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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 2002
Commission file number 1-9410
------
COMPUTER TASK GROUP, INCORPORATED
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 16-0912632
- ---------------------------------- -------------------------------------
(State of incorporation) (IRS Employer Identification No.)
800 DELAWARE AVENUE, BUFFALO, NEW YORK 14209
- ----------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 882-8000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---
Number of shares of common stock outstanding:
Shares outstanding
Title of Each Class At June 28, 2002
------------------- -----------------
Common stock, par value
$.01 per share 20,868,834
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE QUARTER ENDED FOR THE TWO QUARTERS ENDED
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
(amounts in thousands, except per share data)
Revenue $ 67,667 $ 86,113 $ 137,561 $170,876
Direct costs 48,986 61,449 99,135 122,632
Selling, general and administrative expenses 17,374 23,225 35,317 50,027
--------- --------- --------- --------
Operating income (loss) 1,307 1,439 3,109 (1,783)
Interest and other income 88 134 168 405
Interest and other expense (286) (1,540) (1,426) (2,538)
---------- ---------- ---------- ---------
Income (loss) before income taxes 1,109 33 1,851 (3,916)
Provision (benefit) for income taxes 438 1,390 731 (1,179)
--------- --------- --------- ---------
Net income (loss) $ 671 $ (1,357) $ 1,120 $ (2,737)
========= ========== ========= =========
Net income (loss) per share:
Basic $ 0.04 $ (0.08) $ 0.07 $ (0.17)
========== =========== =========== ==========
Diluted $ 0.04 $ (0.08) $ 0.07 $ (0.17)
========== =========== =========== ==========
Weighted average shares outstanding:
Basic 16,557 16,418 16,545 16,401
Diluted 17,029 16,418 17,000 16,401
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 28, DECEMBER 31,
2002 2001
---------------------------------
(Unaudited) (Audited)
(amounts in thousands)
ASSETS
- -------------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and temporary cash investments $ 2,731 $ 3,362
Accounts receivable, net of allowances and reserves 52,280 51,230
Prepaids and other 3,657 2,958
Deferred income taxes 1,142 1,089
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 59,810 58,639
Property and equipment, net of
accumulated depreciation and amortization 10,889 13,082
Property held for sale 1,777 -
Goodwill, net of accumulated amortization 74,827 74,735
Deferred income taxes 2,350 2,660
Other assets 636 682
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TOTAL ASSETS $ 150,289 $ 149,798
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 8,238 $ 8,193
Accrued compensation 21,985 24,133
Income taxes payable 2,802 -
Advance billings on contracts 377 471
Other current liabilities 5,707 5,531
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 39,109 38,328
Long-term debt 13,234 15,512
Deferred compensation benefits 8,864 8,794
Other long-term liabilities 350 537
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 61,557 63,171
Shareholders' Equity:
Common stock, par value $.01 per share, 150,000,000
shares authorized; 27,017,824 shares issued 270 270
Capital in excess of par value 111,516 111,500
Retained earnings 74,493 73,373
Less: Treasury stock of 6,148,990 and 6,147,810 shares, at cost, respectively (31,416) (31,410)
Stock Trusts of 4,295,983 and 4,338,000 shares, at cost, respectively (59,060) (59,239)
Other comprehensive income:
Foreign currency adjustment (6,488) (7,284)
Minimum pension liability adjustment (583) (583)
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Accumulated other comprehensive income (7,071) (7,867)
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TOTAL SHAREHOLDERS' EQUITY 88,732 86,627
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 150,289 $ 149,798
=========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
TWO QUARTERS ENDED
JUNE 28, JUNE 29,
2002 2001
------------ -----------
(amounts in thousands)
Cash flows from operating activities:
Net income (loss) $ 1,120 $ (2,737)
Adjustments:
Depreciation expense 1,898 2,429
Amortization expense - 1,988
Deferred income taxes 257 890
Tax benefit from stock option exercises - 27
Loss on sales or disposals of fixed assets - 32
Deferred compensation expense 70 79
Changes in assets and liabilities:
Increase in accounts receivable (502) (11,734)
Increase in prepaids and other (690) (198)
(Increase) decrease in other assets 46 (650)
Decrease in accounts payable (211) (1,779)
Increase (decrease) in accrued compensation (2,394) 2,146
Increase (decrease) in income taxes payable 2,995 (1,040)
Decrease in advance billings on contracts (94) (372)
Increase (decrease) in other current liabilities 27 (2,893)
Increase (decrease) in other long-term liabilities (310) 511
----------- -----------
Net cash provided by (used in) operating activities 2,212 (13,301)
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Cash flows from investing activities:
Additions to property and equipment (1,304) (2,506)
- -------------------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed assets - 35
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Net cash used in investing activities (1,304) (2,471)
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Cash flows from financing activities:
Proceeds from (payments on) long-term revolving debt, net (2,278) 19,220
Proceeds from Employee Stock Purchase Plan 182 277
Purchase of stock for treasury (6) (6)
Proceeds from other stock plans 13 124
---------- -----------
Net cash provided by (used in) financing activities (2,089) 19,615
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and temporary cash investments 550 (903)
---------- ------------
Net increase (decrease) in cash and temporary cash investments (631) 2,940
Cash and temporary cash investments at beginning of year 3,362 2,562
- -------------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of quarter $ 2,731 $ 5,502
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
COMPUTER TASK GROUP, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Financial Statements
The condensed consolidated financial statements included herein
reflect, in the opinion of the management of Computer Task Group, Incorporated
("CTG" or "the Company"), all normal recurring adjustments necessary to present
fairly the condensed consolidated financial position, results of operations and
cash flows for the periods presented.
2. Basis of Presentation
The condensed consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the SEC rules
and regulations. Management believes that the information and disclosures
provided herein are adequate to present fairly the consolidated financial
position, results of operations and cash flows of the Company. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K filed with the SEC.
3. Comprehensive Income
Accumulated other comprehensive income totaled $(7,071,000) and
$(8,542,000) at June 28, 2002 and June 29, 2001, respectively. Total
comprehensive income (loss) for the two quarters ended June 28, 2002 and June
29, 2001 totaled $796,000 and $(1,294,000), respectively. Total comprehensive
income (loss) for the quarters ended June 28, 2002 and June 29, 2001 was
$1,180,000 and $(332,000), respectively.
4. Accounting Standards Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) No. 141, "Business Combinations," and FAS
No. 142, "Goodwill and Other Intangible Assets." These standards make
significant changes to the accounting for business combinations, goodwill, and
intangible assets. FAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations with limited exceptions for combinations
initiated prior to July 1, 2001. In addition, it clarifies the criteria for
recognition of intangible assets apart from goodwill. This statement is
effective for business combinations completed after June 30, 2001.
FAS No. 142 discontinues the practice of amortizing goodwill and
indefinite-lived intangible assets and initiates a review, at least annually,
for impairment. Intangible assets with a determinable useful life will continue
to be amortized over their useful lives. FAS No. 142 applies to existing
goodwill and intangible assets, and such assets acquired after June 30, 2001.
5
FAS No. 142 is effective for fiscal years beginning after December 15,
2001. Accordingly, the Company adopted this standard as of January 1, 2002, and
no longer amortizes its existing goodwill after that date. In conjunction with
the adoption of FAS No. 142, the initial valuation of the business unit that
relates to the Company's intangible assets was completed by an independent
appraisal company during the 2002 second quarter. As a result of this valuation,
the Company expects to record, once the final valuation process is completed,
a $32 million to $38 million non-cash pre-tax charge for impairment of
goodwill in that business unit in the 2002 third quarter.
The effect of the amortization of the Company's existing goodwill on
net income (loss), and basic and diluted net income (loss) per share for the
quarters and two quarters ended June 28, 2002 and June 29, 2001, respectively,
is as follows:
For the quarter ended
June 28, June 29,
2002 2001
---------- ----------
NET INCOME (LOSS):
Reported net income (loss) $ 671 $ (1,357)
Goodwill amortization - 995
--------- ---------
Adjusted net income (loss) $ 671 $ (362)
========= ==========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
Reported basic and diluted net income (loss) per share $ 0.04 $ (0.08)
Goodwill amortization - 0.06
--------- ---------
Adjusted basic and diluted net income (loss) per share $ 0.04 $ (0.02)
========= ==========
For the two quarters ended
June 28, June 29,
2002 2001
---------- ----------
NET INCOME (LOSS):
Reported net income (loss) $ 1,120 $ (2,737)
Goodwill amortization - 1,988
--------- ---------
Adjusted net income (loss) $ 1,120 $ (749)
========= ==========
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
Reported basic and diluted net income (loss) per share $ 0.07 $ (0.17)
Goodwill amortization - 0.12
--------- ---------
Adjusted basic and diluted net income (loss) per share $ 0.07 $ (0.05)
========= ==========
In August 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses the accounting and
reporting for the impairment or disposal of long-lived assets. The Company
adopted this standard effective January 1, 2002. During the first quarter of
2002, the Company began to actively market one of its owned properties for sale,
and has classified this property as held for sale on its condensed consolidated
balance sheet as of June 28, 2002. As the Company does not anticipate a loss on
the sale of this property, no adjustment was made to the carrying value of this
asset in either the first or second quarter of 2002.
During the first quarter of 2002, based upon new interpretive guidance
issued for the accounting for billable expenses under Emerging Issues Task Force
issue No. D-103, "Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred," the Company began to record its billable
expenses on a gross basis as both revenue and direct costs, rather than on a net
basis. Such costs totaled $1.9 million and $2.4 million in the second quarter of
2002 and 2001, respectively, and $3.8 million and $4.4 million in the
year-to-date periods for 2002 and 2001, respectively. The 2001 revenue and
direct cost balances on the condensed consolidated statement of operations have
been restated by these amounts from that which was previously reported.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE QUARTER AND TWO QUARTERS ENDED JUNE 28, 2002
FORWARD-LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of
Results of Operations and Financial Condition and elsewhere in this document
that do not relate to present or historical conditions are "forward-looking
statements" within the meaning of that term in Section 27A of the Securities Act
of 1933, as amended, and in Section 21F of the Securities Exchange Act of 1934,
as amended. Additional oral or written forward-looking statements may be made by
the Company from time to time, and such statements may be included in documents
that are filed with the Securities and Exchange Commission. Such forward-looking
statements involve risks and uncertainties that could cause results or outcomes
to differ materially from those expressed in such forward-looking statements.
Forward-looking statements may include, without limitation, statements relating
to the Company's plans, strategies, objectives, expectations and intentions and
are intended to be made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Words such as "believes," "forecasts,"
"intends," "possible," "expects," "estimates," "anticipates," or "plans" and
similar expressions are intended to identify forward-looking statements. Among
the important factors on which such statements are based are assumptions
concerning the anticipated growth of the information technology industry, the
continued need of current and prospective customers for the Company's services,
the availability of qualified professional staff, and price and wage inflation.
RESULTS OF OPERATIONS
To better understand the financial trends of the Company, the following
tables set forth data as contained on the condensed consolidated statements of
operations, with the percentage information calculated as a percentage of
consolidated revenues.
FOR THE QUARTER ENDED: JUNE 28, JUNE 29,
2002 2001
------ ------
Revenue 100.0% $67,667 100.0% $86,113
Direct costs 72.4% 48,986 71.3% 61,449
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 25.7% 17,374 27.0% 23,225
- --------------------------------------------------------------------------------------------------------------
Operating income 1.9% 1,307 1.7% 1,439
INTEREST AND OTHER EXPENSE, NET (0.3)% (198) (1.7)% (1,406)
- ---------------------------------------------------------------------------------------------------------------
Income before income taxes 1.6% 1,109 0.0% 33
PROVISION FOR INCOME TAXES 0.6% 438 1.6% 1,390
- --------------------------------------------------------------------------------------------------------------
Net income (loss) 1.0% $ 671 (1.6)% $(1,357)
==== ======= ====== ========
7
FOR THE TWO QUARTERS ENDED: JUNE 28, JUNE 29,
2002 2001
------ ------
Revenue 100.0% $137,561 100.0% $170,876
Direct costs 72.0% 99,135 71.7% 122,632
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 25.7% 35,317 29.3% 50,027
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) 2.3% 3,109 (1.0)% (1,783)
INTEREST AND OTHER EXPENSE, NET (1.0)% (1,258) (1.3)% (2,133)
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1.3% 1,851 (2.3)% (3,916)
PROVISION (BENEFIT) FOR INCOME TAXES 0.5% 731 (0.7)% (1,179)
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) 0.8% $1,120 (1.6)% $(2,737)
==== ===== ====== ========
CTG's second quarter 2002 revenue was $67.7 million, a decrease of 21.4
percent when compared to second quarter 2001 revenue of $86.1 million, while
2002 year-to-date revenues were $137.6 million, a decrease of 19.5 percent from
2001 year-to-date revenues of $170.9 million. The year-over-year revenue
decrease is a result of the ongoing recession in the technology sector which has
had a significant negative effect on customer spending for information
technology services. North American revenue decreased by $26.0 million or 17.9
percent in the year-to-date 2002 period as compared to 2001, while revenue from
European operations decreased by $7.3 million, or 28.4 percent. The European
decrease is also due to a general economic slowdown in the countries in which
the Company operates.
The 2001 to 2002 year-to-date revenue decline was slightly offset by
the weakening of the U.S. dollar as compared to the currencies of the
Netherlands, Belgium, the United Kingdom, and Luxembourg. If there had been no
change in these foreign currency exchange rates from 2001 to 2002, total
consolidated revenues would have been $0.4 million lower.
In November 2000, the Company signed a contract with IBM for three
years as one of IBM's national technical service providers for the United
States. In the second quarter of 2002, IBM continued to be the Company's largest
customer, accounting for $12.9 million or 19.1 percent of total revenue as
compared to $22.4 million or 26.0 percent of second quarter 2001 revenue. For
the 2002 year-to-date period, revenues from IBM were $26.7 million or 19.4
percent of consolidated revenue, as compared to $46.4 million or 27.2 percent of
consolidated 2001 revenues. Although revenues from IBM have been constrained in
2002, the Company expects to continue to derive a significant portion of its
revenue from IBM throughout the remainder of 2002 and in future years. While the
decline in revenue from IBM has had an adverse effect on the Company's revenues
and profits, the Company believes a simultaneous loss of all IBM business is
unlikely to occur due to the diversity of the projects performed for IBM and the
number of locations and divisions involved.
Direct costs, defined as costs for billable staff including billable
out-of-pocket expenses, were 72.4 percent of revenue in the second quarter of
2002 as compared to 71.3 percent of second quarter 2001 revenue, and 72.0
percent of 2002 year-to-date revenue as compared to 71.7 percent of 2001
year-to-date revenue. The increase in direct costs as a percentage of revenue in
2002 as compared to 2001 is primarily due to the recession mentioned above which
has negatively affected the rates at which the Company bills customers for its
services.
8
Selling, general and administrative (SG&A) expenses were 25.7 percent
of revenue in the second quarter of 2002 as compared to 27.0 percent of revenue
in the second quarter of 2001, and 25.7 percent in the 2002 year-to-date period
as compared to 29.3 percent in the 2001 year-to-date period. During 2002, due to
the adoption of Financial Accounting Standard (FAS) No. 142, the Company
discontinued the amortization of its existing goodwill. In the 2001 second
quarter and year-to-date period, such amortization totaled approximately $1.0
million and $2.0 million, respectively. If such amortization expense was
excluded from the 2001 balances, SG&A expense as a percentage of revenue would
have been 25.8 percent in the 2001 second quarter, and 28.1 percent in the 2001
year-to-date period. The decline in SG&A expense year-over-year is due to the
Company continuing to align its cost structure to the current level of revenue.
Operating income was 1.9 percent of revenue in the 2002 second quarter
as compared to 1.7 percent of revenue in the 2001 second quarter, and 2.3
percent in the 2002 year-to-date period as compared to an operating loss of 1.0
percent in the 2001 year-to-date period. Without the amortization expense in
2001, operating income would have been 2.8 percent in the second quarter, and
0.1 percent in the year-to-date period. The year-to-date improvement in
operating income is primarily due to the significant decrease in SG&A expenses
discussed above. Operating income from North American operations was $2.5
million and $5.5 million in the 2002 second quarter and year-to-date period,
respectively, while European operations recorded an operating loss of $1.2
million and $ 2.4 million, respectively, in such periods.
Interest and other expense, net was 1.0 percent of revenue in the 2002
year-to-date period and 1.3 percent in the corresponding 2001 period. The
decrease as a percentage of revenue from 2001 to 2002 is primarily due to lower
average outstanding indebtedness balances and lower interest rates. The
provision (benefit) for income taxes was 39.5 percent in the 2002 year-to-date
period and (30.1) percent in the corresponding 2001 period. The provision
(benefit) rate in each year is calculated based upon the estimated tax rate
(benefit) for the entire year.
Net income for the second quarter of 2002 was 1.0 percent of revenue or
$0.04 per diluted share, compared to a loss of (1.6) percent of revenue or
$(0.08) per diluted share in 2001. Net income for the 2002 year-to-date period
was 0.8 percent of revenue or $0.07 per diluted share, compared to a loss of
(1.6) percent of revenue or $(0.17) per diluted share in 2001. Without the
amortization expense, the net loss in the 2001 second quarter would have been
(0.4) percent of revenue or $(0.02) per diluted share, and in the 2001
year-to-date period would have been (0.4) percent or revenue or $(0.05) per
diluted share. Diluted earnings per share were calculated using 17.0 million and
16.4 million equivalent shares outstanding in 2002 and 2001, respectively. The
increase in equivalent shares outstanding in 2002 is due to the dilutive effect
of outstanding stock options.
In July 2001, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) No. 141, "Business Combinations," and FAS
No. 142, "Goodwill and Other Intangible Assets." These standards make
significant changes to the accounting for business combinations, goodwill, and
intangible assets. FAS No. 141 eliminates the pooling-of-interests method of
accounting for business combinations with limited exceptions for combinations
initiated prior to July 1, 2001. In addition, it clarifies the criteria for
recognition of intangible assets apart from goodwill. This statement is
effective for business combinations completed after June 30, 2001.
FAS No. 142 discontinues the practice of amortizing goodwill and
indefinite-lived intangible assets and initiates a review, at least annually,
for impairment. Intangible assets with a determinable useful life will continue
to be amortized over their useful lives. FAS No. 142 applies to existing
goodwill and intangible assets, and such assets acquired after June 30, 2001.
9
FAS No. 142 is effective for fiscal years beginning after December 15,
2001. Accordingly, the Company adopted this standard as of January 1, 2002, and
no longer amortizes its existing goodwill after that date. In conjunction with
the adoption of FAS No. 142, the initial valuation of the business unit that
relates to the Company's intangible assets was completed by an independent
appraisal company during the 2002 second quarter. As a result of this valuation,
the Company expects to record, once the final valuation process is completed,
a $32 million to $38 million non-cash pre-tax charge for impairment of
goodwill in that business unit in the 2002 third quarter.
In August 2001, the FASB issued FAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which addresses the accounting and reporting for
the impairment or disposal of long-lived assets. The Company adopted this
standard effective January 1, 2002. During the first quarter of 2002, the
Company began to actively market one of its owned properties for sale, and has
classified this property as held for sale on its condensed consolidated balance
sheet as of June 28, 2002. As the Company does not anticipate a loss on the sale
of this property, no adjustment was made to the carrying value of this asset in
either the first or second quarter of 2002.
During the first quarter of 2002, based upon new interpretive guidance
issued for the accounting for billable expenses under Emerging Issues Task Force
issue No. D-103, "Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred," the Company began to record its billable
expenses on a gross basis as both revenue and direct costs, rather than on a net
basis. Such costs totaled $1.9 million and $2.4 million in the second quarter of
2002 and 2001, respectively, and $3.8 million and $4.4 million in the
year-to-date periods for 2002 and 2001, respectively. The 2001 revenue and
direct cost balances on the condensed consolidated statement of operations have
been restated by these amounts from that which was previously reported.
10
FINANCIAL CONDITION
Cash provided by operating activities was $2.2 million through the
first two quarters of 2002. Net income totaled $1.1 million, and non-cash
adjustments primarily consisting of depreciation expense and deferred income
taxes totaled $2.2 million. Accounts receivable increased by $0.5 million as
compared to December 31, 2001 due to the timing of the collection of
outstanding balances in the second quarter of 2002. Prepaid and other assets
increased $0.7 million due to payments made in the first half of 2002 that will
be amortized in future periods. Accounts payable decreased $0.2 million
primarily due to the timing of certain payments. Accrued compensation decreased
$2.4 million due to the timing of the US bi-weekly payroll, and fewer total
employees. Income taxes payable increased $3.0 million due to the Company
having taxable income in the 2002 year-to-date period as compared to a
significant loss in the corresponding 2001 period.
Net property and equipment and property held for sale decreased $0.4
million. Additions to property and equipment were $1.3 million, offset by
depreciation expense of $1.9 million, and foreign currency translation
adjustments of $0.2 million. The Company has no material commitments for capital
expenditures at June 28, 2002.
Financing activities used $2.1 million of cash through the first two
quarters of 2002. Net payments on long-term revolving debt totaled $2.3
million, and the Company received $0.2 million from employees for stock
purchased under the Employee Stock Purchase Plan.
The Company is authorized to repurchase a total of 3.4 million shares
of its common stock for treasury and the Company's stock trusts. At June 28,
2002, approximately 3.2 million shares have been repurchased under the
authorizations, leaving 0.2 million shares authorized for future purchases. No
share purchases have been made in 2002.
The Company believes existing internally available funds, cash
potentially generated by operations, and available borrowings under the
Company's revolving line of credit will be sufficient to meet foreseeable
working capital, capital expenditure, and possible stock repurchase
requirements, and to allow for future internal growth and expansion.
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is nominally exposed to market risk in the normal course of
its business operations. The Company has $13.1 million of borrowings at June 28,
2002 under a revolving credit agreement, which expose the Company to risk of
earnings or cash flow loss due to changes in market interest rates.
Additionally, as the Company sells its services in North America and in Europe,
financial results could be affected by weak economic conditions in those
markets.
- 12 -
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT DESCRIPTION PAGE
10. Amended and Restated Senior Secured Credit Facilities
among Computer Task Group, Inc. and J.P. Morgan Business
Credit Corp.
11. Statement re: computation of earnings per share
99.1 Certification Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the second
quarter of 2002:
DATE DESCRIPTION
April 9, 2002 Press release entitled "CTG Announces 2002 First
Quarter Conference Call Information."
April 15, 2002 Press release entitled "CTG Reports 2002 First
Quarter Financial Results."
* * * * * * *
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER TASK GROUP, INCORPORATED
By: /s/ Gregory M. Dearlove
-------------------------
Gregory M. Dearlove
Principal Accounting and
Financial Officer
Title: Vice President and
Chief Financial Officer
Date: August 9, 2002
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