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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 27, 2003
Commission file number 1-9410
------
COMPUTER TASK GROUP, INCORPORATED
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 16-0912632
- ---------------------------------- ----------------------------------------
(State of incorporation) (IRS Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
- --------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 882-8000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
---
Number of shares of common stock outstanding:
Shares outstanding
Title of each class at June 27, 2003
------------------- ------------------
Common stock, par value
$.01 per share 20,868,834
1
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 27, JUNE 28, JUNE 27, JUNE 28,
2003 2002 2003 2002
--------- --------- --------- ---------
(amounts in thousands, except per share data)
Revenue $ 64,057 $ 67,667 $ 127,919 $ 137,561
Direct costs 46,834 48,986 93,988 99,135
Selling, general and administrative expenses 15,988 17,374 32,274 35,317
--------- --------- --------- ---------
Operating income 1,235 1,307 1,657 3,109
Interest and other income 20 88 47 168
Interest and other expense (465) (286) (690) (1,426)
--------- --------- --------- ---------
Income before income taxes and cumulative
effect of change in accounting principle 790 1,109 1,014 1,851
Provision for income taxes 332 438 426 731
--------- --------- --------- ---------
Net income before cumulative effect of change in
accounting principle 458 671 588 1,120
Cumulative effect of change in accounting principle - - - (37,038)
--------- --------- --------- ---------
Net income (loss) $ 458 $ 671 $ 588 $ (35,918)
========= ========= ========= =========
Basic net income (loss) per share:
Net income before cumulative effect of change in
accounting principle $ 0.03 $ 0.04 $ 0.04 $ 0.07
Cumulative effect of change in accounting principle - - - (2.24)
--------- --------- --------- ---------
Basic net income (loss) per share $ 0.03 $ 0.04 $ 0.04 $ (2.17)
========= ========= ========= =========
Diluted net income (loss) per share:
Net income before cumulative effect of change in
accounting principle $ 0.03 $ 0.04 $ 0.04 $ 0.07
Cumulative effect of change in accounting principle - - - (2.18)
--------- --------- --------- ---------
Diluted net income (loss) per share $ 0.03 $ 0.04 $ 0.04 $ (2.11)
========= ========= ========= =========
Weighted average shares outstanding:
Basic 16,646 16,557 16,635 16,545
Diluted 16,711 17,029 16,738 17,000
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
COMPUTER TASK GROUP, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 27, DECEMBER 31,
2003 2002
----------- ------------
(amounts in thousands)
ASSETS
- -----------------------------------------------------------------------------------------------------------------
Current Assets:
Cash and temporary cash investments $ 1,968 $ 69
Accounts receivable, net 46,839 43,696
Prepaids and other 2,846 2,406
Deferred income taxes 497 623
- -----------------------------------------------------------------------------------------------------------------
Total current assets 52,150 46,794
Property and equipment, net of accumulated depreciation 8,110 8,939
Property held for sale - 2,190
Goodwill 35,678 35,678
Deferred income taxes 4,270 4,412
Other assets 663 1,171
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 100,871 $ 99,184
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------
Current Liabilities:
Accounts payable $ 8,121 $ 6,520
Accrued compensation 19,449 19,139
Advance billings on contracts 146 359
Other current liabilities 4,211 4,163
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 31,927 30,181
Long-term debt 7,643 8,497
Deferred compensation benefits 7,499 7,786
Other long-term liabilities - 350
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 47,069 46,814
Shareholders' Equity:
Common stock, par value $.01 per share, 150,000,000
shares authorized; 27,017,824 shares issued 270 270
Capital in excess of par value 111,392 111,465
Retained earnings 38,285 37,697
Less: Treasury stock of 6,148,990 shares at cost (31,416) (31,416)
Stock Trusts of 4,201,609 and 4,246,337 shares at cost, respectively (58,657) (58,848)
Accumulated other comprehensive income:
Foreign currency adjustment (5,390) (6,116)
Minimum pension liability adjustment (682) (682)
- -----------------------------------------------------------------------------------------------------------------
Accumulated other comprehensive income (6,072) (6,798)
- -----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 53,802 52,370
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 100,871 $ 99,184
=========== ==========
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 27, JUNE 28,
2003 2002
---------- ----------
(amounts in thousands)
Cash flows from operating activities:
Net income (loss) $ 588 $ (35,918)
Adjustments:
Depreciation expense 1,790 1,898
Change in accounting principle - 37,038
Deferred income taxes 230 257
Loss on sales of property and equipment 225 -
Deferred compensation (287) 70
Changes in assets and liabilities:
Increase in accounts receivable (2,451) (502)
Increase in prepaids and other (344) (690)
Decrease in other assets 508 46
Increase (decrease) in accounts payable 1,366 (211)
Increase (decrease) in accrued compensation 77 (2,394)
Increase in income taxes payable 61 2,995
Decrease in advance billings on contracts (213) (94)
Increase (decrease) in other current liabilities (69) 27
Decrease in other long-term liabilities (350) (310)
---------- -----------
Net cash provided by operating activities 1,131 2,212
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (1,118) (1,304)
Proceeds from sales of fixed assets 2,267 -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,149 (1,304)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Payments on long-term revolving debt, net (854) (2,278)
Proceeds from Employee Stock Purchase Plan 118 182
Purchase of stock for treasury - (6)
Proceeds from other stock plans - 13
---------- -----------
Net cash used in financing activities (736) (2,089)
- -----------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and temporary cash investments 355 550
---------- -----------
Net increase (decrease) in cash and temporary cash investments 1,899 (631)
Cash and temporary cash investments at beginning of year 69 3,362
- -----------------------------------------------------------------------------------------------------------------
Cash and temporary cash investments at end of quarter $ 1,968 $ 2,731
========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
COMPUTER TASK GROUP, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Financial Statements
The condensed consolidated financial statements included herein reflect, in
the opinion of the management of Computer Task Group, Incorporated ("CTG" or
"the Company"), all normal recurring adjustments necessary to present fairly the
condensed consolidated financial position, results of operations and cash flows
for the periods presented. Certain amounts in the prior period's condensed
consolidated financial statements have been reclassified to conform to the
current year presentation.
2. Basis of Presentation
The condensed consolidated financial statements have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with 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 $(6,072,000) and
$(6,798,000) at June 27, 2003 and December 31, 2002, respectively. These
balances included adjustments of $726,000 and $299,000 related to foreign
currency translation in the two quarters ended June 27, 2003 and June 28, 2002,
respectively. Total comprehensive income for the quarters ended June 27, 2003
and June 28, 2002 was $1,067,000 and $1,162,000, respectively, while total
comprehensive income (loss) for the two quarters ended June 27, 2003 and June
28, 2002 totaled $1,314,000 and $(35,619,000), respectively.
4. Stock-Based Employee Compensation
The Company accounts for its stock-based employee compensation plans in
accordance with the provisions of Financial Accounting Standard (FAS) No. 123,
"Accounting for Stock-Based Compensation," and FAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which allows entities to
continue to apply the recognition and measurement provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. As such, no stock-based employee
compensation cost is reflected in the net income or loss of the Company for the
periods presented in these condensed consolidated financial statements, as all
options granted by the Company had an exercise price that was equal to or
greater than the underlying common stock at the date of grant.
5
The following table details the effect on net income (loss) and basic and
diluted net income (loss) per share as if the Company had adopted the fair value
recognition provisions of FAS No. 123 as they apply to stock-based employee
compensation:
FOR THE QUARTER ENDED
JUNE 27, JUNE 28,
2003 2002
-------- --------
(amounts in thousands,
except per share data)
Net income, as reported $ 458 $ 671
Stock-based employee compensation
expense as calculated under the fair
value method for all awards, net of tax 328 421
----------- ----------
Pro forma net income $ 130 $ 250
=========== ==========
Basic net income per share:
As reported $ 0.03 $ 0.04
=========== ==========
Pro forma $ 0.01 $ 0.02
=========== ==========
Diluted net income per share:
As reported $ 0.03 $ 0.04
=========== ==========
Pro forma $ 0.01 $ 0.01
=========== ==========
FOR THE TWO QUARTERS ENDED
JUNE 27, JUNE 28,
2003 2002
-------- --------
(amounts in thousands,
except per share data)
Net income (loss), as reported $ 588 $ (35,918)
Stock-based employee compensation
expense as calculated under the fair
value method for all awards, net of tax 671 797
----------- ----------
Pro forma net loss $ (83) $ (36,715)
=========== ==========
Basic net income (loss) per share:
As reported $ 0.04 $ (2.17)
=========== ==========
Pro forma $ - $ (2.22)
=========== ==========
Diluted net income (loss) per share:
As reported $ 0.04 $ (2.11)
=========== ==========
Pro forma $ - $ (2.16)
=========== ==========
Pro forma amounts for compensation cost may not be indicative of the effects on
earnings for future quarters.
5. Accounting Standards Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued FAS
No. 141, "Business Combinations," and FAS No. 142, "Goodwill and Other
Intangible Assets." The Company adopted these standards as of January 1, 2002.
In conjunction with the required adoption of FAS No. 142, the initial valuation
of the business unit for which the Company's goodwill relates was completed in
2002 by management with the assistance of an independent appraisal company. Such
valuation indicated that the carrying value of the business unit was greater
than the determined fair value. The goodwill on the Company's balance sheet
primarily related to the acquisition in February 1999 of the healthcare
information technology services provider Elumen Solutions, Inc. Although the
revenues and profits for this unit decreased in 2000 and 2001, in 2002 the
revenues and profits for that unit were similar to when the acquisition was
completed in 1999. However, the valuation of technology companies in 1999 was
relatively high as compared to the valuations at the beginning of 2002.
Accordingly, as a result of the valuation which considered the fair market
values of similar companies, the Company recorded a $37.0 million non-cash
charge for impairment of goodwill in that business unit in the Company's 2002
year-to-date financial results, as a cumulative effect of a change in accounting
principle. There was no tax associated with this impairment as the amortization
of this goodwill was not deductible for tax purposes.
6
As of January 1, 2003, the Company completed its annual valuation of the
business unit to which the Company's goodwill relates. This valuation indicated
that the estimated fair value of the business unit exceeded the carrying value
of this unit. Accordingly, the Company believes no additional impairment is
required to be recorded in its condensed consolidated financial results.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE QUARTER AND TWO QUARTERS ENDED JUNE 27, 2003
Forward-Looking Statements
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this document
that do not relate to present or historical conditions are "forward-looking
statements" within the meaning of that term in Section 27A of the Securities Act
of 1933, as amended, and 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 (IT) industry,
the continued need of current and prospective customers for the Company's
services, the availability of qualified professional staff, and price and wage
inflation.
Results of Operations
To better understand the financial trends of the Company, the following
table sets 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 27, JUNE 28,
2003 2002
--------------------- -------------------
Revenue 100.0% $ 64,057 100.0% $ 67,667
Direct costs 73.1% 46,834 72.4% 48,986
Selling, general, and administrative expenses 25.0% 15,988 25.7% 17,374
- ----------------------------------------------------------------------------------------------------
Operating income 1.9% 1,235 1.9% 1,307
Interest and other expense, net (0.7)% (445) (0.3)% (198)
- ----------------------------------------------------------------------------------------------------
Income before income taxes 1.2% 790 1.6% 1,109
Provision for income taxes 0.5% 332 0.6% 438
- ----------------------------------------------------------------------------------------------------
Net income 0.7% $ 458 1.0% $ 671
==== ========= ==== =========
8
FOR THE TWO QUARTERS ENDED JUNE 27, JUNE 28,
2003 2002
--------------------- -------------------
Revenue 100.0% $ 127,919 100.0% $ 137,561
Direct costs 73.5% 93,988 72.0% 99,135
Selling, general, and administrative expenses 25.2% 32,274 25.7% 35,317
- ----------------------------------------------------------------------------------------------------
Operating income 1.3% 1,657 2.3% 3,109
Interest and other expense, net (0.5)% (643) (0.9)% (1,258)
- -----------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of change in accounting principle 0.8% 1,014 1.4% 1,851
Provision for income taxes 0.3% 426 0.6% 731
- ----------------------------------------------------------------------------------------------------
Net income before cumulative effect of
change in accounting principle 0.5% 588 0.8% 1,120
Cumulative effect of change in accounting principle - - (26.9)% (37,038)
- -----------------------------------------------------------------------------------------------------
Net income (loss) 0.5% $ 588 (26.1)% $ (35,918)
==== ======== ====== =========
CTG's second quarter 2003 revenue was $64.1 million, a decrease of 5.3
percent when compared to second quarter 2002 revenue of $67.7 million, while
2003 year-to-date revenues were $127.9 million, a decrease of 7.0 percent from
2002 year-to-date revenues of $137.6 million. The year-over-year revenue
decrease is a result of the ongoing recession in technology related investments
which has had a negative effect on customer spending for information technology
services. North American revenue decreased by $11.0 million or 9.2 percent in
year-to-date 2003 period as compared to 2002, while revenue from European
operations increased by $1.3 million, or 7.1 percent. The European increase is
largely due to a significant strengthening in foreign currency exchange rates as
compared to the U.S. dollar, offset by a general economic slowdown in the
countries in which the Company operates.
The 2002 to 2003 year-to-date revenue decline was offset by the weakening
of the U.S. dollar as compared to the currencies of the Netherlands, Belgium,
the United Kingdom, and Luxembourg, the countries in which the Company's
European subsidiaries operate. If there had been no change in these foreign
currency exchange rates from 2002 to 2003, total consolidated revenues would
have been $3.5 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 2003, IBM continued to be the Company's largest customer,
accounting for $13.5 million or 21.1 percent of total revenue as compared to
$12.9 million or 19.1 percent of second quarter 2002 revenue. For the 2003
year-to-date period, revenues from IBM were $27.1 million or 21.1 percent of
consolidated revenue as compared to $26.7 million or 19.4 percent of
consolidated 2002 revenues. The Company expects to continue to derive a
significant portion of its revenue from IBM throughout the remainder of 2003 and
in future years. While a decline in revenue from IBM would have a negative
effect on the Company's revenues and profits, the Company believes a
simultaneous loss of all IBM business is unlikely to occur due to the diversity
of the projects performed for IBM and the number of locations and divisions
involved.
Direct costs, defined as costs for billable staff including billable
out-of-pocket expenses, were 73.1 percent of revenue in the second quarter of
2003 as compared to 72.4 percent of second quarter 2002 revenue, and 73.5
percent of revenue in the 2003 year-to-date period as compared to 72.0 percent
in the 2002 year-to-date period. The increase in direct costs as a percentage of
revenue in 2003 as compared to 2002 is primarily due to the recession previously
mentioned which has adversely affected the rates at which the company bills
customers for its services.
9
Selling, general and administrative (SG&A) expenses were 25.0 percent of
revenue in the second quarter of 2003 as compared to 25.7 percent of revenue in
the second quarter of 2002, and 25.2 percent in the 2003 year-to-date period as
compared to 25.7 percent in the 2002 year-to-date period. The decline in SG&A
expense year-over-year is due to the Company continuing to align and reduce its
cost structure to the current level of revenue.
Operating income was 1.9 percent of revenue in the 2003 and 2002 second
quarters, and 1.3 percent in the 2003 year-to-date period as compared to 2.3
percent in the 2002 year-to-date period. Operating income from North American
operations was $1.7 million and $2.6 million in the 2003 second quarter and
year-to-date periods respectively, while European operations recorded an
operating loss of $0.5 million and $0.9 million, respectively, in such periods.
Interest and other expense, net was (0.5) percent of revenue in the 2003
year-to-date period and (0.9) percent in the corresponding 2002 period. The
decrease as a percentage of revenue from 2002 to 2003 is primarily due to lower
average outstanding indebtedness balances and significantly lower interest rates
in 2003, partially offset by a loss of approximately $0.2 million on the sale of
the property held for sale in the second quarter of 2003. The provision for
income taxes was 42.0 percent in 2003 and 39.5 percent in 2002. The provision
rate in each year is calculated based upon the estimated tax rate for the entire
year.
Net income for the second quarter of 2003 was 0.7 percent of revenue or
$0.03 per diluted share, compared to net income for the second quarter of 2002
of 1.0 percent of revenue or $0.04 per diluted share. Including the cumulative
effect of the change in accounting principle in 2002, net income for the 2003
year-to-date period was 0.5 percent of revenue or $0.04 per diluted share,
compared to a loss of (26.1) percent of revenue or $(2.11) per diluted share in
2002. Diluted earnings per share were calculated using 16.7 and 17.0 million
equivalent shares outstanding in 2003 and 2002, respectively. The decrease in
equivalent shares outstanding in 2003 is due to a lesser dilutive effect of
outstanding stock options.
Critical Accounting Policies
The Company has determined that its sole critical accounting estimate
involves the valuation of its existing goodwill balance. With the required
adoption of FAS No. 142 in 2002, CTG recorded a charge of $37.0 million,
representing the cumulative effect of the change in accounting principle. Going
forward, the remaining goodwill balance will be evaluated annually or more
frequently if facts and circumstances indicate impairment may exist. These
evaluations will be based on estimates and assumptions that may analyze the
appraised value of similar transactions from which the goodwill arose, the
appraised value of similar companies, or estimates of future discounted cash
flows. The estimates and assumptions on which the Company's evaluations are
based necessarily involve judgments and are based on currently available
information, any of which could prove wrong or inaccurate when made, or become
wrong or inaccurate as a result of subsequent events.
As of January 1, 2003, the Company completed its annual valuation of the
business unit to which the Company's goodwill relates. This valuation indicated
that the estimated fair value of the business unit exceeded the carrying value
of this unit. Accordingly, the Company believes no additional impairment is
required to be recorded in its consolidated financial results. Changes in future
valuations, however, could lead to additional impairment charges.
10
Financial Condition and Liquidity
Cash provided by operating activities was $1.1 million through the first
two quarters of 2003. Net income totaled $0.6 million, and other non-cash
adjustments, primarily consisting of depreciation expense, the loss on sales of
property and equipment, and deferred income taxes, totaled $2.2 million.
Accounts receivable increased by $2.5 million as compared to December 31, 2002
primarily due to the timing of the collection of outstanding balances in the
second quarter of 2003, which resulted in an increase in days sales outstanding
of two days to 67 days from 65 days at December 31, 2002. Accounts payable
increased $1.4 million primarily due to the timing of certain payments.
Net property and equipment and property held for sale decreased $3.0
million. Additions to property and equipment were $1.1 million, offset by
depreciation expense of $1.8 and proceeds from the sales of fixed assets of $2.3
million. The Company has no significant commitments for capital expenditures at
June 27, 2003.
Financing activities used $0.7 million of cash through the first two
quarters of 2003. Net payments on long-term revolving debt totaled approximately
$0.8 million, and the Company received $0.1 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 27, 2003,
approximately 3.2 million shares have been repurchased under the authorizations,
leaving 0.2 million shares authorized for future purchases. No share purchases
were made in 2003.
At June 27, 2003, consolidated shareholders' equity totaled $53.8 million,
which is an increase of $1.4 million from December 31, 2002. The increase is
primarily due to net income of $0.6 million, and the effect of foreign currency
translation of $0.7 million.
The Company believes existing internally available funds, cash potentially
generated by operations, and available borrowings under the Company's revolving
line of credit totaling approximately $42.3 million at June 27, 2003 will be
sufficient to meet foreseeable working capital, capital expenditure, and
possible stock repurchases, and to allow for future internal growth and
expansion.
The Company did not have any related party transactions in either the first
two quarters of 2003 or 2002.
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 $7.6 million of borrowings at June 27, 2003
under a revolving credit agreement, which expose the Company to risk of earnings
or cash flow loss due to changes in market interest rates. Based upon average
bank borrowings of $15.4 million during 2003, a one percentage point increase or
decrease in market interest rates would increase or decrease the Company's
interest expense annually by $154,000. 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.
ITEM 4. CONTROLS AND PROCEDURES
Based upon an evaluation completed within 90 days prior to the filing of this
quarterly report with the SEC, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective for gathering and disclosing information as required
for reports filed under the Securities and Exchange Act of 1934. There have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the date of this
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
The Company's disclosure controls and procedures and internal controls provide
reasonable, but not absolute, assurance that all deficiencies in design or
operation of these control systems, or all instances of errors or fraud, will be
prevented or detected. These control systems are designed to provide reasonable
assurance of achieving the goals of these systems in light of the Company's
resources and nature of the Company's business operations. These control systems
remain subject to risks of human error and the risk that controls can be
circumvented for wrongful purposes by one or more individuals in management or
non-management positions.
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit Description Page
------- ----------- ----
11. Statement re: computation of earnings per share 16
99.1 Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 17
Reports on Form 8-K
-------------------
The following reports on Form 8-K were filed during the second quarter
of 2003:
Date Description
---- -----------
April 7, 2003 Press release entitled "CTG Announces 2003 First
Quarter Conference Call Information."
April 14, 2003 Press release entitled "CTG Reports 2003 First
Quarter Results."
April 22, 2003 Transcript of the "CTG Analyst Conference Call -
Quarter One 2003."
* * * * * * *
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUTER TASK GROUP, INCORPORATED
By: /s/ Gregory M. Dearlove
-------------------------
Gregory M. Dearlove
Principal Accounting and
Financial Officer
Title: Senior Vice President and
Chief Financial Officer
Date: July 21, 2003
13
CERTIFICATION
I, James R. Boldt, certify that:
1. I have reviewed this report on Form 10-Q of Computer Task Group,
Incorporated;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of the internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: July 21, 2003
/s/ James R. Boldt
------------------
James R. Boldt
Chairman, President and Chief Executive Officer
14
CERTIFICATION
I, Gregory M. Dearlove, certify that:
1. I have reviewed this report on Form 10-Q of Computer Task Group,
Incorporated;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of the internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: July 21, 2003
/s/ Gregory M. Dearlove
-----------------------
Gregory M. Dearlove
Senior Vice President and
Chief Financial Officer
15