarter's in
North America was with IBM. The Company signed an addendum to the Technical
Services Agreement it has with IBM making it a predominant supplier to IBM's
Systems and Technology Group. This addendum has an expiration date of December
31, 2007. No other customer accounted for more than 10% of the Company's revenue
in either the second quarter or year-to-date period in 2005 or 2004.
13
Direct costs, defined as costs for billable staff including billable
out-of-pocket expenses, were 77.5% of revenue in the second quarter of 2005 as
compared to 73.2% of the second quarter 2004 revenue, and 76.8% of revenue in
the 2005 year-to-date period as compared to 73.1% of revenue in the 2004
year-to-date period. The increase in direct costs as a percentage of revenue in
2005 as compared to 2004 is primarily due to a significant increase in the
Company's staffing business, which generally yields lower direct profit margins.
Selling, general and administrative (SG&A) expenses were 20.9% of revenue
in the second quarter of 2005 as compared to 25.4% of revenue in the second
quarter of 2004, and 21.7% in the 2005 year-to-date period as compared to 25.0%
in the 2004 year-to-date period. The decrease in SG&A expense as a percentage of
revenue reflects a higher concentration of staffing business in the Company's
sales mix, which requires a lower level of support from the Company's SG&A
staff. The decrease in the year-over-year percentage of revenue was in contrast
to a modest increase in SG&A expense from 2004 to 2005. The increase in SG&A in
2005 as compared to 2004 was primarily due to additional recruiting costs
incurred of approximately $1.2 million to respond to an increase in demand for
the Company's services, coupled with an increase in audit services costs of
approximately $0.4 million in 2005. These increases in expenses were partially
offset by an increase in cash surrender value of approximately $0.1 million for
company owned life insurance policies that had previously not been recorded, as
well as the Company's continued efforts to control and reduce its SG&A costs as
a percentage of revenue.
Operating income was 1.6% of revenue in the second quarter of 2005 as
compared to 1.4% of revenue in the second quarter of 2004, and 1.5% in the 2005
year-to-date period as compared to 1.9% in the 2004 year-to-date period.
Operating income from North American operations was $0.8 million and $0.9
million in the second quarter of 2005 and year-to-date period, respectively,
while European operations recorded operating income of $0.4 million and $1.2
million, respectively, in such periods.
Interest and other expense, net was 0.4 % of revenue in the 2005
year-to-date period and 0.3% in the corresponding 2004 period. The increase as a
percentage of revenue from 2004 to 2005 is primarily due to an increase in the
average outstanding debt during 2005 as the Company utilized its revolving line
of credit to fund higher accounts receivable during the year-to-date period,
higher interest rates in 2005, and by approximately $0.1 million for a realized
loss on the settlement of intercompany transactions with the Company's foreign
subsidiaries.
The estimated effective tax rate (ETR) used to calculate the provision for
income taxes from continuing operations was 25.8% in 2005. The ETR is calculated
quarterly based upon current assumptions relating to the full years estimated
operating results, and various tax related items. The ETR rate in 2005 was
reduced primarily due to several items that created tax benefits in the first
and second quarter of 2005 totaling approximately $234,000. One item in the
first quarter of 2005 was related to a net increase of approximately $108,000 in
the cash surrender value for company owned life insurance policies that had not
previously been recorded, and which created a tax benefit of approximately
$44,000. Additionally, in the second quarter of 2005 the Company released
$167,000 from its tax reserves, primarily due to a change in judgment and
settlement of open items. Without these items, the Company's ETR in 2005 would
be approximately 41.5%. In 2004, the ETR was 25.2%. During 2004, the ETR was
reduced by approximately $448,000 for a release of a reserve due to a change in
judgment, and the reversal of approximately $256,000 of a valuation allowance
offsetting deferred tax assets related to the Company's European operations.
Without these items, the ETR in 2004 would have been approximately 39.6%.
During the quarter ended July 1, 2005, the Company changed its method of
accounting for reporting changes in liabilities in interim periods resulting
from changes in judgments or settlements of tax exposure items. The Company had
previously accounted for such changes in judgments or settlements as adjustments
to the estimated annual ETR. However, effective for the second quarter of 2005
the Company has now changed its method of accounting for such changes in
judgments or settlements so that they are recorded as discrete items in the
interim period in which the change occurs. This newly adopted accounting method
is preferable as it more appropriately reflects the impact of the change on the
Company's consolidated operations and financial position at the time of the
change. As a result of the change in method of accounting, income tax expense
was reduced in total by $114,000, or less than $0.01 per diluted share in both
the second quarter of 2005 and the year-to-date period ended July 1, 2005. If
the Company had implemented the discrete method of accounting for changes in tax
exposure items during the quarter ended July 2, 2004, income tax expense would
have been reduced in total by $272,000, or less than $0.02 per diluted share in
both the second quarter of 2004 and the year-to-date period ended July 2, 2004.
14
Net income from continuing operations for the second quarter of 2005 was
0.9% of revenue or $0.04 per diluted share, compared to net income of 1.1% of
revenue or $0.04 per diluted share in the second quarter of 2004, and 0.8% of
revenue or $0.06 per diluted share in all of 2005 as compared to net income from
continuing operations of 1.2% of revenue or $0.08 per diluted share in the
comparable 2004 period. Diluted earnings per share were calculated using 17.1
million and 17.2 million equivalent shares outstanding for the two quarters
ended July 1, 2005 and July 2, 2004, respectively.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in
conformity with generally accepted accounting principles in the United States
requires the Company's management to make estimates, judgments and assumptions
that affect the amounts reported in the condensed consolidated financial
statements and accompanying notes. The Company identifies its most critical
accounting policies as those that are the most pervasive and important to the
portrayal of the Company's financial position and results of operations, and
that require the most difficult, subjective and/or complex judgments by
management regarding estimates about matters that are inherently uncertain. The
Company's most critical accounting policies are those related to goodwill
valuation and income taxes, specifically relating to deferred taxes and
valuation allowances.
Goodwill Valuation - The goodwill balance of $35.7 million relates to the
Company's North American operations and is evaluated annually or more frequently
if facts and circumstances indicate impairment may exist. This evaluation, as
applicable, is based on estimates and assumptions that may analyze the appraised
value of similar transactions from which the goodwill arose, the appraised value
of similar companies, or estimates of future discounted cash flows. The
estimates and assumptions on which the Company's evaluations are based
necessarily involve judgments and are based on currently available information,
any of which could prove wrong or inaccurate when made, or become wrong or
inaccurate as a result of subsequent events.
As of January 1, 2005, with the assistance of an outside third party
valuation expert, and as of January 1, 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 in each period. Additionally, there are no facts
or circumstances that arose during the first two quarter's of 2005, or all of
2004 that led management to believe the goodwill was impaired. Accordingly, the
Company believes no impairment was required to be recorded in its consolidated
financial results. Changes in business conditions which could impact future
valuations however, could lead to impairment charges.
Income Taxes - Deferred Taxes and Valuation Allowances - At July 1, 2005,
the Company had a total of approximately $5.9 million of current and non-current
net deferred tax assets recorded on its balance sheet. The changes in deferred
tax assets and liabilities from period to period 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.
At July 1, 2005, the Company has a deferred tax asset recorded gross of
the valuation allowance resulting from net operating losses. This includes net
operating losses in various states totaling approximately $0.4 million, in The
Netherlands of approximately $3.6 million, and approximately $0.8 million in
various other countries where it does business. Management of the Company has
analyzed each jurisdiction's tax position, including forecasting potential
operating profits in future periods, and the expiration of the net operating
loss carryforwards as applicable, and determined that it is unclear whether all
of this deferred tax asset totaling $4.8 million will be realized at any point
in the future. Accordingly, at July 1, 2005, the Company has offset a portion of
the asset with a valuation allowance totaling $3.9 million, resulting in a net
deferred tax asset from net operating loss carryforwards of approximately $0.9
million.
15
The valuation allowance decreased by approximately $0.1 million in the
first half of 2005 for estimated earnings in one country that the Company
anticipates utilizing in 2005. The deferred assets and their potential
realizability are evaluated each quarter to determine if any additional portion
of the valuation allowance should be adjusted. Any additional change of this
valuation allowance in the future will result in a change of the Company's
effective tax rate. An additional 1% decrease in the ETR would have equaled
approximately $15,000 of additional net income during the first two quarter's of
2005.
FINANCIAL CONDITION AND LIQUIDITY
Cash used in operating activities was $12.2 million in the first two
quarters of 2005. Net income from continuing operations totaled $1.1 million,
while other non-cash adjustments, primarily consisting of depreciation expense
and deferred taxes totaled $1.7 million. Accounts receivable increased by $19.5
million as compared to December 31, 2004 primarily due to the timing of billings
for the additional staff added during the first two quarter's of 2005 and the
collection of the outstanding balances for those billings. The timing of the
collection of these new billings resulted in an increase in days sales
outstanding to 81 days from 72 days at December 31, 2004. Accounts payable
decreased $0.5 million, and other current liabilities increased $0.4 million
primarily due to the timing of certain payments near quarter-end. Accrued
compensation increased $4.6 million in 2005 due to the timing of the U.S.
bi-weekly payroll and an increase of approximately 35% in the total headcount in
North America during the first two quarter's of 2005.
Investing activities used $2.1 million in the first two quarters of 2005,
which primarily represented the additions to property and equipment. The Company
has no significant commitments for capital expenditures at July 1, 2005.
Financing activities provided $13.0 million of cash in the first two
quarters of 2005. For the first two quarter's of 2005, additional net borrowings
under the Company's revolving credit lines totaled $14.2 million. On April 20,
2005, the Company entered into a new revolving credit agreement (Agreement)
which allows the Company to borrow up to $35 million. Total debt issuance costs
for this new agreement totaled approximately $0.5 million, and are being
amortized over the term of the agreement. This new Agreement has a term of three
years and expires in April 2008. Accordingly, the Company has recorded its
outstanding indebtedness at July 1, 2005 of $18.8 million as long-term debt. The
Agreement has interest rates ranging from 0 to 75 basis points over the prime
rate and 150 to 225 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. The Company was in compliance
with these covenants at July 1, 2005. The Company borrows or repays its
revolving debt as needed based upon its working capital obligations, including
the timing of the U.S. bi-weekly payroll. Daily average borrowings for the first
two quarters of 2005 were $14.3 million.
During the second quarter of 2005, the Company authorized an additional
buyback of 1.0 million shares, bringing the total authorizations to repurchase
shares of its common stock for treasury and the Company's stock trusts to 2.4
million shares. During the second quarter of 2005, the Company used $0.3 million
to purchase approximately 0.1 million shares of its stock for treasury. At July
1, 2005, approximately 1.3 million shares have been repurchased in total under
the authorizations, leaving 1.1 million shares authorized for future purchases.
At both July 1, 2005 and December 31, 2004, consolidated shareholders'
equity totaled $56.5 million. Net income in the first two quarter's of 2005
totaled $1.1 million, but was offset by a foreign currency adjustment of $0.9
million, and $0.3 million spent to purchase approximately 0.1 million shares of
the Company's stock for treasury.
The Company believes existing internally available funds, cash potentially
generated from operations, and available borrowings under the Company's
revolving line of credit totaling approximately $16.0 million at July 1, 2005,
will be sufficient to meet foreseeable working capital, capital expenditure, and
stock repurchase requirements, and to allow for future internal growth and
expansion.
OFF-BALANCE SHEET ARRANGEMENTS
The Company did not have off-balance sheet arrangements or transactions in
either the first two quarter's of 2005 or all of 2004.
16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At July 1, 2005, there was a total of $18.8 million outstanding under the
Company's revolving credit agreement. On April 20, 2005, the Company entered
into a new revolving credit agreement (Agreement) which allows the Company to
borrow up to $35 million. This new Agreement has a term of three years and
expires in April 2008. The Agreement has interest rates ranging from 0 to 75
basis points over the prime rate and 150 to 225 basis points over Libor, and
provides certain of the Company's assets as security for outstanding borrowings.
Daily average borrowings for the first two quarters of 2005 were $14.3 million.
Accordingly, a 1% increase or decrease in interest rates would increase or
decrease annual interest expense by approximately $143,000.
For the first two quarters of 2005 as compared to the first two quarters
of 2004, there was a strengthening of the currencies of Belgium, the United
Kingdom, and Luxembourg, the countries in which the Company's European
subsidiaries operate. In 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 for the
year-to-date 2004 period compared to the year-to-date 2005 period, European
revenues for the first two quarters of 2005 would have been $1.0 million lower
than the $24.7 million reported. The Company has historically not used any
market risk sensitive instruments to hedge its foreign currency exchange risk.
17
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company's management has evaluated, under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, the effectiveness of the design and operations of the Company's
disclosure controls and procedures (as defined in Securities Exchange Act Rule
13a-15(e)), as of the end of the period covered by this periodic report. Based
on that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that the Company's disclosure controls and procedures
were effective as of the end of the period covered by this periodic report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As of December 31, 2004, management identified a material weakness in
internal control over financial reporting associated with the Company's
calculation of its incurred but not reported claims related to its self-insured
medical insurance programs. Specifically, the Company's policies and procedures
associated with the calculation of these incurred but not reported claims did
not include an evaluation of the underlying assumptions used to estimate future
claims liabilities to reflect recent claims development experience. This
deficiency resulted in a material understatement of the Company's recorded
medical self-insurance reserves. This error in accounting was corrected prior to
issuance of the Company's 2004 financial statements.
Also as of December 31, 2004, management identified a material weakness in
internal control over financial reporting associated with the Company's
accounting for income taxes. Specifically, the Company did not have effective
management oversight and review controls to ensure that the Company's income tax
accounting was consistent with generally accepted accounting principles. This
control deficiency resulted in errors in the Company's accounting for both
current and deferred income tax amounts and related disclosures, which were
corrected prior to issuance of the Company's 2004 financial statements.
The Company continues to review, revise and improve the effectiveness of
the its internal controls including the additional controls implemented relating
to the Company's medical costs including the estimation of medical
self-insurance reserves, and strengthening the Company's income tax review
control procedures. We have made no other significant changes in the Company's
internal controls over financial reporting in connection with the Company's
evaluations completed for the first two quarters of 2005 that would materially
affect, or are reasonably likely to materially affect the Company's internal
controls over financial reporting. Based upon an evaluation completed as of the
end of the period covered by this quarterly report with the SEC, the Company's
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective for gathering and disclosing
information as required for reports filed under the Securities and Exchange Act
of 1934. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of this evaluation.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUERS PURCHASE OF EQUITY SECURITIES
Total Number of Maximum Number
Shares Purchased of Shares that
as Part of may yet be
Publicly Purchased Under
Total Number of Average Price Announced Plans the Plans or
Period Shares Purchased Paid per Share or Programs Agreements
- ---------- ---------------- -------------- ---------------- ---------------
April 2 to
April 30 - - - 209,882
May 1 to
May 31 17,200 $3.33 17,200 1,192,682
June 1 to
July 1 67,200 $3.53 67,200 1,125,482
------ ------
Total 84,400 $3.49 84,400 1,125,482
During May 2005, the Company announced a 1.0 million share repurchase
authorization. This share repurchase authorization added to an existing
approximately 0.2 million share repurchase authorization that remained
from an initial authorization of 1.4 million shares in 1995. Neither share
repurchase program has an expiration date.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on May 11, 2005, at the
Company's Headquarters, 800 Delaware Avenue, Buffalo, New York at
10:00 a.m.
The Company submitted for shareholder approval the election of two
Class II directors and one Class III director.
Election of Directors
- Two Class II directors (James R. Boldt and Thomas E. Baker)
were elected to hold office until the 2008 annual meeting of
shareholders and until their successors are elected and
qualified. One Class III director (George B. Beitzel) was
elected to hold office until the 2006 annual meeting of
shareholders and until successors are elected and qualified.
The results of the voting are as follows:
Total Vote Total Vote
Director For Withheld
- ----------------------------- ----------- ----------
James R. Boldt (Class II) 18,496,648 448,124
Thomas E. Baker (Class II) 18,559,940 384,832
George B. Beitzel (Class III) 18,211,089 733,683
- The Class III directors of the Company whose term of office
extends until the 2006 annual meeting of shareholders and
until their successors are elected and qualified are George B.
Beitzel, John M. Palms and Daniel J. Sullivan.
- The Class I directors of the Company whose term of office
extends until the 2007 annual meeting of shareholders and
until their successors are elected and qualified are Randall
L. Clark and Randolph A. Marks.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit Description Page
- ------- ----------------------------------------------------------------------- ----
18. KPMG Preferability Letter 22
31.(a) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 23
31.(b) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 24
32. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 25
* * * * * * *
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER TASK GROUP, INCORPORATED
By: /s/ Gregory M. Dearlove
---------------------------------
Gregory M. Dearlove
Principal Accounting and
Financial Officer
Title: Senior Vice President and
Chief Financial Officer
Date: August 10, 2005
21