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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003 OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______ to _______
Commission File No. 1-9410
COMPUTER TASK GROUP, INCORPORATED
(Exact name of Registrant as specified in its charter)
State of New York 16-0912632
(State of incorporation) (I.R.S.Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
(Address of principal executive offices) (Zip Code)
(716) 882-8000
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
Rights to Purchase Series A
Participating Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) YES |X| NO | |
The aggregate market value of the Registrant's voting and non-voting common
equity, computed by reference to the price at which the common equity was last
sold on the last business day of the Registrant's most recently completed second
quarter was $46.1 million. Solely for the purposes of this calculation, all
persons who are or may be executive officers or directors of the Registrant and
all persons who have filed a Schedule 13D or Schedule 13G with respect to the
Registrant's stock have been deemed to be affiliates.
The total number of shares of Common Stock of the Registrant outstanding at
March 15, 2004 was 20,868,834.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this report: Parts II and IV - the Registrant's 2003 Annual
Report to Shareholders; Part III - the Registrant's definitive Proxy Statement
as filed with the Securities and Exchange Commission and as used in connection
with the solicitation of proxies for the Registrant's annual meeting of
shareholders to be held on May 5, 2004.
1
PART I
FORWARD-LOOKING STATEMENTS
Statements included in this document, or incorporated into this document by
reference, that do not relate to present or historical conditions are
"forward-looking statements" within the meaning of that term in Section 27A of
the Securities Act of 1933, as amended, and Section 21F of the Securities
Exchange Act of 1934, as amended. Additional oral or written forward-looking
statements may be made by the Company from time to time, and such statements may
be included in documents that are filed with the Securities and Exchange
Commission. Such forward-looking statements involve risks and uncertainties that
could cause results or outcomes to differ materially from those expressed in
such forward-looking statements. Forward-looking statements may include, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, and intentions and are intended to be made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Words
such as "believes," "forecasts," "intends," "possible," "expects," "estimates,"
"anticipates," or "plans" and similar expressions are intended to identify
forward-looking statements.
Several important factors should be taken into consideration when reviewing the
operational results of the Company either on a quarterly or annual basis. These
include:
THE ANTICIPATED DEMAND FOR INFORMATION TECHNOLOGY (IT) SERVICES
There has been a steady decline in demand in the technology services sector from
2000-2003 as a recession in the technology industry has negatively affected
spending for information technology services. While the Company believes that
demand has begun to increase, a continued decline in spending for IT services
may continue to adversely affect the Company's operating results in the future.
FOREIGN OPERATIONS
The Company has been negatively affected by weaker economic conditions in The
Netherlands, which have reduced demand and increased price competition for our
services. If weaker economic conditions continue for an extended time, our
ability to maintain or increase revenues in The Netherlands may be significantly
limited. We continue to assess whether additional cost cutting efforts may be
required and if various other strategies involving our operations in The
Netherlands would better position the Company to realize our current and future
objectives.
THE AVAILABILITY OF QUALIFIED PROFESSIONAL STAFF
The Company currently actively competes with other IT services providers for
qualified professional staff. The availability, or lack thereof, of qualified
professional staff may affect the Company's ability to provide services and meet
the needs of its customers in the future. An inability to fulfill customer
requirements due to a lack of available qualified staff may adversely impact the
operations of the Company in the future.
RATE AND WAGE INFLATION OR DEFLATION
While the rates at which the Company bills its customers for its services have
tended to stabilize in the later part of 2003, there has been a general decline
in these rates over recent years as a result of the technology recession
mentioned above. Additionally, the Company actively competes against many other
companies for business with new and existing clients. A continuation of the
recession and competitive pressures may lead to a further decline in the rates
that the Company bills its customers for its services, which may adversely
effect the Company's operating results in the future.
ITEM 1. BUSINESS
Computer Task Group, Incorporated (the Company, CTG, or the Registrant) was
incorporated in Buffalo, New York on March 11, 1966, and its corporate
headquarters are located at 800 Delaware Avenue, Buffalo, New York 14209
(716-882-8000). CTG is an international information technology (IT) solutions
and staffing company. CTG employs approximately 2,700 people worldwide and
serves customers through an international network of offices in North America
and Europe. During 2003, the Company had seven operating subsidiaries: CTG
Services, Inc., CTG HealthCare Solutions (Kansas), Inc., and Computer Task Group
of Canada, Inc., primarily providing services in North America; and Computer
Task Group Belgium N.V., Computer Task Group Luxembourg S.A., Computer Task
Group Nederland B.V., and Computer Task Group (U.K.) Ltd. primarily providing
services in Europe.
2
Copies of the Company's Form 10-K Annual Report, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports, including the
Company's code of ethics, committee charters and governance policies, which are
filed with the Securities and Exchange Commission, may be obtained without
charge through the Company's website at www.ctg.com/investors.
BACKGROUND
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, developing, implementing, managing, and
ultimately maintaining the IT solution. A typical customer is an organization
with large, complex information and data processing requirements. Approximately
84 percent of consolidated 2003 revenue of $252.3 million was generated in North
America and 16 percent in Europe. The Company promotes a portion of its services
through four vertical market focus areas: Technology Service Providers,
Financial Services, HealthCare, and Life Sciences. CTG provides three primary
services to all of the markets that it serves. A brief discussion of these
services is as follows:
o IT STAFFING: CTG recruits, retains, and manages IT talent for its
clients. The Company services both large organizations with multiple
locations and high-volume IT requirements, and companies that need
to augment their own staff on a flexible basis. Our recruiting
organization works with customers to define their requirements and
develop the most competitive pricing to meet those requirements.
o APPLICATION MANAGEMENT OUTSOURCING (AMO): In an AMO project, a
client outsources the management of some or all of its applications
so that their internal management and staff can focus on projects
that will help them in creating and fostering initiatives that will
aid in delivering a competitive advantage to the company. CTG's
services in this area include support of single or multiple
applications, help desk, and facilities management through a full
suite of cost-effective maintenance, enhancement, and systems
development and integrated solutions.
o IT SOLUTIONS: CTG's services in this area range from helping clients
assess their business needs and identifying the right IT solutions
to meet them, to the delivery of services that include the selection
and implementation of packaged software and the design,
construction, testing, and integration of new systems.
International Business Machines Corporation (IBM) is CTG's largest customer. CTG
provides services to various IBM divisions in greater than 50 locations. In
November 2003, the Company signed a contract with International Business
Machines (IBM) for one year as one of IBM's national technical service providers
for the United States. IBM has the right to extend the contract for three
additional one-year periods. This contract, and its predecessor, accounted for
approximately 89 percent of all of the services provided to IBM in 2003. In
2003, IBM continued to be the Company's largest customer, accounting for $53.9
million or 21.4 percent of 2003 consolidated revenue, $51.9 million or 19.7
percent of 2002 consolidated revenue, and $78.3 or 24.5 percent of 2001
consolidated revenue. The Company expects to continue to derive a significant
portion of its revenue from IBM in 2004 and in future years. While a decline in
revenue from IBM would have a negative effect on the Company's revenues and
profits, the Company believes a simultaneous loss of all IBM business is
unlikely to occur due to the diversity of the projects performed for IBM and the
number of locations and divisions involved.
The Company has registered its symbol and logo with the U.S. Patent and
Trademark Office. It has entered into agreements with various software and
hardware vendors from time to time in the normal course of business, none of
which are material to the business.
No employees are covered by a collective bargaining agreement or are represented
by a labor union. CTG is an equal opportunity employer.
3
PRICING AND BACKLOG
The majority of CTG's services are performed on a time-and-materials basis.
Rates vary based on the type and level of skill required by the customer, as
well as geographic location. Agreements for work performed on a
time-and-materials basis generally do not specify any dollar amount as services
are rendered on an "as required" basis.
The Company performs a portion of its business on a monthly fee basis, as well
as a small portion of its project business on a fixed-price basis. These
contracts generally have different terms and conditions regarding cancellation
and warranties, and are usually negotiated based on the unique aspects of the
project. Contract value for fixed-price contracts is generally a function of the
type and level of skills required to complete the related project and the risk
associated with the project. Risk is a function of the project deliverable,
completion date and CTG's management and staff performance. Fixed-price
contracts accounted for under the percentage of completion method represented
approximately three percent of 2003, two percent of 2002, and one percent of
2001 total consolidated revenues, respectively. Revenue from all fixed-price
contracts, including those accounted for under the percentage of completion
method and on a monthly fee basis, represented 13 percent, 14 percent, and 12
percent of consolidated revenue in 2003, 2002, and 2001, respectively. As of
December 31, 2003 and 2002, the backlog for fixed-price and all managed-support
contracts was approximately $75.5 million and $49.6 million, respectively.
Approximately 44 percent of the December 31, 2003 backlog of $75.5 million, or
$33.1 million, is expected to be earned in 2004. Of the $49.6 million of backlog
at December 31, 2002, approximately 73 percent, or $36.4 million was earned in
2003. Revenue is subject to seasonal variations, with a minor downturn in months
of high vacation and legal holidays (July, August, and December). Backlog does
not tend to be seasonal, however, it does fluctuate based upon the timing of
long-term contracts.
COMPETITION
The IT services market is highly competitive. The market is also highly
fragmented with many providers with no single competitor maintaining a clear
market leadership. The Company's competition varies by location, the type of
service provided, and the customer to whom services are provided. Competition
comes from four major channels: large national or international vendors,
including major accounting and consulting firms; hardware vendors and suppliers
of packaged software systems; small local firms or individuals specializing in
specific programming services or applications; and, a customer's internal data
processing staff. CTG competes against all four of these channels for its share
of the market. The Company believes that to compete successfully it is necessary
to have a local geographic presence, offer appropriate IT solutions, provide
skilled professional resources, and price its services competitively.
CTG has implemented a Global Management System, with a goal to achieve
continuous, measured improvements in services and deliverables. As part of this
program, CTG has developed specific methodologies for providing high value
services that result in unique solutions and specified deliverables for its
clients. The Company believes these methodologies will enhance its ability to
compete. CTG initially achieved worldwide ISO 9001:1994 certification in June
2000. CTG received its worldwide ISO 9001:2000 in January 2003. The Company
believes it is the only IT services company of its size to achieve worldwide
certification.
4
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
(amounts in thousands)
2003 2002 2001
---- ---- ----
Revenue from Unaffiliated Customers:
North America $ 212,075 $ 226,824 $ 273,724
Europe 40,266 36,452 46,489
----------- ----------- -----------
$ 252,341 $ 263,276 $ 320,213
=========== =========== ===========
Operating Income (Loss):
North America $ 18,401 $ 19,577 $ 15,618
Europe (2,236) (3,698) (2,399)
Corporate and other (12,903) (11,857) (12,805)
------------ ------------ ------------
$ 3,262 $ 4,022 $ 414
=========== =========== ===========
Identifiable Assets:
North America $ 73,958 $ 79,816 $ 127,227
Europe 12,544 9,866 10,958
Corporate and Other (1) 9,945 9,502 11,303
----------- ----------- -----------
$ 96,447 $ 99,184 $ 149,488
=========== =========== ===========
(1) Corporate and other identifiable assets consist principally of cash and
temporary cash investments and other assets.
5
EXECUTIVE OFFICERS OF THE COMPANY
Period During Other Positions
Which Served as and Offices with
Name Age Office Executive Officer (1) Registrant
- ---- --- ------ --------------------- ----------------
As of December 31, 2003, the following individuals were executive officers of the Company:
James R. Boldt 52 Chairman, President and June 21, 2001 for President,
Chief Executive Officer July 16, 2001 for Chief
Executive Officer,
May 2002 for Chairman,
all to date Director
Executive Vice President February 2001 to June 2001
Vice President, Strategic Staffing December 2000 to
September 2001
Acting Chief Executive Officer June 2000 to November 2000
Vice President and February 12, 1996 to
Chief Financial Officer October 1, 2001
Arthur W. Crumlish 49 Senior Vice President September 24, 2001 to date None
Gregory M. Dearlove 49 Senior Vice President, October 1, 2001 to date Treasurer
Chief Financial Officer
Filip J.L. Gyde 43 Senior Vice President October 1, 2000 to date None
Thomas J. Niehaus 42 Senior Vice President July 22, 1999 to date None
Newton H. Parkes, III 56 Senior Vice President October 28, 2002 to
February 16, 2004 None
Peter P. Radetich 50 Senior Vice President, April 28, 1999 to date Secretary
General Counsel
(1) Business Experience
Mr. Boldt was appointed president and joined CTG's Board of Director's on June
21, 2001, and was appointed chief executive officer on July 16, 2001. Mr. Boldt
became the Company's Chairman in May 2002. Mr. Boldt joined the Company as a
vice president, chief financial officer and treasurer in February 1996.
Mr. Crumlish was promoted to vice president in September 2001, and is currently
responsible for the Company's Strategic Staffing Services organization. Prior to
that, he was controller of the Strategic Staffing Services organization. Mr.
Crumlish joined the Company in 1990.
Mr. Dearlove joined the Company as a vice president and its chief financial
officer in October 2001. Prior to that, Mr. Dearlove was the office managing
partner of Deloitte & Touche's (Deloitte) Upstate New York Offices from June
1997 to September 2001. Mr. Dearlove had been a partner with Deloitte since
1986.
Mr. Gyde was promoted to vice president in October 2000, and is currently
responsible for all of the Company's European operations. Prior to that, Mr.
Gyde was managing director of the Company's Belgium operation. Mr. Gyde has been
with the Company since May 1987.
6
Mr. Niehaus joined the Company in February 1999, and was promoted to vice
president of CTG HealthCare Solutions in July 1999. Previously, Mr. Niehaus was
executive vice president of Elumen Solutions, Inc. from September 1997 to
February 1999. Prior to that, Mr. Niehaus was vice president of Exemplar
Systems.
Mr. Parkes joined the Company in October 2002 as a vice president, and was
responsible for the Company's IT Solutions operations. Prior to joining the
Company, Mr. Parkes was a regional vice president for Ciber from June 1997 until
May 2002. Mr. Parkes ceased being an officer in the Company in February 2004.
Mr. Radetich joined the Company in June 1988 as associate general counsel, and
was promoted to general counsel and secretary in April 1999.
7
ITEM 2. PROPERTIES
The Company owns and occupies a headquarters building at 800 Delaware Avenue,
and an office building at 700 Delaware Avenue, both located in Buffalo, New
York. The corporate headquarters consists of approximately 40,000 square feet
and is occupied by corporate administrative operations. The office building
consists of approximately 39,000 square feet and is also occupied by corporate
administrative operations. During December 2003, the Company paid off a term
loan that had previously been collateralized by these properties. At December
31, 2003, these properties were not mortgaged.
Previously, the Company also owned a 37,000 square foot building in Melbourne,
Florida with a net book value of $2.2 million, which, for approximately eight
months in 2002, was leased to a third party under a one-year lease. During the
first quarter of 2002, the Company began to actively market this property for
sale, and had classified this property as held for sale on its December 31, 2002
consolidated balance sheet. During 2002, the Company made an adjustment of
approximately $0.1 million to the carrying value of this asset in order to
write-down the property's value to the anticipated net fair value. The property
was subsequently sold during the second quarter of 2003 for approximately $2.2
million. The Company recorded an additional loss of approximately $0.2 million
at the time of the sale.
The remainder of the Company's locations are leased facilities. Most of these
facilities serve as sales and support offices and their size varies, generally
in the range of approximately 250 to 25,000 square feet, with the number of
people employed at each office. The Company's lease terms vary from periods of
less than a year to five years and generally have flexible renewal options. The
Company believes that its present owned and leased facilities are adequate to
support its current and anticipated future needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, including litigation
arising in the normal course of business. In the opinion of management, an
adverse outcome to any of these proceedings will not have a material effect on
the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information relating to the market for, and market prices of, the Company's
Common Stock, the approximate number of Company shareholders, and the Company's
dividend history for, minimally, the past two years is included under the
caption "Stock Market Information" in the Company's Annual Report to
Shareholders for the year ended December 31, 2003, submitted herewith as an
exhibit, and incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
A five-year summary of certain financial information relating to the financial
condition and results of operations of the Company is included under the caption
"Consolidated Summary - Five-Year Selected Financial Information" in the
Company's Annual Report to Shareholders for the year ended December 31, 2003,
submitted herewith as an exhibit, and incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations is included in the Company's Annual Report to Shareholders for the
year ended December 31, 2003, under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations," submitted herewith
as an exhibit, and incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company does not have any off balance sheet market risk sensitive
instruments for which disclosure is required. Information about the Company's
long-term debt can be found in footnote No. 3 Debt in the footnotes to the
consolidated financial statements in the Company's Annual Report to Shareholders
for the year ended December 31, 2003, submitted herewith as an exhibit, and
incorporated herein by reference.
For the most part, prior to 2003, the Company had not been subject to material
effects from foreign currency exchange rate fluctuations. However, in 2003,
there was a significant strengthening of the currencies of the Netherlands,
Belgium, the United Kingdom, and Luxembourg, the countries in which the
Company's European subsidiaries operate. In the Netherlands, Belgium and
Luxembourg, the functional currency is the Euro, while in the United Kingdom,
the functional currency is the British pound. If there had been no change in
these foreign currency exchange rates from 2002 to 2003, European and total
consolidated revenues for 2003 would have been $8.1 million lower than recorded
in 2003. Accordingly, without these exchange gains in Europe, total European
revenue would have decreased $4.3 million or 11.8 percent from 2002, rather than
increased $3.8 million or 10.1 percent as reported. Additionally, if there had
been no change in the European foreign currency exchange rates from 2002 to
2003, the operating loss in Europe in 2003 would have been $0.5 million lower,
or $1.7 million, rather than the $2.2 million reported. The Company has
historically not used any market risk sensitive instruments to hedge its foreign
currency exchange risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and the required
Supplementary Data Information are included in the Company's Annual Report to
Shareholders for the year ended December 31, 2003, submitted herewith as an
exhibit, and incorporated herein by reference.
9
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required in response to this item is incorporated by reference
to the information under the caption "Change in Independent Public Accountants
and Fees" presented in the Company's definitive Proxy Statement filed or to be
filed under Regulation 14A and used in connection with the Company's 2004 Annual
Meeting of Shareholders to be held on May 5, 2004.
ITEM 9a. CONTROLS AND PROCEDURES
Based upon an evaluation completed as of the end of the period covered by this
annual 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 our resources and
nature of our 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.
II-1
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item is incorporated herein by
reference to the information set forth under "Election of Directors," "Section
16(a) Beneficial Ownership Reporting Compliance," "The Board of Directors and
Committees" in relation to the "Audit Committee" subsection, and "Corporate
Governance and Website Information" in the Company's definitive Proxy Statement
filed or to be filed under Regulation 14A and used in connection with the
Company's 2004 annual meeting of shareholders to be held on May 5, 2004, except
insofar as information with respect to executive officers is presented in Part
I, Item 1 hereof pursuant to General Instruction G(3) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated herein by
reference to the information under the caption "Executive Compensation and Other
Information" presented in the Company's definitive Proxy Statement filed or to
be filed under Regulation 14A and used in connection with the Company's 2004
annual meeting of shareholders to be held on May 5, 2004, excluding the
Compensation Committee Report on Executive Compensation and the Company's
Performance Graph.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required in response to this item is incorporated herein by
reference to the information under the caption "Security Ownership of the
Company's Common Shares by Certain Beneficial Owners and by Management"
presented in the Company's definitive Proxy Statement filed or to be filed under
Regulation 14A and used in connection with the Company's 2004 annual meeting of
shareholders to be held on May 5, 2004.
Equity Compensation Plan Information
Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available for
exercise of outstanding outstanding options, future issuance under
options, warrants warrants and equity compensation
and rights rights plans
----------------------- -------------------- -----------------------
Equity compensation plans
approved by security holders -
Equity Award Plan 1,995,250 $ 3.40 989,750
1991 Stock Option Plan 1,201,375 $14.13 --
Equity compensation plans not
approved by security holders -
None -- -- --
--------- ------ -------
Total 3,196,625 $ 7.43 989,750
========= ====== =======
At December 31, 2003, the Company does not have any outstanding rights or
warrants. All awards outstanding are options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated herein by
reference to the information under the caption "Certain Relationships and
Related Transactions" presented in the Company's definitive Proxy Statement
filed or to be filed under Regulation 14A and used in connection with the
Company's 2004 annual meeting of shareholders to be held on May 5, 2004.
11
III-1
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required in response to this item is incorporated herein by
reference to the information under the caption "Change in Independent Public
Accountants and Fees" presented in the Company's definitive Proxy Statement
filed or to be filed under Regulation 14A and used in connection with the
Company's 2004 annual meeting of shareholders to be held on May 5, 2004.
III-2
12
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Index to Financial Statements and Financial Statement Schedules
(1) The following Consolidated Financial Statements and related information
are incorporated by reference from the 2003 Annual Report to Shareholders,
submitted herewith as Exhibit 13:
2003 Form 10-K, Exhibit 13
---------------------------
Independent Auditors' Report's 42,43
Consolidated Statements of Operations 44
Consolidated Balance Sheets 45
Consolidated Statements of Cash Flows 46
Consolidated Statements of Changes in
Shareholders' Equity 47
Notes to Consolidated Financial Statements 48
(2) Index to Consolidated Financial Statement Schedules
2003 Form 10-KPage Reference
----------------------------
Independent Auditors' Report on
Financial Statement Schedule IV-2
Independent Auditors' Report on
Financial Statement Schedule IV-3
Financial statement schedule:
Valuation and Qualifying Accounts (Schedule II) IV-4
(B) Reports on Form 8-K or Form 8-K/A
During the quarter ended December 31, 2003, the Company filed Form 8-K or
Form 8-K/A reports on the following dates regarding the following matters:
October 1, 2003 - Press release entitled "CTG Announces 2003 Third Quarter
Conference Call Information"
October 13, 2003 - Press release entitled "CTG Reports 2003 Third Quarter
Financial Results"
October 14, 2003 - Transcript of the "CTG Analyst Conference Call - Third
Quarter 2003 Earnings"
December 23, 2003 - The Registrant announced that effective October 31,
2003, it has renewed its agreement with International Business Machines
Corporation ("IBM") for providing technical services, customer care
services and deskside support services (as described under the heading
"Management's Discussion and Analysis" in the Registrant's Form 10-Q
Report for the period ended September 26, 2003). IBM has the right to
extend the contract for up to three additional one year terms.
(C) Exhibits
The Exhibits to this Form 10-K Annual Report are listed on the attached
Exhibit Index appearing on pages E-1 to E-3.
(D) Other Financial Statement Schedules
None
IV-1
13
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Computer Task Group, Incorporated:
Under date of February 4, 2004, we reported on the consolidated balance sheet of
Computer Task Group, Incorporated and subsidiaries as of December 31, 2003, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for the year then ended, which are included in the annual
report to shareholders and incorporated by reference as an exhibit submitted
herewith. In connection with our audit of the aforementioned consolidated
financial statements, we also audited the related 2003 consolidated financial
statement schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule for 2003 based on
our audit.
In our opinion, such 2003 financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Buffalo, New York
February 4, 2004
IV-2
14
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Computer Task Group, Incorporated
Buffalo, New York
We have audited the consolidated financial statements of Computer Task Group,
Incorporated (the "Company") and subsidiaries as of December 31, 2002 and for
each of the two years in the period ended December 31, 2002, and have issued our
report thereon dated February 5, 2003, which report includes an explanatory
paragraph regarding an accounting change for goodwill; such financial statements
and report are included in your 2003 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the 2002 and 2001
consolidated financial statement schedule of Computer Task Group, Incorporated
and subsidiaries, listed in Item 15. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such 2002 and 2001
consolidated financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Buffalo, New York
February 5, 2003
IV-3
15
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Balance at Balance at
Description January 1 Additions Deductions December 31
- ----------- ---------- --------- ---------- -----------
2003
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 1,170 $ 516(A) $ (462)(A) $ 1,224
Reserve for Projects $ 400 $ 212 $ (525) $ 87
Deferred Tax Asset Valuation Allowance $ -- $ 4,043 $ -- $ 4,043
2002
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 2,366 $ 57(A) $ (1,253)(A) $ 1,170
Reserve for Projects $ 487 $ 50 $ (137) $ 400
2001
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 1,923 $ 543(A) $ (100)(A) $ 2,366
Reserve for Projects $ 531 $ -- $ (44) $ 487
(A) Reflects additions charged to costs and expenses, less deductions for
accounts written off or collected, and translation adjustments.
IV-4
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ James R. Boldt
-----------------------
James R. Boldt,
Chairman, President and Chief Executive Officer
Dated: March 12, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
(i) Principal Executive Officer: Chairman, President
and Chief Executive Officer March 12, 2004
/s/ James R. Boldt
----------------------------
(James R. Boldt)
(ii) Principal Accounting and Senior Vice President and March 12, 2004
Financial Officer Chief Financial Officer
/s/ Gregory M. Dearlove
----------------------------
(Gregory M. Dearlove)
(iii) Directors
/s/ George B. Beitzel Director March 12, 2004
----------------------------
(George B. Beitzel)
/s/ James R. Boldt Director March 12, 2004
----------------------------
(James R. Boldt)
/s/ Randall L. Clark Director March 12, 2004
----------------------------
(Randall L. Clark)
/s/ Randolph A. Marks Director March 12, 2004
----------------------------
(Randolph A. Marks)
/s/ John M. Palms Director March 12, 2004
----------------------------
(John M. Palms)
/s/ Daniel J. Sullivan Director March 12, 2004
----------------------------
(Daniel J. Sullivan)
17
EXHIBIT INDEX
Page Number
Exhibit Description or (Reference)
- ------- ----------- --------------
2. Plan of acquisition, reorganization, arrangement, *
liquidation or succession.
3. (a) Restated Certificate of Incorporation of Registrant. (1)
(b) Restated By-laws of Registrant. (2)
4. (a) Specimen Common Stock Certificate. (2)
(b) Rights Agreement dated as of January 15, 1989, and (1)
amendment dated June 28, 1989, between Registrant
and The First National Bank of Boston, as Rights Agent.
(c) Form of Rights Certificate. (2)
9. Voting Trust Agreement. *
10. (a) Non-Compete Agreement, dated as of March 1, 1984, (2)
between Registrant and Randolph A. Marks.
(b) Stock Employee Compensation Trust Agreement, dated (2)
May 3, 1994, between Registrant and Thomas R. Beecher,
Jr., as trustee.
(c) Demand Grid Note, dated October 29, 1997, between Registrant (2)
and Computer Task Group, Incorporated Stock Employee
Compensation Trust.
(d) Pledge Agreement, between the Registrant and Thomas R. (2)
Beecher, Jr., as Trustee of the Computer Task Group, Incorporated
Stock Employee Compensation Trust.
(e) Stock Purchase Agreement, dated as of February 25, 1981, (3)
between Registrant and Randolph A. Marks.
- ----------
* None or requirement not applicable.
(1) Filed as an Exhibit to the Registrant's Form 8-A/A filed on January
13, 1999, and incorporated herein by reference.
(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2000, and incorporated herein by
reference.
(3) Filed as an Exhibit to the Registrant's Registration Statement No. 2
- 71086 on Form S-7 filed on February 27, 1981, and incorporated
herein by reference.
E-1
18
EXHIBIT INDEX (Continued)
Page number
Exhibit Description or (Reference)
- ------- ----------- --------------
10. (f) Description of Disability Insurance and Health (4)
Arrangements for Executive Officers.
(g) 2003 Key Employee Compensation Plans. (5)
(h) Computer Task Group, Incorporated Non-Qualified Key Employee (2)
Deferred Compensation Plan
(i) 1991 Restricted Stock Plan (6)
(j) Computer Task Group, Incorporated 2000 Equity Award Plan (7)
(k) Executive Supplemental Benefit Plan 1997 Restatement (6)
(l) First Amendment to the Computer Task Group, Incorporated
Executive Supplemental Benefit Plan 1997 Restatement (6)
(m) Executive Compensation Plans and Arrangements. 21
(n) Change in Control Agreement, dated July 16, 2001, between (6)
the Registrant and James R. Boldt
(o) Employment Agreement, dated July 16, 2001, between the
Registrant and James R. Boldt (6)
(p) First Employee Stock Purchase Plan (Eighth Amendment and
Restatement) (8)
- ----------
(4) Filed as an Exhibit to Amendment No. 1 to Registration Statement No.
2-71086 on Form S-7 filed on March 24, 1981, and incorporated herein
by reference.
(5) Included in the Registrant's definitive Proxy Statement dated April
2004 under the caption entitled "Annual Cash Incentive
Compensation," and incorporated herein by reference.
(6) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001, and incorporated herein by
reference.
(7) Included in the Registrant's definitive Proxy Statement dated April
2004 as Exhibit A, and incorporated herein by reference.
(8) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2002, and incorporated herein by
reference
E-2
19
EXHIBIT INDEX (Continued)
Page number
Exhibit Description or (Reference)
- ------- ----------- --------------
11. Statement re: computation of per share earnings 22
12. Statement re: computation of ratios *
13. Annual Report to Shareholders 23
16. Letter re: change in certifying accountant. *
18. Letter re: change in accounting principles. *
21. Subsidiaries of the Registrant. 70
22. Published report regarding matters submitted to a vote *
of security holders.
23.(a) Consent of experts and counsel. 71
23.(b) Consent of experts and counsel. 72
24. Power of Attorney. *
31.(a) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 73
31.(b) Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 74
32. Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 75
E-3
20