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EXHIBIT 13
COMPUTER TASK GROUP, INCORPORATED
1998 Annual Report to Shareholders.
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ctg
1998
Annual Report
INFORMATION TECHNOLOGY SOLUTIONS
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Company Profile
Founded in 1966, Computer Task Group, Incorporated (CTG or the Company) is a
$468 million information technology (IT) services company that provides IT
solutions to Fortune 1000 and other companies through strategic partnerships.
Backed by more than 30 years' experience, CTG manages IT services for some of
the world's leading companies so they can focus on their core businesses and use
IT, which has become vital to competitiveness, to excel in their markets. CTG's
resources include 55 offices in North America and Europe, 6,000 IT
professionals, a suite of proprietary service methodologies, strong project
management expertise, and a proactive recruiting approach, CTG-SmartSource.
Company Mission Statement
CTG's mission is to leverage information technology for our clients' success,
while creating professional opportunities for our colleagues and value for our
shareholders.
TABLE OF CONTENTS
1 1998 Performance Highlights
2 Shareholders Letter
3 The Direction of IT: Outsourcing
6 The Nature of IT: Dynamic
8 The Key to IT: Knowledge
10 The Demand for IT: Global
12 Financial Section
13 Consolidated Summary Financial Information
14 Management's Discussion and Analysis
19 Consolidated Financial Statements
24 Notes to Consolidated Financial Statements
34 Auditors' Report
35 Corporate Information
36 Officers & Directors
This Annual Report contains certain forward-looking statements concerning the
Company's current expectations as to future results. Such forward-looking
statements are contained in the sections of the Annual Report entitled
Shareholders' Letter. The Director of IT: Outsourcing, The Nature of IT:
Dynamic, The Key to IT: Knowledge, The Demand for IT: Global, and Management's
Discussion and Analysis. Words such as "believes," "forecasts," "intends,"
possible," "expects," "estimates," "anticipates," or "plans" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements should be read in conjunction with the Company's
disclosures set forth in the first paragraph of the Management's Discussion and
Analysis Section, on page 14, which is incorporated herein by reference.
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(1998) PERFORMANCE HIGHLIGHTS
(amounts in millions, except per share
and percentage data)
PERCENT 3-YEAR
FINANCIAL HIGHLIGHTS 1998 1997 CHANGE CAGR*
---- ---- ------ -----
Revenue $467.8 $407.6 14.8% 11.3%
Operating income 39.9 29.0 37.6% 28.4%
Operating margin 8.5% 7.1% 19.7% 31.3%
Income before income taxes 40.8 30.3 34.7% 50.4%
Net income 24.0 17.9 34.1% 46.7%
Diluted net income per share 1.42 1.01 40.6% 47.8%
Shareholders' equity 83.4 55.3 50.8% 10.7%
------ ------ ---- ----
* compound annual growth rate
- - Revenues increased 14.8% to a record $468 million.
- - CTG's focus on Key Clients contributed to a 40.6% increase in diluted net
income per share and a 34.1% increase in net income.
- - CTG's Key Client strategy also produced growth in operating margin to 8.5%
for 1998 and a record quarterly high of 9.1% in the fourth quarter of 1998.
- - CTG signed a new one-year contract with IBM to continue as one of IBM's
national technical services providers.
- - Computerworld named CTG one of the 100 best places to work in information
systems for the third consecutive year.
- - CTG received two regional Best Practices Awards(SM) from Arthur Andersen,
an international accounting firm.
- - Twenty-three additional CTG offices achieved ISO 9001 certification,
bringing the total number of certified offices to 37.
- - CTG Europe hired 257 new employees, bringing the total number of European
consultants to over 1,000, solidifying CTG's position as a major IT
services company in Europe.
REVENUE
in millions
$301.6 $339.4 $365.1 $407.6 $467.8
1994 1995 1996 1997 1998
NET INCOME
in millions
$4.8 $10.8* $11.1 $17.9 $24.0
1994 1995 1996 1997 1998
DILUTED NET INCOME PER SHARE
$0.26 $0.62* $0.63 $1.01 $1.42
1994 1995 1996 1997 1998
(*)Includes a non-recurring tax benefit of $3.2 million ($0.18 diluted net
income per share) relating to losses associated with the Company's European
operations.
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Gale S.Fitzgerald
Chairman and CEO
CTG's Vision:
To be recognized as the most committed, responsive, and valued global business
partner in information technology services
Dear Fellow Shareholders,
As we enter 1999, we can be proud of our past year's accomplishments. We
continue to strengthen and expand our business and solidify our leadership
position in the information technology (IT) services industry.
CTG produced record revenues and profits in 1998. Revenues for the year were
$467.8 million, an increase of 15% over 1997 revenues. Net income and diluted
earnings per share (EPS) in 1998 were $24.0 million and $1.42, respectively,
increases of 34% and 41% over 1997.
Our Key Client strategy and commitment to delivering high-value managed services
led to solid results in 1998. By providing IT services for clients whereby CTG
takes management responsibility for specified deliverables or customized service
levels, we are able to form higher-value, ongoing relationships. This approach
has proven its worth, positioning CTG for further growth in revenues and
profitability.
After five years of steady financial improvement, we are prepared to accelerate
our growth pace in 1999 and beyond. The IT services industry is projected to
grow at a compound annual growth rate of 17% from 1997 to 2002, and CTG is
determined to grow even faster. Our goal is to continue to increase our
operating margins by increasing our managed services business. It is a
challenging but attainable financial goal. Focusing on high-value services will
provide greater value for our shareholders, stronger partnerships with our
clients, and faster growth for CTG. Everyone benefits.
SHAREHOLDERS' LETTER
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In 1998, we appointed a new vice president of Marketing and Services to help
drive our growth plan for providing IT managed services to clients. Our global
Marketing and Services organization will research the services our clients need
and value, and will ensure that CTG is fully equipped to deliver them.
In 1999, we will be focusing our services in five major markets that represent
exciting opportunities for us: Business Application Management, Enterprise
Resource Planning (ERP), Electronic Business (E-Business), Supply Chain
Management, and Health Care. Our decision to limit year 2000 business to less
than 15% of our total business is enabling us to commit significant resources
and energies in 1999 to these higher-growth markets. We see these markets as
offering greater potential to build significant, ongoing business with both
current and new Key Clients.
In February 1999, CTG acquired Elumen Solutions, Inc. Based in Cincinnati, Ohio,
Elumen is the largest privately held consulting firm specializing in information
technology services for health care organizations. Elumen joined CTG's national
health care group to form CTG HealthCare Solutions. With $44 million in combined
health care revenues in 1998, CTG HealthCare Solutions has approximately 250
health care client relationships and comprises more than 300 health care IT
consultants. This strategic acquisition created an extremely strong presence in
a sector that has been growing in excess of 22% annually, or 30% faster than the
IT services industry overall. We expect this business segment's significant
growth to substantially contribute to CTG's overall growth in revenues and
profitability.
CTG's Global Approach, rolled out in 1998, is a framework shared by all CTG
colleagues for performing their work. It applies to all primary business
functions within CTG worldwide. Its objective is to drive further growth by
making everything we do even more effective: sales, delivery, recruiting, career
development, marketing and services, and support services. The results should be
higher growth and productivity, more cost-effectiveness, and metrics that
measure value not only to our clients, but also to CTG and our shareholders.
Attracting and retaining the best IT professionals is another key to CTG's
success. Commitment to our colleagues is demonstrated by the investments we make
in education, training, leadership, and career development. In 1998,
Computerworld magazine named CTG one of the 100 best places to work in
information systems for the third consecutive year. This recognition is
particularly important in view of the current shortage of IT professionals.
It gives us an additional advantage over competitors in attracting and retaining
top IT skills. Our extensive recruiting programs attract employees to CTG, and
our commitment to being the industry's best employer helps us retain them.
Our benefits ensure CTG stays at the top of our industry. Our education and
training services keep our colleagues up on the most current IT and business
knowledge. In 1997, we invested $8.4 million in training. In 1998 we increased
training spending to $12.5 million, and during 1999 we will continue to invest
in our colleagues. Through our intranet, CTG Central, we offer more than 400
downloadable computer-based training courses. Other innovative employee benefits
programs include an enhanced 401(k) plan with an increased company match;
interest-free loans for the purchase of PCs and software for our colleagues'
personal use; and annual bonuses for our IT professionals, based on profits. We
work hard at improving ourselves to retain our leadership position among top IT
employers. We want our colleagues and potential employees to know that CTG is
the best place to be in IT, which, in turn, helps us grow our business.
With all the progress that we've made over the past several years, our mission
remains clear and simple: to leverage information technology for our clients'
success, while creating professional opportunities for our colleagues and value
for our shareholders. Our vision is to be recognized as the most committed,
responsive, and valued global business partner in IT services.
With some of the world's most respected companies as our Key Clients, we have an
excellent foundation for building and growing our business and making our vision
a reality. This is an exciting time to be in the information technology
industry. CTG is well prepared to capitalize on the future of information
technology for the benefit of our clients, colleagues, and you--our
shareholders.
I look forward to the growth opportunities that lie ahead as we approach the new
millennium. Thank you for your interest and continued support of CTG.
Sincerely,
Gale S. Fitzgerald
Chairman and CEO
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Businesses and organizations are expanding their use of outsourcing as they
strive to realize maximum value from their IT assets and staff, align IT
strategy and business goals, and build world-class processes. Dataquest expects
worldwide outsourcing to grow to $471.7 billion by the year 2002 at a compound
annual growth rate of 17.3%. GartnerGroup predicts that more than 60% of the
Fortune 2000 will use external service providers for more than 50% of
information technology activities by 2003.
Tops Markets, Inc. CFO Spencer Deese (pictured at far right) says of his
company's relationship with CTG, "We have been very pleased with the people, the
processes, the systems. The ability to do other than just put in a system. The
ability to think outside of that, and help us understand how to best apply IT to
running a retail business."
THE DIRECTION OF IT OUTSOURCING
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CTG's 33-year history of successful outsourcing contracts was recognized by CIO
magazine's "Outsourcing Buyer's Guide" when it named CTG as one of the country's
top providers of application maintenance solutions in April 1997. In mid-1998,
CTG further solidified its leadership position in the outsourcing market by
refocusing operations toward application maintenance and other valued managed
services. These services now comprise the company's largest, most profitable,
and fastest-growing business, accounting for over 40% of business in 1998. CTG
provides managed services to a blue-chip roster of customers that includes many
Fortune 1000 companies.
For clients in the planning phase of a business solution, CTG's valued managed
services include strategic IT alignment, IT architecture, business process
modeling, technology selection, and internetworking. As clients move into the
design and development stage, CTG manages systems design, development, testing,
implementation, and integration services. In the maintenance/ management phase,
CTG supports, operates, and maintains application portfolios, help desks,
systems, and data centers. All managed services are implemented by highly
qualified project managers, equipped with a suite of proprietary methodologies,
and backed by CTG's vertical industry and technology specialties.
During 1998, a significant portion of CTG's valued services was generated by
application management services, which address the full life-cycle needs of
managing enterprise software, from rollout to subsequent updates, conversions,
maintenance, and help desk activities. Application management contracts
typically cover two to five years, with values ranging from $1 million to $20
million.
Key application management clients include British Petroleum (BP). BP's
exploration company outsourced its 80-person applications staff to CTG in 1994.
In 1995, BP's oil operations outsourced its 300+ person information technology
department to a federation of four IT industry suppliers that includes CTG. BP
wanted to focus management attention on its core competencies, implement IT
processes that would give it management `levers' to match service levels with
business value, and obtain greater economies of scale in IT. CTG provides BP
with application management processes, the applications manager, applications
staff, as well as production support, 24-hour on-call support, maintenance, and
user consulting.
Another successful Key Client outsourcing partnership is CTG's four-year-old
relationship with Bayer Corporation. A team of CTG technical specialists,
including a project manager and two team leaders, maintains over 30 applications
for Bayer. The outsourcing of certain production systems allows Bayer management
to concentrate its own IT staff resources on the development of new mission
critical systems while maintaining a high level of service to its current
systems users. The CTG team is particularly proud of its client satisfaction
record and the improvements it has made to Bayer's information systems'
responsiveness.
In addition to application management outsourcing, CTG teams are in place to
provide our Key Clients with other valued services that we believe will present
significant opportunities over the next few years. These include enterprise
resource planning, e-business--with an emphasis on e-commerce, Web- and
Internet-based development, and network architecture--and health care, where
CTG is currently expanding its implementation capabilities with health care
package providers. Supply chain management is another critical business area in
today's marketplace, and CTG has responded by extending its pharmaceutical
industry expertise to the consumer pack-aged goods, food processing, and
distribution industries.
This growing segment is exemplified by our Key Client partnership with Buffalo,
NY-based Tops Markets, Inc., an operating company of Royal Ahold N.V. When
Ahold decided to consolidate its information technology function at an
enterprise level to gain economies of scale, Tops Markets and its sister
companies were, in turn, required to refocus their own IT strategies. To
achieve its aggressive goals, Tops chose CTG to provide the process and
methodology for projects involving retail systems, corporate systems
consolidation, marketing and merchandising systems, supply chain systems,
mandatory/regulatory application upgrades, and year 2000 support. CTG also
provides technology support for such key business enhancement initiatives as a
customer loyalty card.
The CTG Solution
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In 1999 and beyond, helping clients stay ahead of technology's rapid changes
will require the delivery of valued services on an enterprise-wide basis,
ranging from complex IT projects to the management of ongoing IT functions like
help desk operations and application management.
THE CTG SOLUTION
Addressing this challenge is CTG's Enterprise Resource Planning (ERP) group,
specializing in the selection and implementation of ERP systems. These
state-of-the-art systems integrate all the manufacturing and related
applications for an enterprise, incorporating such advanced technologies as
GUIs, CASE tools, 4GLs, and client/server architecture. ERP systems integrate
business functions and enable improved responsiveness to customers, tighter cost
controls, reduced inventory levels, increased productivity, and greater
flexibility in conducting business.
The CTG ERP group provides the experienced teams, processes, methodologies,
technology-based toolkits, and organizational support needed to select and
implement the right ERP software for each client. Our ERP teams are able to
maximize our clients' information technology investment through application of
our Joint Technology Selection (JTS) process. This process matches clients'
knowledge of their business with CTG's ability to effectively accelerate
decision-making, concentrating the selection effort on each client's critical
business requirements, and then validating compliance with the finalist packages
during a validation phase. As a result, JTS executes faster than a traditional
package selection approach, yet the process is less risky.
CTG recently applied this expertise to a project for Tower Group, an
international customs broker. Tower Group needed a system that would create a
single repository of reference, customer, vendor, financial management, and
historical data from disparate platforms, as well as databases to enable it to
perform financial and management analysis and improve customer service. Tower
Group's vision was to make information available on demand to internal and
external customers around the world. CTG helped Tower Group design, plan, and
implement an information technology architecture to support these business
requirements.
Another dynamic sector of information technology growth and opportunity is
health care. From the largest hospitals to physicians' private practices, health
care industry IT requirements are proliferating. Hospital charts are being
replaced by computer-based patient records and clinical repositories. Clinical
information systems will augment the current chain of events in patient care.
These innovations will help reduce costs while improving responsiveness and
patient out-comes. CTG's HealthCare Solutions is dedicated to delivering
technical solutions that facilitate more effective health care delivery. The
HealthCare Solutions group has conducted large-scale implementation and
customization of major vendor hospital information systems, managed care
contract systems, and ancillary department systems.
One such client, Ohio State University Medical Center (OSUMC), a large research
and teaching hospital, engaged CTG to assist with the design and implementation
of the SMS INVISION Physician Order Entry, Lifetime Clinical Record, Clinical
Documentation, Patient Management, and Patient Accounting systems, as well as
the Enterprise Access Directory. As the relationship expanded, OSUMC sought
greater support and expertise from CTG's health care consultants, and multiple
CTG teams are now supporting OSUMC in several projects. CTG's accomplishments at
OSUMC include supporting the integration of multiple software systems, improving
processes to take full advantage of system features, and training users and
IT staff on the new systems.
CTG's recent acquisition of Elumen Solutions, Inc., will provide
additional opportunities for CTG as a leader in IT services for health care
organizations, one of the fastest-growing sectors of the IT services industry.
THE CTG SOLUTION
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The Nature of IT Dynamic
In today's ever-changing IT environment, businesses are hard-pressed to keep up
with the rapid pace of technology and how to apply it to the best advantage for
their business.
What is the most efficient, cost-effective method for managing patient care?
What are the best ways to track inventory? What is the fastest way to get a
product to market?
Companies and organizations are increasingly turning to information technology
experts for IT solutions, ongoing support and maintenance, and the expertise to
stay ahead of nonstop changes in technology.
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The Key to IT Knowledge
Businesses and organizations are faced with an escalating dependence on both
information systems and the IT experts needed to design, develop, and maintain
them. The primary business challenge confronting users of information technology
is the fact that demand for IT professionals far outweighs the supply.
A byproduct of this imbalance is that more companies are turning to information
technology consulting and outsourcing firms whose core competency is providing
IT services and talent.
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As the 21st century approaches, success in the dynamic information technology
services market increasingly depends on a company's ability to make strategic
information widely and quickly available to the teams and individuals--often
dispersed across many different cities on several continents--who need it. In
1997, CTG undertook a project to use our significant body of intellectual
capital as the foundation for a strong knowledge-based culture, and during the
past year the company intensified its focus on leveraging knowledge more
effectively. The result is a rapidly expanding and diversifying Global Knowledge
Management System that is enhancing the value CTG can provide to its clients and
shareholders, as well as the opportunity it can offer its professionals.
Keeping pace with the rapid changes in the information technology industry
involves a concerted effort among several CTG supporting teams. A prime example
is CTG's Enabling Technologies Virtual Team (ETVT), a select group of highly
skilled IT professionals who support CTG clients by delivering leading-edge,
high-demand technologies. The ETVT studies the IT landscape to assess emerging
technologies, adapts CTG's methodologies for use with Key Clients, and mentors
CTG professionals in building skills in high-demand areas. Closely associated
with the Enabling Technologies Team is CTG's Knowledge Exchange Team, which
provides resources and research support on technology, industries, and
alliances. A third key group of specialists, CTG's E-Business Team, contributes
expertise in Internet/intranet systems development, network architecture design
and implementation, distributed systems management, security, project
management, and systems architecture.
CTG's success in recruiting and retaining higher-caliber IT professionals makes
it one of the most responsive IT services firms in the industry. The Company's
recruiting mechanism, CTG-SmartSource, combines a global team of recruiting
experts, our leading-edge technology infrastructure, and proprietary processes
to locate and track IT professionals with high-demand skills in any location.
Due to the high cost of turnover, one of CTG's corporate goals for 1998 was--and
continues to be--to optimize retention by developing programs and policies to
address the professional and personal needs of its diverse workforce. CTG's
emphasis on supporting career development has proven to be an essential element
in recruitment and retention initiatives, and helps ensure that technical
employees are highly qualified. A culture of professional challenge, competitive
compensation, and diverse career paths, along with a nationally recognized
training and education program, has produced measurable results. CTG
professionals are encouraged to work with their managers to develop personal
career plans and to maintain and expand their IT training. The goal is to ensure
that all CTG colleagues are trained and experienced in state-of-the-art
technologies.
To remain competitive, CTG seeks ways to find, keep, and develop its growing
pool of qualified IT colleagues. One cost-effective response to the challenge is
the CTG Graduate Program. Working with over 80 colleges, universities, and
technical schools from around the country, CTG's College Recruitment Team
selects recent and upcoming college graduates on the basis of their educational
qualifications, technical experience, and aptitude for information systems. The
program's goal is to graduate students with proficiency in application
development equivalent to six months' on-the-job experience. Graduates are
readied to accept developer roles as junior members of a team, mentored by a
senior CTG technical professional. In 1998, CTG doubled its capacity to train
entry-level programmers.
The Graduate Program satisfies several needs. First, it builds teams with
varying levels of experience to handle the diversity of tasks in a typical
project. That includes both colleagues with specialized or senior skills and
those who have recently completed Graduate Program training. Second, it gives
CTG the ability to appropriately balance the skills and experience needed, and
make the solution for the client more cost-effective. Third, for the
development of applications, it provides professionals who are trained in a
consistent manner, according to established and accepted standards. The Graduate
Program gives CTG the flexibility to creatively address customer requirements of
both cost and skill.
THE CTG SOLUTION
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CTG provides IT solutions that link businesses to the global marketplace. The
increasing complexity of today's technology solutions requires innovative and
highly skilled IT professionals.
CTG's 6,000 IT professionals are dedicated to identifying and serving our
clients' needs. With our 55 offices in North America and Europe, we are well
positioned to supply our clients with the wide range of services they need to
help them become more competitive.
Our clients count on us to provide cutting-edge global business solutions. CTG's
e-business services specialize in Web and electronic commerce technologies. We
provide our clients with comprehensive and innovative Web-based solutions that
include infrastructure expertise, database design, and information management
with controlled processes. CTG supports clients who are transitioning from
traditional electronic data interchange (EDI) business-to-business transactions
to Web-based transactions. We develop Web-enabled back office systems. CTG has
extensive experience in e-commerce technologies such as EDI, e-mail,
electronic funds transfer (EFT), and the Internet. These technologies enable
consumers and businesses to participate in the global marketplace.
One of our most significant e-business engagements is an Internet project for
British Petroleum America. CTG designed, built, and implemented an intranet
infrastructure that provided access to 53,000 local and remote users. Increasing
communications and sharing intellectual capital companywide was the goal.
Most of CTG's Key Clients are Fortune 1000 companies with multinational
interests. These companies have the resources to invest in IT where it makes a
difference to their business-- and they have a successful relationship with CTG.
They turn to us to manage their IT needs because we have demonstrated our
flexibility in structuring our IT services to respond to their needs. Strategic
partnerships with CTG reduce both IT service costs and risk in IT projects,
enhance the impact of IT on the organization, and give our clients immediate
access to IT resources that are organized around their needs. Our IT talent
learns our customer's business and captures follow-on work.
Partnering with IBM Corporation reflects the value of linking with a large
multinational company. IBM is CTG's largest Key Client, representing 32% of our
business. In 1995, CTG was selected as one of nine preferred suppliers to
provide IT services to IBM throughout the U.S. Building on the strength of our
relationship in the U.S., in October 1996, CTG Canada was selected as a core
supplier authorized to provide technical, IT support, engineering, and design
services to IBM Global Services, Canada, in all seven of IBM Canada's regions.
CTG's European operation supports an international help desk based in the
Netherlands.
Our success in Europe enhances our ability to expand our presence in the global
marketplace. CTG's strategic partnerships with multinational firms contributed
to the Company's explosive growth in Europe. In May 1998, we hired our 1,000(th)
European colleague, doubling the number we had in 1997. CTG's European revenue
increased at a compound annual growth rate of 30.1% over the past three years.
Since becoming part of CTG in 1990, our European operation has developed a niche
in the help desk operations and financial services markets.
CTG's financial services expertise in Europe is reflected in our work for ABN
AMRO Bank in the Netherlands. CTG staffed and managed one of the migration
projects at the bank that involved designing, building, testing, and
implementing a new state-of-the-art PC LAN environment.
As businesses respond to the globalization of their markets, a strategic
partnership with CTG enhances the impact of IT on their organization.
The CTG Solution
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As the new millennium approaches, IT touches every aspect of life around the
world. The rising demand for IT solutions is fueled in part by e- commerce
applications created in response to the expanding World Wide Web. By 2002,
Dataquest expects PCs that regularly access the Internet and the Web to triple
to over 300 million.
Integrating websites, intranets, and other e-commerce applications into a
company's core business is a challenge for IT services. Dataquest estimates that
worldwide markets for IT professional services will grow from $217.6 billion in
1997 to about $471.7 billion by the year 2002 in response to this need.
THE DEMAND FOR IT GLOBAL
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(Financial) Section
Table of Contents
13 Consolidated Summary
Financial Information
14 Management's Discussion
and Analysis
19 Consolidated
Financial Statements
24 Notes to Consolidated
Financial Statements
34 Auditors' Report
Operating Income
[GRAPH] (in millions)
$3.7 $4.7 $4.9 $5.3 $5.8 $7.3 $7.5 $8.3 $8.4 $9.8 $10.3 $11.4
Q196 Q296 Q396 Q496 Q197 Q297 Q397 Q497 Q198 Q298 Q398 Q498
Operating Margin
[GRAPH]
4.1% 5.1% 5.4% 5.6% 6.1% 7.3% 7.4% 7.5% 7.6% 8.3% 8.9% 9.1%
Q196 Q296 Q396 Q496 Q197 Q297 Q397 Q497 Q198 Q298 Q398 Q498
Earnings Per Share (diluted)
[GRAPH]
$0.13 $0.15 $0.17 $0.18 $0.21 $0.26 $0.26 $0.29 $0.30 $0.34 $0.37 $0.41
Q196 Q296 Q396 Q496 Q197 Q297 Q397 Q497 Q198 Q298 Q398 Q498
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Consolidated Summary -
Five-Year Selected
- -------------------------------------------------------------------------------
FINANCIAL INFORMATION
(amounts in millions, except per share data)
1998 1997 1996 1995 1994
OPERATING DATA
Revenue $467.8 $407.6 $365.1 $339.4 $301.6
Operating income (loss) $ 39.9 $ 29.0 $ 18.5 $ 12.8 $ (2.2)
Income before income taxes $ 40.8 $ 30.3 $ 18.5 $ 12.0 $ 8.1
Net income $ 24.0 $ 17.9 $ 11.1 $ 10.8(*) $ 4.8
Basic net income per share $ 1.48 $ 1.07 $ 0.65 $ 0.65(*) $ 0.27
Diluted net income per share $ 1.42 $ 1.01 $ 0.63 $ 0.62(*) $ 0.26
Cash dividend per share $ 0.05 $ 0.05 $ 0.05 $ 0.05 $ 0.05
FINANCIAL POSITION
Working capital $ 74.9 $ 47.1 $ 61.5 $ 49.5 $ 38.8
Total assets $156.8 $107.7 $121.3 $104.8 $ 95.5
Long-term debt $ -- $ -- $ -- $ 3.6 $ 6.1
Shareholders' equity $ 83.4 $ 55.3 $ 71.5 $ 61.5 $ 50.7
(*) Includes a non-recurring tax benefit of $3.2 million ($0.19 basic net
income per share and $0.18 diluted net income per share) related to
losses associated with the Company's European operations.
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Management's Discussion and Analysis of
Results of
- -------------------------------------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
Statements included in this Management's Discussion and Analysis of Results of
Operations and Financial Condition and elsewhere in this document that do not
relate to present or historical conditions are "forward-looking statements"
within the meaning of that term in Section 27A of the Securities Act of 1933, as
amended, and Section 21F of the Securities Exchange Act of 1934, as amended.
Additional oral or written forward-looking statements may be made by the Company
from time to time, and such statements may be included in documents that are
filed with the Securities and Exchange Commission. Such forward-looking
statements involve risks and uncertainties that could cause results or
outcomes to differ materially from those expressed in such forward-looking
statements. Forward-looking statements may include, without limitation,
statements relating to the Company's plans, strategies, objectives,
expectations, and intentions and are intended to be made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Words
such as "believes," "forecasts," "intends," "possible," "expects," "estimates,"
"anticipates," or "plans" and similar expressions are intended to identify
forward-looking statements. Among the important factors on which such
statements are based are assumptions concerning the anticipated growth of the
information technology (IT) industry, the continued need of current and
prospective customers for the Company's services, the availability of qualified
professional staff, and price and wage inflation.
1998 vs. 1997
To aid in understanding the operating trends of the Company, the following table
is presented to set forth data as contained on the consolidated statements of
income, with the information calculated as a percentage of consolidated
revenues.
Year ended December 31, 1998 1997 1996
(percentage of revenue)
- ------------------------------------------------------------------
Revenue 100.0% 100.0% 100.0%
Direct costs 68.6% 70.9% 71.6%
Selling, general,
and administrative
expenses 22.9% 22.0% 23.3%
- ------------------------------------------------------------------
Operating income 8.5% 7.1% 5.1%
Interest and
other income, net 0.2% 0.3% 0.0%
- ------------------------------------------------------------------
Income before
income taxes 8.7% 7.4% 5.1%
Provision
for income taxes 3.6% 3.0% 2.1%
- ------------------------------------------------------------------
Net income 5.1% 4.4% 3.0%
==================================================================
In 1998, CTG recorded revenue of $467.8 million, an increase of 14.8 percent
when compared to 1997 revenue of $407.6 million. North American revenue
increased by $33.8 million or 9.4 percent during the year, while revenue from
European operations increased by $26.5 million, or 56.7 percent. In 1998,
European revenues were 15.7 percent of total Company revenues. Overall, the
consolidated revenue increase in 1998 as compared to 1997 was mainly due to the
Company providing higher-value services to its customers, and additional
billable personnel.
During the past several years the Company has implemented its Key Client
strategy. The first phase of the strategy was to identify and focus on selected
Key Clients. To that end, CTG reduced the number of customers that it served
from 1,200 in 1995 to approximately 430 at the end of 1997. The next phase of
the strategy was to increase the percentage of higher-value services in the
company's sales mix. CTG believes that its successful implementation of its Key
Client strategy caused earnings to increase significantly faster than revenues
during the past several years, and that the strategy has the potential to
continue to improve the Company's earnings performance going forward.
The 1997 to 1998 year-to-year revenue growth rate was impacted slightly by the
strengthening of the U.S. dollar as compared to the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no
change in these foreign currency exchange rates from 1997 to 1998, total
consolidated revenues would have been $0.4 million higher, resulting in a
year-to-year consolidated revenue growth rate of 14.9 percent. This additional
$0.4 million increase in revenue in Europe would have increased the European
revenue growth rate to 57.6 percent.
In January 1999, CTG renewed a contract with IBM for one year as one of IBM's
national technical service providers for the United States. The contract covers
59 percent of the total services provided to IBM by the Company in 1998. IBM
continued to be the Company's largest customer, accounting for $151.4 million or
32.4 percent of 1998 total revenue as compared to $142.2 million or 34.9 percent
of 1997 revenue. The Company expects to continue to derive a significant portion
of its revenue from IBM in 1999 and future years. While a significant decline in
revenue from IBM would have a material adverse effect on the Company's revenues
and profits, the Company believes a simultaneous loss of all IBM business
14
18
is unlikely to occur due to the recent renewal of the national contract, the
number of contracts presently in existence with IBM, the diversity of the
projects performed for IBM, and the number of locations and divisions involved.
Direct costs, defined as costs for billable staff, were 68.6 percent of revenue
in 1998 compared to 70.9 percent of revenue in 1997. The decrease in direct
costs as a percentage of revenue in 1998 as compared to 1997 is primarily due to
a trend toward providing higher-value services, consistent with CTG's Key Client
focus.
Selling, general, and administrative expenses were 22.9 percent of revenue in
1998 compared to 22.0 percent of revenue in 1997. The increase from 1997 to 1998
is primarily due to additional investments in 1998 in sales and marketing,
recruiting, and training programs.
Operating income was 8.5 percent of revenue in 1998 compared to 7.1 percent of
revenue in 1997. In dollars, there was a 37.6 percent increase year over year.
As mentioned above, CTG continued its focus on Key Clients, with particular
emphasis on those relationships that were mutually profitable for CTG and its
clients. The fourth quarter of 1998 marks the seventeenth straight quarter of
operating income improvement for CTG. Operating income from North American and
Corporate operations increased $6.3 million or 25 percent from 1997 to 1998.
European operations recorded operating income of $8.2 million in 1998 as
compared to $3.7 million in 1997. The European improvement in profitability is
primarily due to the 56.7 percent increase in revenue discussed above and an
increase in higher-value services performed in 1998.
Due to its European operations, CTG is moderately affected by the
implementation of the Euro currency in most of the countries in which it
operates. However, this effect is financially immaterial as the Company has
upgraded its internal systems to be Euro compliant with nominal cost to the
company. Additionally, the Company does not anticipate pricing or competitive
pressures from other IT services providers that would materially affect either
revenues or profits for CTG as a whole.
Interest and other income and expense was 0.2 percent of revenue in 1998
compared to 0.3 percent of revenue in 1997. This decrease was a result of having
less cash and temporary cash investments on hand for most of 1998, as the
Company's Stock Employee Compensation Trust (SECT) utilized a significant
portion of the Company's available cash and temporary cash investments in the
fourth quarter of 1997 to purchase CTG's stock on the open market.
Income before income taxes was 8.7 percent of revenue in 1998 compared to 7.4
percent of revenue in 1997. The provision for income taxes for 1998 and 1997 was
41 percent.
Net income for 1998 was 5.1 percent of revenue, or $1.48 basic earnings per
share (EPS) and $1.42 diluted EPS, compared to 4.4 percent of revenue or $1.07
basic EPS and $1.01 diluted EPS in 1997. Earnings per share was calculated using
16.2 million (basic EPS) and 16.9 million (diluted EPS) and 16.8 million (basic
EPS) and 17.6 million (diluted EPS) equivalent shares outstanding in 1998 and
1997, respectively. The decrease in equivalent shares outstanding for diluted
earnings per share is primarily due to the stock purchases by the Company's SECT
in the fourth quarter of 1997.
In 1996, CTG conducted an assessment of its potential year 2000 issues by
examining all of its internal and third-party applications, operating systems,
interfaces, and hardware (collectively referred to hereafter as computer
systems) and its non-information technology (non-IT) systems. During 1997, the
Company generated a complete inventory of its computer systems and non-IT
systems that may be impacted by year 2000 issues.
To address its year 2000 issues, CTG established a year 2000 committee, a
compliance program, and a budget. The committee meets regularly, and reviews and
updates, as necessary, the compliance program at each meeting. The Company's
year 2000 compliance program consists of six primary phases: assessment, systems
inventory, remediation, contingency planning, systems testing, and systems
evaluation and monitoring. As mentioned above, the systems inventory and
assessment phases were completed in 1997, and progress has been made with
respect to the contingency planning and systems testing phases. CTG expects all
of its computer systems and non-IT systems to be ready for testing on or before
March 31, 1999, and that all of its mission critical computer systems and
mission critical non-IT systems will be year 2000 compliant prior to December
31, 1999. The Company has determined that mission critical systems or vendors
are those that are vital to the operations of the Company. CTG estimates the
total amount spent in 1998 and to be spent in 1999 to address year 2000 issues
is less than $500,000.
CTG, as part of its year 2000 compliance program, has been, and continued to be
throughout 1998, in communication with vendors providing third-party computer
systems or services to the Company, in order to receive assurance that these
computer systems and vendors would be year 2000compliant on or before December
31, 1998. In the event the Company did not receive reasonable assurance
15
19
from its mission critical vendors as to year 2000 compliance by December 31,
1998, CTG is seeking to establish relationships with other vendors that are year
2000 compliant. With respect to purchases of upgrades of existing computer
systems, and new hardware and software computer systems, it is the Company's
practice to formally request and receive year 2000 certification from the vendor
prior to completion of the purchase. As part of CTG's compliance program, the
Company does not intend to make any changes to its hardware or software for its
mission critical computer systems after June 30, 1999, and into the year 2000.
CTG operates in one industry segment, providing IT services to its clients. The
services provided typically encompass the IT business solution life cycle,
including phases for planning, development, and managing and maintaining the IT
solution. A portion of the IT services the Company provides involves assessment,
planning, remediation, testing, and contingency planning services for year 2000
compliance. CTG actively manages the inherent risk in the services it provides
to its clients through a thorough contract review process, and by including
contractual provisions in its contracts that are designed to mitigate risk to
the Company. Revenues generated from year 2000 compliance services were less
than 15% of CTG's consolidated revenues for the year ended December 31, 1998. It
is anticipated that year 2000 compliance providers such as CTG will continue to
generate revenues from year 2000 compliance services after the year 2000.
Accordingly, the Company does not anticipate an immediate significant decline in
revenues after January 1, 2000.
CTG believes that already completed and planned remediation of its mission
critical computer systems and non-IT systems will allow it to be year 2000
compliant as planned. There can be no guarantee, however, that the Company's
mission critical computer systems and non-IT systems, or those of mission
critical vendors upon which CTG relies, will be year 2000 compliant by December
31, 1999. Additionally, there can be no guarantee that CTG's contingency plans,
which the Company intends to complete by April 1999, or that of its mission
critical vendors, will eliminate the effects of any year 2000 non-compliance.
The failure of CTG's mission critical systems, non-IT systems, or those of its
mission critical vendors, could affect the operations of the Company and could
have a materially adverse effect on the Company's results of operations.
On February 23, 1999, the Company completed the acquisition of Elumen Solutions,
Inc. (Elumen). The transaction is valued at $89 million, of which $86 million
was paid in cash or through the assumption of debt, and the remainder was
satisfied through the issuance of approximately 128,000 shares of CTG common
stock. The acquisition will be accounted for as a purchase. CTG estimates that
approximately $85 million of goodwill and other identifiable intangibles, from
the total cost of $89 million, will arise from the transaction.
Elumen was the largest privately held consulting firm specializing in
information technology services for health care organizations, generating
revenues of approximately $36 million for the year ended December 31, 1998. The
combination of Elumen and CTG's existing health care practice accounts for
approximately $44 million of total revenues in 1998, and comprises over 300
health care information technology consultants.
The market for health care IT services was estimated at $3.4 billion annually in
1997. Several of the factors driving growth in excess of 20% annually in this
sector (Piper Jaffray, 1997 and Dorenfest and Associates, 1997) include the
creation of large integrated health care delivery systems, the consolidation of
health care providers and systems, the impact of managed care, and the need to
invest in information technology to improve patient care and achieve cost and
operating efficiencies. The acquisition of Elumen by CTG is intended to
capitalize on these impressive growth rates which are greater than the growth
rates for the IT services industry as a whole. Additionally, as Elumen is one of
the leading firms in the health care IT sector, its growth rate exceeded the 20%
mentioned above in 1998, and is expected to continue to exceed this rate in
1999.
During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires all items recognized as components
of comprehensive income, such as foreign currency or minimum pension liability
adjustments, to be reported in a financial statement equal to that of the other
financial statements. The adoption of SFAS No. 130 resulted in additional
disclosures, including a revision of previously disclosed information, but had
no effect on the financial condition or results of operations of the Company.
During 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
About Segments of the Enterprise and Related Information." SFAS No. 131 requires
disclosure of segments of a company's business based upon how a company is
organized for making operating decisions and assessing performance. As the
Company's disclosure of business segments did not change in 1998 from that
disclosed in previous years, the adoption of SFAS No. 131 resulted in additional
disclosures, but had no effect on the financial condition or results of
operations of the Company.
16
20
During 1998, the Company adopted the provisions of SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits." The adoption of
SFAS No. 132 resulted in additional disclosures about the Company's
non-qualified defined-benefit plan and post-retirement benefit plan, but had no
effect on the financial condition or results of operations of the Company.
1997 vs. 1996
In 1997, CTG recorded revenue of $407.6 million, an increase of 11.6 percent
when compared to 1996 revenue of $365.1 million. North American revenue
increased by $35.5 million or 10.9 percent during the year, while revenue from
European operations increased by $7 million, or 17.6 percent. European
revenues were 11.5 percent of total Company revenues. Overall, the revenue
increase was primarily due to CTG providing higher-value services and additional
billable personnel in 1997 as compared to 1996.
During 1997, the Company continued the implementation of its Key Client
strategy. From 1995 to the end of 1997, the Company reduced its total number of
clients from over 1,200 to approximately 430. Offsetting the reduction in the
total number of clients was growth in revenues from the Company's Key Clients.
Revenue from the Company's Key Clients, which includes IBM, the Company's
largest client, grew at a rate in excess of 20 percent during 1997.
Additionally, the strength of the U.S. dollar reduced revenue from our European
operations. If there had been no change in the foreign currency exchange rates
from 1996 to 1997, in the countries in which the Company conducts business,
those being the Netherlands, Belgium, the United Kingdom, and Luxembourg, total
consolidated revenues would have increased by an additional $5.8 million,
resulting in a consolidated year-over-year revenue growth rate of 13.2 percent.
In December 1997, CTG renewed a contract with IBM for three additional years as
one of IBM's national technical service providers for the United States. In
January 1999, this contract was modified and re-signed for one year. The
contract covered 59 percent of the total services provided to IBM by the Company
in 1997. IBM continued to be the Company's largest customer, accounting for
$142.2 million or 34.9 percent of 1997 total revenue as compared to $107.4
million or 29.4 percent of 1996 revenue.
Direct costs, defined as costs for billable staff, were 70.9 percent of revenue
in 1997 compared to 71.6 percent of revenue in 1996. The decrease in direct
costs as a percentage of revenue in 1997 as compared to 1996 was primarily due
to a trend toward higher-value services, consistent with the Company's Key
Client strategy.
Selling, general, and administrative expenses were 22.0 percent of revenue in
1997 compared to 23.3 percent of revenue in 1996. The decrease from 1996 to 1997
was primarily due to the ongoing effort to reduce overhead costs as a percentage
of revenue in 1997, and additional software expense in 1996 due to an upgrade of
the Company's internal systems.
Operating income was 7.1 percent of revenue in 1997 compared to 5.1 percent of
revenue in 1996. The increase was primarily due to the factors discussed above.
Operating income from North American and corporate operations increased $10
million or 65.8 percent from 1996 to 1997. European operations recorded
operating income of $3.7 million in 1997 as compared to $3.3 million in 1996.
The European improvement in profitability was primarily due to the 17.6 percent
increase in revenue discussed above and an increase in higher-value services
performed in 1997.
Interest and other income and expense was 0.3 percent of revenue in 1997
compared to 0.0 percent in 1996. The increase was a result of an increase in
cash and temporary cash investments on hand for most of 1997.
Income before income taxes was 7.4 percent of revenue in 1997 compared to 5.1
percent of revenue in 1996. The provision for income taxes for 1997 was 41
percent compared to 40.1 percent for 1996. The increase in the tax rate was due
to additional taxable income in 1997, which was subject to higher marginal tax
rates, as compared to 1996.
During 1997, the Company declared a 2-for-1 stock split effective June 2, 1997.
All earnings per share amounts prior to that date have been restated to reflect
the stock split.
Net income for 1997 was 4.4 percent of revenue or $1.07 basic EPS and $1.01
diluted EPS, compared to 3.0 percent of revenue or $0.65 basic EPS and $0.63
diluted EPS in 1996. Earnings per share were calculated using 16.8 million
(basic EPS) and 17.6 million (diluted EPS) and 17 million (basic EPS) and 17.6
million (diluted EPS) equivalent shares outstanding in 1997 and 1996,
respectively. The increase in equivalent shares outstanding for diluted earnings
per share was primarily due to the dilutive effect of outstanding stock options
on the earnings per share calculation.
At December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share." The adoption of this standard did not have a material
impact on the operations of the Company.
17
21
Financial Condition
Cash provided by operating activities was $34.0 million for 1998. Net income
totaled $24.0 million, and non-cash adjustments for depreciation expense,
amortization expense, and deferred compensation expense totaled $5.2 million.
Accounts receivable increased $12.8 million or 21.2 percent as a result of
increases in revenue and a decline in accounts receivable turnover. Accounts
payable increased by $4.8 million due to the timing of payments at year-end
1998 as compared to year-end 1997. Accrued compensation and other current
liabilities increased $11.6 million due to an increase in the usage of outside
contractors by the Company during 1998 and the timing of the company's U.S.
biweekly payroll. Advanced billings on contracts decreased $0.8 million due to
the mix of the contracts outstanding at December 31, 1998, as compared to
December 31, 1997. At December 31, 1998, the Company's current ratio was 2.2 to
1.
Net property and equipment increased $0.7 million. Additions to property and
equipment were $5.1 million offset by depreciation of $4.4 million. The Company
had no material commitments for capital expenditures at December 31, 1998. Net
acquired intangibles decreased $0.5 million, caused by amortization of $0.6
million and $0.1 million in translation adjustments.
Financing activities provided $3.6 million of cash in 1998. A total of 80,000
shares of the Company's stock were purchased in the open market by the Company's
SECT for $2.5 million. At December 31, 1998, consolidated shareholders' equity
totaled $83.4 million, which was an increase of $28.1 million, or 51 percent,
from December 31, 1997. The increase was primarily due to 1998 net income of
$24.0 million.
During 1998, the Company received $1.4 million from employees for 45,000 shares
of stock purchased under the Employee Stock Purchase Plan. The Company also
received $4.3 million for the exercise of 272,000 stock options, inclusive of
the related tax benefit. The Company paid an annual dividend of $0.05 per share
totaling $0.8 million in 1998.
At December 31, 1998, the Company had approximately $52.6 million in aggregate
lines of credit, which were renewable annually at various times throughout the
year. Subsequent to December 31, 1998, in anticipation of the Elumen
acquisition, the Company increased its available lines of credit to $102.6
million, with terms on the increased amount of the lines consistent with those
of the original lines.
The Company completed the acquisition of Elumen on February 23, 1999. The
transaction is valued at $89 million, of which $86 million was paid in cash or
through the assumption of debt, and the remainder was satisfied through the
issuance of approximately 128,000 shares of CTG common stock. The cash amount of
$86 million was funded using the available lines of credit and existing cash and
temporary cash investment balances.
On October 26, 1994, the Company authorized the repurchase of 2.0 million shares
and on July 21, 1995 authorized the repurchase of another 1.4 million shares of
its common stock for treasury and by the Company's SECT. At December 31, 1998,
approximately 2.5 million shares had been repurchased under the authorizations,
leaving 0.9 million shares authorized for future purchases.
The Company believes existing internally available funds, cash generated by
operations, and borrowings will be sufficient to meet foreseeable working
capital, stock repurchase, and capital expenditure requirements and to allow for
future internal growth and expansion.
18
22
Consolidated Statements of Income
(amounts in thousands, except per share data)
1998 1997 1996
Revenue $ 467,838 $ 407,588 $ 365,076
Direct costs 320,673 288,848 261,583
Selling, general and administrative expenses 107,314 89,784 84,975
Operating income 39,851 28,956 18,518
Interest and other income 1,445 2,151 1,529
Interest and other expense (529) (809) (768)
Loss on sales or disposals of assets (10) (30) (775)
Income before income taxes 40,757 30,268 18,504
Provision for income taxes 16,712 12,406 7,424
Net income $ 24,045 $ 17,862 $ 11,080
Net income per share:
Basic $ 1.48 $ 1.07 $ 0.65
Diluted $ 1.42 $ 1.01 $ 0.63
The accompanying notes are an integral part of these consolidated financial
statements.
19
23
Consolidated Balance Sheets
(amounts in thousands)
1998 1997
ASSETS
Current Assets:
Cash and temporary cash investments $ 57,748 $ 25,033
Accounts receivable, net of allowances and reserves 73,932 60,176
Prepaids and other 4,000 2,420
Deferred income taxes 1,654 1,244
- -----------------------------------------------------------------------------------------------
Total current assets 137,334 88,873
Property and equipment, net of accumulated
depreciation and amortization 13,146 12,445
Acquired intangibles, net of accumulated amortization
of $6,002,000 and $6,124,000, respectively 2,808 3,280
Deferred income taxes 2,801 2,546
Other assets 720 597
- -----------------------------------------------------------------------------------------------
Total assets $ 156,809 $ 107,741
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,265 $ 9,207
Accrued compensation 29,258 21,641
Income taxes payable 9,157 4,620
Advance billings on contracts 384 1,158
Other current liabilities 9,409 5,145
- -----------------------------------------------------------------------------------------------
Total current liabilities 62,473 41,771
Deferred compensation benefits 10,300 9,752
Other long-term liabilities 587 892
- -----------------------------------------------------------------------------------------------
Total liabilities 73,360 52,415
Shareholders' Equity:
Common stock, par value $.01 per share, 150,000,000
shares authorized; 27,017,824 shares issued 270 270
Capital in excess of par value 106,010 216,028
Retained earnings 66,172 42,939
Less: Treasury stock of 6,269,668 and 6,267,289 shares, at cost (31,850) (31,773)
Stock Employee Compensation Trust of 4,422,500
and 4,693,948 shares (52,463) (166,929)
Unearned portion of restricted stock to related parties (69) (34)
Loans to related parties -- (54)
Other Comprehensive Income:
Foreign currency adjustment (2,374) (3,206)
Minimum pension liability adjustment (2,247) (1,915)
- -----------------------------------------------------------------------------------------------
Accumulated other comprehensive income (4,621) (5,121)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 83,449 55,326
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 156,809 $ 107,741
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
20
24
Consolidated Statements of Cash Flows
(amounts in thousands)
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,045 $ 17,862 $ 11,080
Adjustments:
Depreciation expense 4,406 4,532 6,807
Amortization expense 596 896 844
Loss on sales or disposals of assets 10 30 775
Deferred compensation expense 216 542 476
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (12,830) (5,692) 2,132
(Increase) decrease in prepaids and other (1,551) 16 (1,080)
(Increase) decrease in deferred income taxes (665) (94) 330
(Increase) in other assets (123) (19) (57)
Increase in accounts payable 4,805 267 174
Increase in accrued compensation 7,431 4,493 7,362
Increase (decrease) in income taxes payable 4,546 (555) 3,107
Increase (decrease) in advance billings
on contracts (774) (1,326) 301
Increase in other current liabilities 4,179 390 1,799
Decrease in other long-term liabilities (304) (345) (415)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,987 20,997 33,635
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,057) (4,770) (3,584)
Proceeds from sales or disposals of property
and equipment 22 15 1,512
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (5,035) (4,755) (2,072)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt -- -- (5,929)
Proceeds from Employee Stock Purchase Plan 1,448 1,155 720
Purchase of stock for treasury (77) (118) (3,061)
Purchase of stock by Stock Employee
Compensation Trust (2,455) (37,018) --
Proceeds from other stock plans, inclusive of the
related tax benefit 5,474 4,266 2,120
Dividends paid (812) (837) (853)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 3,578 (32,552) (7,003)
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
temporary cash investments 185 (173) 411
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and temporary
cash investments 32,715 (16,483) 24,971
Cash and temporary cash investments at beginning of year 25,033 41,516 16,545
- -----------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of year $ 57,748 $ 25,033 $ 41,516
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
21
25
Common Stock Capital in
Consolidated ------------------- Excess of Retained
Statements of Changes in Shareholders' Equity Shares Amount Par Value Earnings
------ ------ --------- --------
(amounts in thousands, except per share data)
Balance as of December 31, 1995 13,306 $ 133 $ 114,446 $ 15,687
Employee Stock Purchase Plan share issuance 20 -- 490 --
Stock Option Plan share issuance 141 2 1,801 --
Management Stock Purchase Plan repayments -- -- -- --
Purchase of stock -- -- -- --
Stock Employee Compensation Trust adjustment to fair value -- -- 42,775 --
Cash dividends--$.05 per share -- -- -- (853)
Comprehensive Income:
Net income -- -- -- 11,080
Foreign currency adjustment -- -- -- --
Minimum pension liability adjustment -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 11,080
- ------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1996 13,467 135 159,512 25,914
Two-for-one stock split 13,467 135 (135) --
Employee Stock Purchase Plan share issuance -- -- -- --
Stock Option Plan share issuance 82 -- 3,228 --
Deferred Compensation Plan share issuance -- -- -- --
Purchase of stock -- -- -- --
Restricted Stock Plan:
Award 2 -- 44 --
Amortization -- -- -- --
Stock Employee Compensation Trust adjustment to fair value -- -- 53,379 --
Cash dividends--$.05 per share -- -- -- (837)
Comprehensive Income
Net income -- -- -- 17,862
Foreign currency adjustment -- -- -- --
Minimum pension liability adjustment -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 17,862
- ------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1997 27,018 270 216,028 42,939
Employee Stock Purchase Plan share issuance -- -- -- --
Stock Option Plan share issuance -- -- 2,359 --
Other share issuance -- -- -- --
Purchase of stock -- -- -- --
Restricted Stock Plan:
Award -- -- -- --
Amortization -- -- -- --
Stock Employee Compensation Trust adjustment to cost -- -- (112,377) --
Management Stock Purchase Plan repayments -- -- -- --
Cash dividends--$.05 per share -- -- -- (812)
Comprehensive Income:
Net income -- -- -- 24,045
Foreign currency adjustment -- -- -- --
Minimum pension liability adjustment -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 24,045
- ------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 27,018 $ 270 $ 106,010 $ 66,172
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
22
26
Stock Employee Unearned Portion Loans to Foreign Minimum Total
Treasury Stock Compensation Trust of Restricted Related Currency Pension Liability Shareholders'
Shares Amount Shares Amount Stock Parties Adjustment Adjustment Equity
3,008 $(28,594) 1,830 $ (36,170) $-- $(371) $(1,735) $(1,920) $61,476
-- -- (5) 230 -- -- -- -- 720
37 (814) -- -- -- -- -- -- 989
-- -- -- -- -- 317 -- -- 317
86 (2,247) -- -- -- -- -- -- (2,247)
-- -- -- (42,775) -- -- -- -- --
-- -- -- -- -- -- -- -- (853)
-- -- -- -- -- -- -- -- 11,080
-- -- -- -- -- -- (304) -- (304)
-- -- -- -- -- -- -- 326 326
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- (304) 326 11,102
- -------------------------------------------------------------------------------------------------------------------------
3,131 (31,655) 1,825 (78,715) -- (54) (2,039) (1,594) 71,504
3,131 -- 1,825 -- -- -- -- -- --
-- -- (39) 1,155 -- -- -- -- 1,155
-- -- (207) 955 -- -- -- -- 4,183
-- -- (3) 73 -- -- -- -- 73
5 (118) 1,293 (37,018) -- -- -- -- (37,136)
-- -- -- -- (44) -- -- -- --
-- -- -- -- 10 -- -- -- 10
-- -- -- (53,379) -- -- -- -- --
-- -- -- -- -- -- -- -- (837)
-- -- -- -- -- -- -- -- 17,862
-- -- -- -- -- -- (1,167) -- (1,167)
-- -- -- -- -- -- -- (321) (321)
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- (1,167) (321) 16,374
- -------------------------------------------------------------------------------------------------------------------------
6,267 (31,773) 4,694 (166,929) (34) (54) (3,206) (1,915) 55,326
- -------------------------------------------------------------------------------------------------------------------------
-- -- (45) 1,448 -- -- -- -- 1,448
-- -- (272) 1,985 -- -- -- -- 4,344
-- -- (32) 1,051 -- -- -- -- 1,051
3 (77) 80 (2,455) -- -- -- -- (2,532)
-- -- (2) 60 (60) -- -- -- --
-- -- -- -- 25 -- -- -- 25
-- -- -- 112,377 -- -- -- -- --
-- -- -- -- -- 54 -- -- 54
-- -- -- -- -- -- -- -- (812)
-- -- -- -- -- -- -- -- 24,045
-- -- -- -- -- -- 832 -- 832
-- -- -- -- -- -- -- (332) (332)
- -------------------------------------------------------------------------------------------------------------------------
-- -- -- -- -- -- 832 (332) 24,545
- -------------------------------------------------------------------------------------------------------------------------
6,270 $(31,850) 4,423 $(52,463) $(69) $ -- $(2,374) $(2,247) $83,449
=========================================================================================================================
23
27
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 generally accepted
accounting principles. Such estimates primarily relate to allowances for
doubtful accounts and deferred tax assets, a reserve for projects, and estimates
of progress toward completion and gross profit or loss on fixed-price contracts.
Actual results could differ from those estimates.
CTG operates in one industry segment, providing information technology (IT)
services to its clients. The services provided typically encompass the IT
business solution life cycle, including phases for planning, development and
implementation, and managing and maintaining the IT solution.
REVENUE AND COST RECOGNITION
The Company primarily recognizes revenue on monthly fee and time-and-materials
contracts as hours are expended and costs are incurred. Fixed-price contracts
accounted for under the percentage-of-completion method represented 1 percent
of 1998 and 2 percent of 1997 and 1996 revenue, respectively. Such revenue is
determined by 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.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. In addition to an allowance for doubtful
accounts of approximately $1.1 million and $1.0 million at December 31, 1998 and
1997, respectively, accounts receivable is further reduced by a reserve for
projects of $1.0 million at December 31, 1998 and 1997. Selling, general, and
administrative costs are charged to expense as incurred.
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, 1998 and 1997, the carrying amounts of the Company's financial
instruments, which include cash and temporary cash investments and accounts
receivable, approximate fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on estimated
useful lives of two years to thirty years. 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 are capitalized.
During 1996, the Company re-evaluated its estimated useful lives on
technology-related equipment and determined that, for several types of
equipment, the estimated useful lives should be reduced. This change, which was
effective at the beginning of the Company's 1996 fourth quarter, resulted in
$0.4 million of incremental depreciation expense in the fourth quarter of 1996,
reducing net income and earnings per share by $0.2 million and $.01 per diluted
net income per share, respectively. The Company also expensed an additional $1.3
million of existing software in 1996 due to an upgrade of its internal systems.
ACQUIRED INTANGIBLES
Acquired intangibles consist of goodwill, which is being amortized using the
straight-line method based on an estimated useful life of 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS AND
LONG-LIVED ASSETS TO BE DISPOSED OF
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impair-
24
28
ment 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 are
reported at the lower of the carrying amount or fair value less costs to sell.
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,
non-deductible accrued expenses, and accelerated depreciation and amortization
methods.
Tax credits are accounted for by a reduction of the income tax provision in the
year in which they are realized (flow-through method).
STOCK-BASED COMPENSATION
The Company accounts for its Stock-Based Compensation Plans in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants as
if the fair-value- based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
STOCK SPLIT
During 1997, the Board of Directors approved a 2-for-1 split of the Company's
common stock, effective June 2, 1997, to shareholders of record as of May 19,
1997. Shares of common stock, treasury stock, and shares held by the Stock
Employee Compensation Trust (SECT) at December 31, 1996, have been restated to
reflect this split on the Company's consolidated balance sheets. Shares for 1996
and prior periods were not restated on the consolidated statements of changes in
share- holders' equity. All references elsewhere throughout this annual report
to the number of shares, per share amounts, stock option data, and market prices
of the Company's common stock give effect to the stock split.
NET INCOME PER SHARE
At December 31, 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share." This statement establishes standards for computing and
disclosing earnings per share (EPS). Basic and diluted earnings per share for
the years ended December 31, 1998, 1997, and 1996 are as follows:
Weighted
(amounts in thousands, Average Earnings
except per share data) Income Shares per Share
For the Year Ended December 31, 1998
Basic EPS $24,045 16,216 $1.48
Dilutive effect of
outstanding
stock options -- 697
Diluted EPS $24,045 16,913 $1.42
For the Year Ended December 31, 1997
Basic EPS $17,862 16,758 $1.07
Dilutive effect of
outstanding
stock options -- 857
Diluted EPS $17,862 17,615 $1.01
For the Year Ended December 31, 1996
Basic EPS $11,080 16,980 $0.65
Dilutive effect of
outstanding
stock options -- 620
Diluted EPS $11,080 17,600 $0.63
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.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, cash and temporary cash
investments are defined as cash on hand, demand deposits, and short-term, highly
liquid investments that are readily convertible to known amounts of cash.
Interest paid during 1998, 1997, and 1996 amounted to $0.1 million, $0.3
million, and $0.9 million, respectively, while net income tax payments totaled
$10.4 million, $9.7 million, and $3.4 million for the respective years. Income
tax refunds received in 1996 totaling $1.0 million were primarily due to
previously incurred impairment losses related to the Company's European
operations.
During 1998, as a non-cash financing activity, the shares of common stock held
by the SECT were adjusted to original cost basis, with a decrease to capital in
excess of par value of $(112.4) million. During 1997 and 1996, as a non-cash
financing activity, the shares of common stock of the SECT were adjusted to fair
value, with an increase to capital in excess of par value of $53.4 million and
$42.8 million, respectively (see Note 10, Stock Employee Compensation Trust).
25
29
ACCOUNTING STANDARDS PRONOUNCEMENTS
During the first quarter of 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 requires all items
recognized as components of comprehensive income, such as foreign currency or
minimum pension liability adjustments, to be reported in a financial statement
equal to that of the other financial statements. The adoption of SFAS No. 130
resulted in additional disclosures, including a revision of previously disclosed
information, but had no effect on the financial condition or results of
operations of the Company.
For the years ended December 31, 1998, 1997, and 1996, the tax benefit (expense)
associated with the minimum pension liability adjustment was $(0.1) million,
$(0.1) million, and $0.1 million, respectively.
During 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures
About Segments of the Enterprise and Related Information." SFAS No. 131 requires
disclosure of segments of a company's business based upon how a company is
organized for making operating decisions and assessing performance. As the
Company's disclosure of business segments did not change in 1998 from that
disclosed in previous years, the adoption of SFAS No. 131 resulted in additional
disclosures, but had no effect on the financial condition or results of
operations of the Company.
During 1998, the Company adopted the provisions of SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits." The adoption of
SFAS No. 132 resulted in additional disclosures about the Company's
non-qualified defined-benefit plan and postretirement benefit plan, but had no
effect on the financial condition or results of operations of the Company.
2. ACQUISITION
On February 23, 1999, the Company completed the acquisition of the stock of
Elumen Solutions, Inc. (Elumen). The transaction is valued at $89 million, of
which $86 million was paid in cash or through the assumption of debt, and the
remainder was satisfied through the issuance of approximately 128,000 shares of
CTG common stock. The acquisition will be accounted for as a purchase. CTG
estimated that approximately $85 million of good-will and other identifiable
intangibles, from the total cost of $89 million, will arise from the
acquisition.
Elumen was the largest privately held consulting firm specializing in
information technology services for health care organizations, generating
revenues of approximately $36 million for the year ended December 31, 1998.
3. SALES OF ASSETS
There were no significant sales of assets during 1998 or 1997. During the second
quarter of 1996, CTG sold one of the four buildings it owned. The sale resulted
in proceeds to the Company of $1.5 million, and a loss of $143,000.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997
are summarized as follows:
December 31, 1998 1997
(amounts in thousands)
Land $ 886 $ 886
Buildings 6,515 6,515
Equipment 23,984 20,958
Furniture 5,447 4,920
Software 3,739 3,582
Leasehold improvements 1,031 839
- -------------------------------------------------------------------------------
41,602 37,700
Less accumulated
depreciation (28,456) (25,255)
- -------------------------------------------------------------------------------
$ 13,146 $ 12,445
===============================================================================
At December 31, 1998, the Company owned three buildings, two of which are in use
by the Company. The third building, with a net book value of $2.0 million, is
leased to a third party under a five-year lease, which ends in 2000. Receipts
under this lease are estimated at $0.3 million and $0.2 million in 1999 and
2000, respectively.
5. DEBT
The Company did not have any long-term debt outstanding at either December 31,
1998 or 1997.
The Company had lines of credit available totaling $52.6 million, renewable
annually at various times throughout the year, with interest at or below the
equivalent of the prime rate. All borrowings under these agreements are
unsecured and payable upon demand. There were no borrowings under these
arrangements at either December 31, 1998 or 1997. There were no commitment fees
paid on unused lines of credit during 1998, 1997, or 1996. Subsequent to
December 31, 1998, in anticipation of the Elumen acquisition, the Company
increased its available lines of credit to $102.6 million, with terms on the
increased amount of the lines consistent with those of the original lines.
The maximum amounts outstanding under short-term borrowings during 1998, 1997,
and 1996 were $0.1 million, $2.2 million, and $2.3 million, respectively.
Average bank borrowings outstanding for the years 1998, 1997, and 1996 were $0.1
million, $0.7 million, and $1.2 million, and carried weighted average interest
rates of 5.5 percent, 5.0 percent, and 5.2 percent, respectively.
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6. INCOME TAXES
The provision (benefit) for income taxes for 1998, 1997, and 1996 consists of
the following:
Domestic and foreign components of income
before income taxes are as follows:
(amounts in thousands) 1998 1997 1996
Domestic $ 34,027 $ 28,825 $ 16,674
Foreign 6,730 1,443 1,830
- -------------------------------------------------------------------------------------
$ 40,757 $ 30,268 $ 18,504
- -------------------------------------------------------------------------------------
The provision (benefit) for
income taxes consists of: 1998 1997 1996
Current Tax:
U.S. Federal $ 11,920 $ 10,176 $ 4,858
Foreign 1,782 90 886
U.S. State and Local 3,675 2,234 1,350
- -------------------------------------------------------------------------------------
17,377 12,500 7,094
Deferred Tax:
U.S. Federal (579) (82) 234
U.S. State and Local (86) (12) 96
- -------------------------------------------------------------------------------------
(665) (94) 330
- -------------------------------------------------------------------------------------
$ 16,712 $ 12,406 $ 7,424
=====================================================================================
The effective and statutory income tax rate
can be reconciled as follows: 1998 1997 1996
Tax at statutory rate of 34 percent $ 13,857 $ 10,291 $ 6,291
Rate differential 408 303 85
State tax, net of federal benefits 2,333 1,445 891
Expenses for which no
tax benefit is available 472 658 552
Change in estimate of
nondeductible expenses (927) (475) (596)
Other, net 569 184 201
- -------------------------------------------------------------------------------------
$ 16,712 $ 12,406 $ 7,424
Effective income tax rate 41.0% 41.0% 40.1%
- -------------------------------------------------------------------------------------
The Company's deferred tax assets and liabilities at December 31, 1998 and 1997
consist of the following:
December 31,
(amounts in thousands) 1998 1997
Assets
Loss carryforwards $ -- $ 960
Deferred compensation 2,835 2,785
Accruals deductible for
tax purposes when paid 1,561 1,087
Allowance for doubtful accounts 292 292
Other 444 376
- -------------------------------------------------------------------------------
Gross deferred tax assets 5,132 5,500
Liabilities
Amortization 204 264
Depreciation 473 519
- -------------------------------------------------------------------------------
Gross deferred tax liabilities 677 783
Deferred tax assets
valuation allowance -- (927)
Net deferred tax assets $ 4,455 $ 3,790
- -------------------------------------------------------------------------------
Net deferred assets and liabilities including
valuation allowances are recorded at
December 31, 1998 and 1997 as follows: 1998 1997
Net current assets $ 1,654 $ 1,244
Net non-current assets 2,801 2,546
- --------------------------------------------------------------------------------
$ 4,455 $ 3,790
================================================================================
The net change in the valuation allowance for deferred tax assets was a decrease
of $927,000 from 1997 to 1998, which is included in the change in estimate of
non-deductible expenses appearing in the effective and statutory income tax
reconciliation above. The decrease is attributed to the utilization of foreign
net operating losses that were previously offset completely by the valuation
allowance.
In assessing the realizability of deferred tax assets, management considers,
within each taxing jurisdiction, whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the years in which the deferred tax assets are deductible,
management believes it is more likely than not the Company will realize the
benefits of these deductible differences at December 31, 1998. Accordingly, no
valuation allowance is required.
Undistributed earnings of the Company's foreign subsidiaries were minimal at
December 31, 1998, and are considered to be indefinitely reinvested and,
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 foreign entities' earnings were
distributed, it is estimated that U.S. federal and state income taxes, net of
foreign credits, would be immaterial.
In 1998, 1997, and 1996, 193,000, 233,000, and 92,000 shares of common stock,
respectively, were issued through the exercise of non-qualified stock options or
through the disqualifying disposition of incentive stock options. The total tax
benefit to the Company from these transactions, which is credited to capital in
excess of par value rather than recognized as a reduction of income tax expense,
was $2.4 million, $2.9 million, and $0.5 million in 1998, 1997, and 1996,
respectively. These tax benefits have also been recognized in the consolidated
balance sheets as a reduction of current taxes payable.
27
31
7. LEASE COMMITMENTS
At December 31, 1998, 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)
1999 $ 6,745
2000 5,247
2001 3,066
2002 1,399
2003 886
Later years 1,165
- --------------------------------
Minimum future
obligations $18,508
================================
The operating lease obligations to the left relate to the rental of office
space, office equipment, and automobiles. Total rental expense under such
operating leases for 1998, 1997, and 1996 was approximately $9.0 million, $6.8
million, and $7.8 million, respectively.
8. DEFERRED COMPENSATION BENEFITS
The Company maintains a non-qualified defined-benefit Executive Supplemental
Benefit Plan that previously provided certain current and 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 1998, 1997, and 1996 is as follows:
Net Periodic Pension Cost
(amounts in thousands) 1998 1997 1996
Interest cost $655 $633 $595
Amortization of unrecognized net loss 66 48 72
- --------------------------------------------------------------------------------
$721 $681 $667
================================================================================
The change in benefit obligation at December 31, 1998 and 1997 is as follows:
Change in Benefit Obligation
(amounts in thousands) 1998 1997
Benefit obligation at beginning of year $ 9,258 $ 8,627
Interest cost 655 633
Amortization of unrecognized net loss 66 48
Benefits paid (591) (371)
Adjustment to minimum liability 332 321
Benefit obligation at end of year 9,720 9,258
Fair value of plan assets at end of year -- --
Funded status 9,720 9,258
Unrecognized net actuarial loss (2,247) (1,915)
Accrued benefit cost $ 7,473 $ 7,343
Weighted average discount rate 6.75% 7.25%
Salary increase rate 0% 0%
Benefits paid to participants are funded by the Company as needed. The plan is
deemed unfunded as the Company has not specifically identified Company assets to
be used to discharge the deferred compensation benefit liabilities. The Company
has purchased insurance on the lives of certain plan participants in amounts
considered sufficient to reimburse the Company for the costs associated with the
plan for those participants.
The Company maintains a non-qualified defined-contribution deferred compensation
plan for certain key executives. The Company contributions to this plan, which
were $107,000, $241,000, and $200,000 in 1998, 1997, and 1996, respectively, are
based on annually defined financial performance objectives.
28
32
9. 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 of cash and the
Company's stock, which are discretionary, were funded and charged to operations
in the amounts of $3.8 million, $2.4 million, and $1.9 million for 1998, 1997,
and 1996, respectively.
Other Postretirement Benefits
The Company provides limited health care and life insurance benefits to 13
retired employees and their spouses, totaling 21 participants, pursuant to
contractual agreements.
Net periodic postretirement benefit costs for 1998, 1997, and 1996 are as
follows:
Net Periodic Postretirement Benefit Cost
(amounts in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------
Interest cost $ 33 $ 41 $ 46
Amortization of transition amount 29 29 30
Amortization of gain (14) (4) --
- -----------------------------------------------------------------------------------
$ 48 $ 66 $ 76
====================================================================================
The change in postretirement benefit obligation at December 31, 1998 and 1997
are as follows:
Change in Postretirement Benefit Obligation
(amounts in thousands) 1998 1997
Postretirement benefit obligation
at beginning of year $ 485 $ 579
Interest cost 33 41
Amortization of transition amount 29 29
Benefits paid (32) (15)
Amortization of gain (14) (4)
Adjustment to unrecognized transition
obligation (29) (29)
Adjustment to unrecognized gain 80 (116)
- -------------------------------------------------------------------------------
Postretirement benefit obligation
at end of year 552 485
Fair value of plan assets at end of year -- --
- -------------------------------------------------------------------------------
Funded status 552 485
Unrecognized transition obligation (409) (438)
Unrecognized gain 149 229
- -------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 292 $ 276
===============================================================================
Weighted average discount rate 6.75% 7.25%
Salary increase rate 0% 0%
- -------------------------------------------------------------------------------
Benefits paid to participants are funded by the Company as needed.
The rate of increase in health care costs was assumed to be 7.4 percent and 7.8
percent in 1999 for pre-age 65 and post-age 65 benefits, respectively, gradually
declining to 5 percent by the year 2003 and remaining at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point would
increase the accumulated postretirement benefit obligation by $32,000 at
December 31, 1998 and the net periodic cost by $2,000 for the year, while a one
percentage point decrease in the health care cost trend would decrease the
accumulated postretirement benefit obligation by $28,000 at December 31, 1998,
and the net periodic pension by $2,000 for the year.
29
33
10. SHAREHOLDERS' EQUITY
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's First Employee Stock Purchase Plan, employees may apply up
to 10 percent of their compensation to purchase the Company's common stock.
Prior to February 1, 1994, the purchase price of the Company's common stock was
the lower of 85 percent of the market price at the beginning of the plan year
(if employed at that date), or 85 percent of the market price on the business
day preceding the date of purchase. Effective February 1, 1994, shares are
purchased at the market price on the business day preceding the date of
purchase. As of December 31, 1998, 241,000 shares remain unissued under the
Plan, of the total of 11 million shares that have been authorized under the
Plan. During 1998, 1997, and 1996, 45,000, 39,000, and 50,000 shares were
purchased under the plan at an average price of $32.40, $29.96, and $14.23 per
share, respectively.
MANAGEMENT STOCK PURCHASE PLAN
Under the Company's Management Stock Purchase Plan approved in 1992, 800,000
common shares have been designated (up to 400,000 shares from treasury) for
purchase by certain key employees using loans from the Company. During 1998 and
1997, no loans were made to employees. In 1998, an employee repaid a loan
representing 3,174 shares with a value of $54,900, reducing the outstanding loan
balance to $0. The loans are classified as a reduction of shareholders' equity
as they were used to purchase and were secured by common stock previously held
in treasury. Interest was charged at 4 percent per annum, and the loan principal
was payable in full no later than three years from the date of the loan.
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 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 EMPLOYEE COMPENSATION TRUST
The Company maintains a SECT to provide funding for existing employee stock
plans and benefit programs. Shares are purchased by and released from the SECT
by the trustee at the request of the Compensation Committee of the Board of
Directors. During 1998, the SECT purchased 80,000 shares for $2.5 million and
released 272,000 shares to fund stock option exercises, 45,000 shares to fund
Employee Stock Purchase Plan purchases, and 34,000 shares for other plans.
During 1997, the SECT purchased 1.3 million shares for $37 million and used
207,000 shares to fund stock option exercises and 39,000 shares to fund Employee
Stock Purchase Plan purchases. During 1996, 11,000 shares were released from the
SECT to fund the fourth quarter Employee Stock Purchase Plan purchase. As of
December 31, 1998, all shares remaining in the SECT were unallocated and
therefore are not considered outstanding for purposes of calculating earnings
per share.
In 1998, the SECT was adjusted through capital in excess of par value from fair
value to original cost basis based upon new interpretive guidance issued by the
Financial Accounting Standards Board. The cost basis of the shares held by the
SECT is reported as a reduction to shareholders' equity.
During 1998, as a non-cash financing activity, the shares of common stock held
by the SECT were adjusted to cost, with a decrease to capital in excess of par
value of $(112.4) million. During 1997 and 1996, as a non-cash financing
activity, the shares of common stock of the SECT were adjusted to fair value,
with an increase to capital in excess of par value of $53.4 million and $42.8
million, respectively.
RESTRICTED STOCK PLAN
Under the Company's Restricted Stock Plan, 800,000 shares of restricted stock
may be granted to certain key employees. During 1998 and 1997, 1,500 and 2,000
shares, respectively, were granted to an employee of the Company. The shares
vest to the employee over 48 months from the date of grant, and are forfeited if
the employee is no longer employed by the Company at the end of the vesting
period.
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34
11. STOCK OPTION PLANS
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 the grant. All options remain in effect until the earlier of
the expiration, exercise, or surrender date.
The per share weighted-average fair value on the date of grant of stock options
granted in 1998, 1997, and 1996, using the Black-Scholes option pricing model,
was $10.64, $12.95, and $5.71, respectively. The fair value of the options at
the date of grant was estimated with the following weighted-average assumptions:
1998 1997 1996
Expected life (years) 5.4 5.9 6.0
Dividend yield 0.23% 0.19% 0.45%
Risk-free interest rate 4.62% 6.15% 5.89%
Expected volatility 46.36% 42.36% 41.45%
The Company applies APB Opinion No. 25 in accounting for the 1991 and 1981 Plans
and, accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income and basic and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:
(amounts in thousands,
except per share data) 1998 1997 1996
NET INCOME
As reported $ 24,045 $ 17,862 $ 11,080
Pro forma $ 21,626 $ 15,959 $ 10,250
BASIC EARNINGS PER SHARE
As reported $ 1.48 $ 1.07 $ 0.65
Pro forma $ 1.33 $ 0.95 $ 0.60
DILUTED EARNINGS PER SHARE
As reported $ 1.42 $ 1.01 $ 0.63
Pro forma $ 1.28 $ 0.91 $ 0.58
Pro forma net income reflects only options granted subsequent to December 31,
1994. Accordingly, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above as compensation cost is reflected over the options' vesting
period as discussed above, and compensation cost for options granted prior to
January 1, 1995 is not considered. 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 follows:
Weighted Weighted
1981 Plan Average 1991 Plan Average
Options Exercise Price Options Exercise Price
Outstanding at
December 31, 1996 20,324 $ 5.58 1,520,336 $ 8.17
Granted -- $ -- 626,950 $ 26.26
Exercised (5,952) $ 5.59 (282,474) $ 4.49
Canceled, expired,
and forfeited -- $ -- (586) $ 3.75
- -----------------------------------------------------------------------------------------
Outstanding at
December 31, 1997 14,372 $ 5.58 1,864,226 $ 14.81
Granted -- $ -- 507,000 $ 22.39
Exercised (11,397) $ 5.63 (261,025) $ 7.36
Canceled, expired,
and forfeited -- $ -- (163,875) $ 17.76
- -----------------------------------------------------------------------------------------
Outstanding at
December 31, 1998 2,975 $ 5.40 1,946,326 $ 17.54
=========================================================================================
At December 31, 1998 and 1997, the number of options exercisable under the 1991
Plan was 871,075 and 598,076, respectively, and the weighted average exercise
price of those options was $13.84 and $10.92, respectively. At December 31, 1998
and 1997, the number of options exercisable under the 1981 Plan was 2,975 and
14,372, respectively, and the weighted average exercise price of those options
was $5.40 and $5.58, respectively.
A summary of the range of exercise prices and the weighted average remaining
contractual life of outstanding options at December 31, 1998 for the 1991 and
1981 Plans follows:
Shares Weighted Weighted Average
Outstanding at Average Remaining Contractual
Range of Exercise Prices December 31, 1998 Exercise Price Life (years)
1991 Plan
$3.4375 to $4.8125 133,851 $ 4.11 5.4
$6.125 to $9.00 440,700 $ 7.71 5.5
$9.4375 to $9.75 45,200 $ 9.51 5.6
$14.875 to $21.9375 1,024,250 $19.97 8.3
$26.00 to $37.1875 302,325 $30.78 9.4
1981 PLAN
$4.5625 to $6.9375 2,975 $ 5.40 0.6
- -------------------------------------------------------------------------------
At December 31, 1998, there were 579,157 and 0 shares available for grant under
the 1991 Plan and 1981 Plan, respectively.
During 1998 and 1997, the Company acquired stock for treasury valued at $77,000
and $118,000, respectively, from employees through stock option exercise
transactions.
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12. SIGNIFICANT CUSTOMER
International Business Machines (IBM) is the Company's largest customer. IBM
accounted for $151.4 million or 32.4 percent, $142.2 million or 34.9 percent,
and $107.4 million or 29.4 percent of consolidated 1998, 1997, and 1996 revenue,
respectively. The Company's accounts receivable from IBM at December 31, 1998
and 1997 amounted to $20.8 million and $19.7 million, respectively. No other
customer accounted for more than 10 percent of revenue in 1998, 1997, or 1996.
13. 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.
14. SEGMENT INFORMATION
The Company operates in one industry segment, providing IT services to its
clients. The services provided typically encompass the IT business solution life
cycle, including phases for planning, development and implementation, and
managing and maintaining the IT solution. 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, prior to the adoption
of SFAS No. 131, "Disclosure about Segments of the Enterprise and Related
Information."
The accounting policies of the individual segments are the same as those
described in note one, "Summary of Significant Accounting Policies." CTG
evaluates the performance of its segments at the operating income level.
Corporate and other identifiable assets consist principally of cash and
temporary cash investments and other assets.
Financial Information Relating to Domestic
and Foreign Operations
(amounts in thousands) 1998 1997 1996
Revenue
North America $ 394,609 $ 360,849 $ 325,328
Europe 73,229 46,739 39,748
- -------------------------------------------------------------------------------
Total Revenue $ 467,838 $ 407,588 $ 365,076
================================================================================
Depreciation and Amortization
North America $ 2,404 $ 2,872 $ 3,550
Europe 848 630 569
Corporate and Other 1,750 1,926 3,532
- -------------------------------------------------------------------------------
Total Depreciation and
Amortization $ 5,002 $ 5,428 $ 7,651
================================================================================
Operating Income (Expense)
North America $ 46,427 $ 36,324 $ 29,460
Europe 8,243 3,663 3,265
Corporate and Other (14,819) (11,031) (14,207)
- -------------------------------------------------------------------------------
Total Operating Income $ 39,851 $ 28,956 $ 18,518
================================================================================
Identifiable Assets
North America $ 67,128 $ 57,519 $ 54,943
Europe 22,999 15,777 14,988
Corporate and Other 66,682 34,445 51,350
- -------------------------------------------------------------------------------
Total Identifiable Assets $ 156,809 $ 107,741 $ 121,281
================================================================================
Capital Expenditures
North America $ 2,591 $ 2,226 $ 1,468
Europe 1,158 648 904
Corporate and Other 1,308 1,896 1,212
- -------------------------------------------------------------------------------
Total Capital Expenditures $ 5,057 $ 4,770 $ 3,584
================================================================================
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36
15. Quarterly Financial Data (Unaudited)
QUARTERS
(amounts in thousands, except per ------------------------------------------------------
share data FIRST SECOND THIRD FOURTH TOTAL
1998
Revenue $109,683 $117,646 $116,174 $124,335 $467,838
Direct costs 76,074 80,472 79,396 84,731 320,673
Selling, general, and
administrative expenses 25,220 27,359 26,491 28,244 107,314
- ---------------------------------------------------------------------------------------------------------
Operating income 8,389 9,815 10,287 11,360 39,851
Net interest and other income 216 73 246 371 906
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 8,605 9,888 10,533 11,731 40,757
Net income $ 5,077 $ 5,834 $ 6,216 $ 6,918 $ 24,045
Basic net income per share $ 0.32 $ 0.36 $ 0.38 $ 0.42 $ 1.48
Diluted net income per share $ 0.30 $ 0.34 $ 0.37 $ 0.41 $ 1.42
QUARTERS
(amounts in thousands, except per ---------------------------------------------------
share data FIRST SECOND THIRD FOURTH TOTAL
1997
Revenue $ 94,935 $100,105 $101,132 $111,416 $ 407,588
Direct costs 68,235 70,579 70,911 79,123 288,848
Selling, general, and
administrative expenses 20,876 22,183 22,749 23,976 89,784
- ---------------------------------------------------------------------------------------------------------
Operating income 5,824 7,343 7,472 8,317 28,956
Net interest and other income 292 377 507 136 1,312
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 6,116 7,720 7,979 8,453 30,268
Net income $ 3,669 $ 4,485 $ 4,717 $ 4,991 $ 17,862
Basic net income per share $ 0.22 $ 0.27 $ 0.28 $ 0.30 $ 1.07
Diluted net income per share $ 0.21 $ 0.26 $ 0.26 $ 0.29 $ 1.01
- ---------------------------------------------------------------------------------------------------------
33
37
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 as of December 31, 1998, and the related
consolidated statement of income, 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 audits. The
consolidated balance sheet as of December 31, 1997 and the consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the two years in the period ended December 31, 1997 were audited by other
auditors whose report, dated February 4, 1998, expressed an unqualified opinion
of those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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, such 1998 consolidated financial statements present fairly, in
all material respects, the financial position of Computer Task Group,
Incorporated and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepting accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Buffalo, New York
February 5, 1999
(February 23, 1999 as to Note 2)
34
38
Corporate Information
Stock Market Information
YEAR ENDED DECEMBER 31, 1998 HIGH LOW
First Quarter $45 $32 9/16
Second Quarter $42 1/2 $28 3/4
Third Quarter $40 7/8 $23
Fourth Quarter $34 1/2 $18 1/2
YEAR ENDED DECEMBER 31, 1997 HIGH LOW
First Quarter $23 5/8 $17 1/4
Second Quarter $39 1/2 $16 9/16
Third Quarter $49 3/8 $33 3/4
Fourth Quarter $44 1/2 $27
The Company's common shares are traded on the New York Stock Exchange under the
symbol TSK, commonly abbreviated Cptr Task. The shares are listed on the
Amsterdam Stock Exchange and are traded by means of the Amsterdam Security
Account System (ASAS).
On February 23, 1999, there were 3,536 record holders of the Company's common
shares. The Company paid an annual cash dividend of $.05 per share from 1993 to
1998 and, prior to that, had paid $.025 per share annually since 1976 plus a 10
percent share dividend in 1980. The Company expects to continue to pay cash
dividends subject to the availability of earnings, the financial condition of
the Company, and other relevant factors at the time.
ANNUAL MEETING
The annual meeting of shareholders has been scheduled for April 28, 1999 in
Buffalo, New York for shareholders of record on March 17, 1999.
FORM 10-K AVAILABLE
Copies of the Company's Form 10-K Annual Report, which is filed with the
Securities and Exchange Commission, may be obtained without charge 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 LIMITED PARTNERSHIP
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 Limited Partnership:
Bank Boston, N.A.
c/o EquiServe Limited Partnership
P.O. Box 8040
Boston, Massachusetts 02266-8040
(781) 575-3170 (MA residents)
(800) 730-4001
(781) 828-8813 (fax)
www.equiserve.com
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Deloitte & Touche LLP
Key Bank Tower, Suite 250
50 Fountain Plaza
Buffalo, NY 14202
35
39
Officers
JONATHAN R. ASHER,VICE PRESIDENT, MANAGED SERVICES, NORTH AMERICA
Jonathan R. Asher is responsible for sales and delivery of managed services to
CTG's Key Clients in North America. Mr. Asher joined CTG in 1996 as vice
president of the IBM national team. He has more than 28 years' experience in
application development, marketing, quality management, and business operations
management.
JAMES R. BOLDT,VICE PRESIDENT, GLOBAL SUPPORT SERVICES & CHIEF FINANCIAL OFFICER
James R. Boldt is responsible for the management of CTG's global support
services organization, comprised of finance, administration, human resources,
information systems, benefits, compensation, legal, contracts, communications,
public and investor relations, proposals, and quality. Mr. Boldt is also the
Company's secretary and treasurer. Prior to joining CTG in February 1996,he was
corporate vice president of finance, secretary, and chief financial officer of
Pratt & Lambert United.
JANICE M. COLE,VICE PRESIDENT, GLOBAL CAREER DEVELOPMENT
Janice M. Cole is responsible for CTG's global organization devoted to career
development of the Company's professionals. Ms. Cole joined CTG in 1980 as a
systems engineer. Subsequently, she worked in business development and resource
management. In 1994, she was promoted to vice president of CTG's Northeast
region. In 1997, she was named vice president for education and development.
GALE S. FITZGERALD,CHAIRMAN & CHIEF EXECUTIVE OFFICER
During Gale S. Fitzgerald's four years as CEO, CTG has realigned its operations
to focus on Key Clients, attracting and retaining IT professionals, and
improving profitability. She joined the Company in 1991 as senior vice president
of CTG's Northeast region, and was promoted to president and chief operating
officer in July 1993. Previously, Ms. Fitzgerald was vice president for
professional services at International Business Machines Corporation (IBM),
where she worked for 18 years in various management positions.
GARY M. GERSHON,VICE PRESIDENT, MARKETING AND SERVICES
Gary M. Gershon joined CTG at the end of 1998, assuming leadership of the
Company's Marketing and Services organization. Mr. Gershon came from an advanced
software and consulting company he founded in 1991. Prior to this, Mr. Gershon
held senior management roles at KPMG Peat Marwick and IBM.
NICO MOLENAAR,VICE PRESIDENT, MANAGED SERVICES, EUROPE
Nico Molenaar is responsible for all operations in the United Kingdom, Belgium,
Luxembourg, and the Netherlands, accountable for sales and delivery of managed
services to CTG's Key Clients in Europe. Mr. Molenaar joined the Company in 1990
when CTG acquired Rendeck International, where he was regional director,
Benelux. Prior to joining Rendeck International, Mr. Molenaar served in a
variety of sales and management roles at Dataserv, Sperry Univac, Prime
Computer, and Hewlett-Packard.
JOHN F. MOORE,VICE PRESIDENT, STRATEGIC STAFFING SERVICES
John F. Moore is responsible for driving CTG's strategy to provide strategic
staffing services to specific Key Clients. Mr. Moore joined CTG in 1984 as a
systems engineer. Most recently, he served as director of operations for the
Eastern U.S. and Canada for CTG's IBM national team. Prior to joining CTG, he
was a systems analyst for a bank holding company and an information technology
services firm.
[PHOTO]
From left:
Janice Cole
Jonathan Asher
Gale Fitzgerald
James Boldt
Nico Molenaar
John Moore
Gary Gershon
36
40
DIRECTORS
George B. Beitzel
Mr. Beitzel has been an independent business consultant since his retirement
from International Business Machines Corporation (IBM) in 1987, where he served
as senior vice president and a member of IBM's board of directors from 1972
until 1985. He is a director of Bankers Trust New York Corporation and its
subsidiary, Bankers Trust Company, Phillips Petroleum Company; Staff Leasing,
Inc.; and Bitstream, Inc. Mr. Beitzel has been a director of CTG since 1994.
[PHOTO]
Richard L. Crandall
Mr. Crandall has been managing director of Arbor Partners LLC since 1997. He
served as chairman of Comshare, Inc., from 1994 until 1997, where he had been
chief executive officer from 1966 until 1994. Mr. Crandall is also a director of
Diebold, Inc., Giga Information Group, Inc.; Steeplechase Software, Inc.;
Tacit Knowledge Systems, Inc.; and Edwards Brothers, Inc.; Mr. Crandall hat been
a director of CTG since 1993.
[PHOTO]
R. Keith Elliott
Mr. Elliott is chairman and chief executive officer of Hercules Incorporated.
Mr. Elliott also serves on the boards of directors of PECO Energy and Wilmington
Trust Company. He has been a director of CTG since 1998.
[PHOTO]
Gale S. Fitzgerald
Ms. Fitzgerald has been chairman and chief executive officer of CTG since
October 1994. She currently serves on the Business Council of New York State,
the Advisory Board of the University of Buffalo's School of Management, the
Information Technology Services Board of the Information Technology Association
of America, and the Kaleida Health System Board of Directors. She also serves on
the board of the Buffalo Niagara Partnership. Ms. Fitzgerald has been a director
of CTG since 1993.
[PHOTO]
Randolph A. Marks
Mr. Marks is co-founder and former chairman, president, and chief executive
officer of CTG. Currently an independent business consultant, he served as
chairman of the board of American Brass Company from 1985 to 1990. Mr. Marks is
currently a directors of Marine Midland Bank Western New York Region and
Columbus McKinnon Corporation. He has been a director of CTG since 1966.
[PHOTO]
Barbara Z. Shattuck
Ms. Shattuck is the managing director of Shattuck Hammond, a division of
PriceWaterhouseCoopers Securities. From 1993 to 1998, Ms. Shattuck was president
and founding principal of Shattuck Hammond Partners, Inc. From 1982 to 1993, she
was a founding partner and principal of Cain Brothers, Shattuck & Company, Inc.
She is also on the board of directors of Tuffs Associated Health Plans. Ms.
Shattuck has been a director of CTG since 1995.
[PHOTO]
37
41
ctg
COMPUTER TASK GROUP, INC.
800 Delaware Avenue
Buffalo, New York 14209-2094
716-882-8000
800-992-2350
www.ctg.com