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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, 1998
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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
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(Exact name of Registrant as specified in its charter)
State of New York 16-0912632
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(State of incorporation) (I.R.S. Employer Identification No.)
800 Delaware Avenue, Buffalo, New York 14209
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 882-8000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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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
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(Title of class)
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. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at March 17, 1999 was $298,409,157. 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 with respect to
the Registrant's stock have deemed to be affiliates.
The total number of shares of Common Stock of the Registrant outstanding at
March 17, 1999 was 20,876,063.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in the
following parts of this report: Parts I, II and IV - the Registrant's 1998
Annual Report to Shareholders; Parts II and 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 April 28, 1999.
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PART I
FORWARD-LOOKING STATEMENTS
Statements included in this document, or incorporated herein 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
which 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.
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 provides information technology (IT) services. CTG employs
approximately 6,000 people worldwide and serves customers through an
international network of offices in North America and Europe. The Company has
six operating subsidiaries: CTG Services, Inc., providing services primarily in
North America; Computer Task Group of Canada, Inc.; Computer Task Group (U.K.)
Ltd.; Computer Task Group Nederland B.V.; Computer Task Group Luxembourg S.A.;
and Computer Task Group Belgium N.V.
BACKGROUND
The Company operates in one industry segment, providing IT services. A
typical customer is an organization with large, complex information and data
processing requirements. CTG's customer base is large and diverse, consisting of
approximately 430 customers in North America and Europe at the 1998 year-end.
Approximately 84.3 percent of consolidated 1998 revenue of $467.8 million was
generated in North America, and 15.7 percent in Europe.
CTG works with customers to develop effective business solutions
through information systems and technology. The Company's professional staff may
support a customer's software development team on a specific application or
project, or may manage the project entirely for the customer. The Company's
range of services extends from managing multi-million dollar technology projects
to flexible staffing engagements provided on a per diem basis. Most of CTG's
services are provided on-site at the customer's facilities. CTG's network of
offices throughout the United States, in Canada, and in four countries in
Europe, provides wide geographical coverage with the capability of servicing
large companies with multiple locations. Additionally, the services provided by
the Company are consistent worldwide.
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CTG's strategy is to focus its efforts and talents on building business
relationships with specific clients. From our clients and prospects, CTG
identifies Key Clients - those companies that present a significant opportunity
for a long-term, high value business relationship. As the business relationship
expands, our goal is to evolve those Key Client relationships into Strategic
Partners. Strategic Partners are companies with whom CTG accepts responsibility
for a defined deliverable, service level, or management process. These
relationships deliver the highest value to our clients, and they, in turn,
represent our strongest client relationships.
CTG's services are sold and delivered on a local level through its
network of geographically dispersed delivery teams made up of account
executives, business consultants, recruiters, and career developers. Account
executives monitor and develop the relationship with a client, while business
consultants focus on identifying engagements. Recruiters utilize an electronic
recruiting database to screen and qualify individuals who are available to work
on CTG's clients' information technology needs. The Company maintains a database
of qualified candidates available for assignments. Career developers focus on
the development, training, and performance of the Company's employees.
International Business Machines Corporation (IBM) is CTG's largest
customer. CTG provides services to various IBM divisions in approximately 50
locations. In January 1999, CTG renewed a contract with IBM for one year as one
of IBM's national technical service providers for the United States. The
contract represents 59 percent of the total services provided to IBM by CTG in
1998. IBM accounted for a total of $151.4 million or 32.4 percent of 1998
consolidated revenue; a total of $142.2 million or 34.9 percent of 1997
consolidated revenue; and a total of $107.4 million or 29.4 percent of CTG's
1996 consolidated revenue. The Company expects to continue to derive a
significant portion of its business from IBM in 1999 and future years, and to
actively pursue new business with IBM. While a significant decline in revenue
from IBM would have a material adverse impact on the Company's revenue and
profits, the Company believes the simultaneous loss of all IBM business is
unlikely to occur due to the recent renewal of the national contract, the number
of contracts presently in existence with IBM, the diversity of the projects
performed for IBM, and the number of locations and divisions involved.
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.
ACQUISITION
On February 23, 1999, subsequent to CTG's 1998 year-end, the Company completed
the acquisition of the stock of Elumen Solutions, Inc. (Elumen). The transaction
is valued at $89 million, of which $86 million was paid in cash or through the
assumption of debt, and the remainder was satisfied through the issuance of
approximately 128,000 shares of CTG common stock. The acquisition will be
accounted for as a purchase. CTG estimates that approximately $85 million of
goodwill and other identifiable intangibles, from the total cost of the
acquisition of $89 million, will arise from the transaction.
Elumen was the largest privately held consulting firm specializing in
information technology services for health care organizations, generating
revenues of approximately $36 million for the year ended December 31, 1998. The
combination of Elumen and CTG's existing health care practice, if combined in
1998, would have accounted for approximately $44 million of total revenues in
1998, and comprised over 300 health care information technology consultants.
The market for health care IT services was estimated at $3.4 billion annually in
1997. Several of the factors driving growth in excess of 20 percent annually
(source: Piper Jaffray, 1997 and Dorenfest and Associates, 1997) in this sector
include the creation of large integrated health care delivery systems, the
consolidation of health care providers and systems, the impact of managed care,
and the need to invest in information technology to improve patient care and
achieve cost and operating efficiencies. The acquisition of Elumen by CTG is
intended to capitalize on these impressive growth rates which are greater than
the growth rates for the IT services industry as a whole. Additionally, as
Elumen is one of the leading firms in the healthcare IT sector, its growth rate
exceeded the 20 percent mentioned above in 1998, and is expected to continue to
exceed this rate in 1999.
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SERVICES
CTG operates in one industry segment, providing IT services. Geographic
and corporate area information is included on page 6 of this Form 10-K, and in
CTG's 1998 Annual Report to Shareholders on page 32 and is incorporated herein
by reference.
Most companies follow a continuous process to create IT business
solutions. The IT business solution life cycle begins with planning, as
companies design strategies to meet overall business objectives by utilizing IT.
Planning is followed by development, in which companies develop and implement IT
solutions using their newly devised plans. Finally, these solutions must be
managed and maintained to ensure systems and technologies are supported to
preserve their effectiveness. CTG provides services in each of these three areas
as follows:
Business Consulting. Business consulting focuses on the planning phase
of the IT life cycle. CTG's consultants help a customer develop the plan to
reengineer its business processes, assess its technology needs, and choose the
appropriate technology solution.
Development & Integration. Development and integration supports the
implementation phase of the IT life cycle, including custom application
development and software package implementation.
Managed Support. Managed support addresses the maintenance segment of
the IT life cycle. It encompasses service offerings such as operations and
network support (running or maintaining a customer's systems), application
support (maintaining a company's programs and documentation), and installing and
maintaining a help desk.
SALES AND MARKETING
On a corporate, regional, and local level, management performs business
planning necessary to assess industry conditions, customer needs, and target
markets. The Company sells its services at a local and regional level,
consistent with its business planning process.
Customers are served by local teams, comprised of account executives,
business consultants, project managers, site managers, recruiters, and career
developers -- the first two focus on identifying an engagement, the next two
focus on delivery, and the latter two focus on recruiting and retaining
appropriate, high-quality professionals for the engagement. Recruiters are
backed by a national electronic database of professional computer consultants
and programmers.
Account executives are full-time employees who are paid based upon the
amount and profitability of the business they sell. Each account executive is
assigned a sales quota and is paid in relationship to this quota. Account
executives, and the other professionals serving our customers, continually seek
to identify new opportunities with existing and prospective customers. CTG
publishes brochures that explain its services, produces customer newsletters,
advertises in trade publications, and participates in trade shows.
CTG has been using the Internet for several years as a communications
tool. The Internet is a component of the Company's sales and marketing
communications strategy. The Company is continuously refining and building new
Internet functionality to provide current information to its customers,
investors, and prospective employees.
PRICING AND BACKLOG
The majority of CTG's IT professional services business is 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.
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The Company performs a portion of its business on a monthly fee basis,
as well as a 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 one percent of the Company's 1998 revenue, and two percent of the
Company's 1997 and 1996 revenue, respectively. Revenue from all fixed-price and
monthly-fee contracts represented 16 percent of revenue in 1998, 17 percent of
revenue in 1997, and 14 percent in 1996. As of December 31, 1998 and 1997, the
backlog for fixed-price and managed-support contracts was approximately $42
million and $73 million, respectively. Approximately 81 percent of the December
31, 1998 backlog of $42 million, or $34 million, is expected to be earned in
1999. Of the $73 million of backlog at December 31, 1997, approximately 79
percent, or $58 million was earned in 1998. 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,
does fluctuate based upon the timing of long-term contracts.
COMPETITION
The IT services market is highly competitive. The market is also highly
fragmented among many providers with no single competitor maintaining clear
market leadership. The Company's competition varies from city to city, by 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 for its
share of the market.
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. Many of CTG's offices are already ISO 9001 certified and others are
preparing for certification.
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.
MANAGEMENT AND PROFESSIONAL STAFF
As of December 31, 1998, CTG employed approximately 6,000 people.
Qualified systems engineers and professionals with computer-related
skills are in great demand and the Company faces considerable competition in
attracting and retaining such individuals. Additionally, the supply of such
individuals is limited. Management has developed a professional staff resources
database, CTG-Smartsource, which contains information on approximately 190,000
qualified IT professionals. This database provides a pipeline of quality
professional resources to assist management in providing customers with
responsive, dependable, and cost-effective service to fulfill the needs
required. The Company offers several employment options to enable it to attract
and retain professional staff. The Company pays its employees on either a
salaried or hourly basis and has a diverse and flexible benefits package.
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CTG's service agreements with its customers generally state that
neither party may hire the other's personnel for the term of the project and a
stated period thereafter. The Company's employees are required to sign
non-solicitation and non-disclosure agreements stating they will not accept
employment directly or indirectly with a customer or solicit or hire another
employee, for a specified period after termination of employment. The agreements
also provide that the employee will not use or disclose Company or client
confidential information. In addition, entry level staff who attend the
Company's systems training course and more experienced staff who complete new
technology training sign agreements to reimburse the Company for the cost of the
training if they voluntarily terminate their employment within a defined period
from the date the training program starts.
No employees are covered by a collective bargaining agreement or are
represented by a labor union. CTG is an equal opportunity employer.
TECHNICAL AND MANAGEMENT TRAINING
To ensure a steady supply of entry level IT professionals, the Company
operates a training facility in Buffalo, New York where college graduates, as
well as other individuals, are taught the skills required to become commercially
proficient. In addition, the Company also provides ongoing educational programs
so that its technical staff have the skills needed to respond to today's new
demands. Instructor-based classroom training and video and computer-based
training courses, are utilized.
CTG also offers its employees management and sales training. These
courses teach marketing and management practices and serve both as refresher
courses and as training vehicles to ensure that staff members have the skills
necessary to compete in the IT services industry. They also provide a forum for
imparting Company policies to ensure consistency in the quality of services
throughout the Company's organization.
CTG believes its training and continuing education programs keep its
technical staff current and provide the Company with the necessary management
and marketing personnel to support future growth. CTG invested approximately
$12.5 million, $8.4 million, and $5 million on education in 1998, 1997, and
1996, respectively, including compensation paid to technical staff while in
training.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
(amounts in thousands)
1998 1997 1996
---- ---- ----
Revenue from Unaffiliated Customers:
North America $ 394,609 $ 360,849 $ 325,328
Europe 73,229 46,739 39,748
----------- ----------- -----------
$ 467,838 $ 407,588 $ 365,076
=========== =========== ===========
Operating Income (Expense):
North America $ 46,427 $ 36,324 $ 29,460
Europe 8,243 3,663 3,265
Corporate and other (14,819) (11,031) (14,207)
------------ ------------ ------------
$ 39,851 $ 28,956 $ 18,518
=========== =========== ===========
Identifiable Assets:
North America $ 67,128 $ 57,519 $ 54,943
Europe 22,999 15,777 14,988
Corporate and Other 66,682 34,445 51,350
------------ ------------ ------------
$ 156,809 $ 107,741 $ 121,281
=========== =========== ===========
Corporate and other identifiable assets consists principally of cash and
temporary cash investments and other assets.
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EXECUTIVE OFFICERS OF THE COMPANY
- ---------------------------------
Period During Other Positions
Which Served as And Offices with
Name Age Office Executive Officer(1) Registrant
- ---- --- ------ -------------------- -------------------
Gale S. Fitzgerald 48 Chairman of the Board May 6, 1991 to date Director
and Chief Executive Officer
Jonathan R. Asher 53 Vice President December 16, 1996 to date None
James R. Boldt 47 Vice President and February 12, 1996 to date Treasurer,
Chief Financial Officer Secretary
Janice M. Cole 53 Vice President July 2, 1998 to date None
Nico H. Molenaar 43 Vice President January 1, 1996 to date None
John F. Moore 43 Vice President July 2, 1998 to date None
(1) BUSINESS EXPERIENCE
Ms. Fitzgerald was appointed Chairman of the Board and chief executive
officer as of October 3, 1994 and president and chief operating officer as of
July 1, 1993. She joined the Company in May 1991 as senior vice president
responsible for the Company's Northeastern U.S. and Canadian operations. She was
previously vice president, Professional Services at International Business
Machines Corporation (IBM), where she had worked for 18 years in various
management positions.
Mr. Asher joined the Company as a vice president in December 1996. He
was previously director of information technology services with IBM from 1993 to
1996. Mr. Asher has over 20 years of experience, and is currently responsible
for CTG's Managed Services operations in North America.
Mr. Boldt joined the Company as a vice president in February 1996. He
was previously vice president of finance, secretary and chief financial officer
of Pratt and Lambert United, Inc., where he worked for 20 years in a variety of
management positions. He is currently responsible for the Company's support
services operation, including the finance, accounting and internal audit
functions.
Ms. Cole joined the Company in April 1980, and was promoted to Vice
President, Career Development in July 1998. Prior to her promotion, Ms. Cole was
a Director of Training Services.
Mr. Molenaar was promoted to vice president in January 1996 and has
been employed by the Company since 1985. He has held a variety of management
positions and is presently responsible for the Company's European operations.
Mr. Moore joined the Company in November 1984, and was promoted to Vice
President in July 1998 and is responsible for CTG's North American Strategic
Staffing business. Prior to his promotion, Mr. Moore was a Director of Business
Development with CTG's IBM National Team.
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ITEM 2. PROPERTIES
The Company occupies a headquarters building at 800 Delaware Avenue,
and an office building at 700 Delaware Avenue, both located in Buffalo, New
York. Corporate headquarters consists of approximately 40,000 square feet and is
occupied by the corporate administrative operations. The office building
consists of approximately 39,000 square feet and is also occupied by corporate
administrative operations. There are no mortgages on either of these buildings.
The Company also owns a 37,000 square foot building in Melbourne,
Florida with a net book value of $2.0 million which it has leased to a third
party under a five-year lease. This lease expires in 2000.
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 1,000 to 16,000 square feet, with the number of people
employed at each office. The Company's lease terms generally 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 litigation arising in the normal course of
business. In the opinion of management, an adverse outcome to any of this
litigation would not have a material effect on the financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER 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 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, 1998, 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,
1998, 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, 1998, under the heading "Management's Discussion and
Analysis of Results of Operations and Financial Condition," submitted herewith
as an exhibit, and incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSE ABOUT MARKET RISK
The Company does not have any on or off balance sheet market risk
sensitive instruments for which disclosure is required, and historically the
Company has not been subject to material effects from foreign currency exchange
rate fluctuations.
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, 1998, submitted herewith as an
exhibit, and incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information in response to this item is incorporated by reference
to the information under the caption "Change in Independent Accountants from
Prior Periods" presented in the Company's definitive Proxy Statement filed or to
be filed under Regulation 14A and used in connection with the Company's 1999
Annual Meeting of Shareholders to be held on April 29, 1999.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in response to this item is incorporated herein by
reference to the information set forth on pages 2 and 5 in the Company's
definitive Proxy Statement filed or to be filed under Regulation 14A and used in
connection with the Company's 1999 annual meeting of shareholders to be held on
April 28, 1999, 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 in response to this item is incorporated herein by
reference to the information under the caption "Information about 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 1999 annual meeting of
shareholders to be held on April 28, 1999, excluding the Compensation Committee
Report on Executive Compensation and the Company's Performance Graph.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information 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 1999 annual meeting of
shareholders to be held on April 28, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in response to this item is incorporated herein by
reference to the information under the captions "Indebtedness of Management" and
"Compensation Committee Interlocks and Insider Participation" presented in the
Company's definitive Proxy Statement filed or to be filed under Regulation 14A
and used in connection with the Company's 1999 annual meeting of shareholders to
be held on April 28, 1999, excluding the Compensation Committee Report on
Executive Compensation and the Company's Performance Graph.
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PART IV
ITEM 14. 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 1998 Annual Report to
Shareholders:
1998 Annual Report
Page Reference
--------------
Consolidated Statements of Income 19
Consolidated Balance Sheets 20
Consolidated Statements of Cash Flows 21
Consolidated Statements of Changes in
Shareholders' Equity 22
Notes to Consolidated Financial Statements 24
Independent Auditors' Report 34
(2) Index to Consolidated Financial Statement Schedules
1998 Form 10-K
Page Reference
--------------
Report of Independent Auditors IV-2
Report of Independent Auditors on
Financial Statement Schedule IV-3
Report of Independent Auditors on
Financial Statement Schedule IV-4
Financial statement schedule:
Valuation and Qualifying Accounts
(Schedule VIII) IV-5
(B) REPORTS ON FORM 8-K
None.
(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.
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REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Computer Task Group, Incorporated:
We have audited the consolidated balance sheet of Computer Task Group,
Incorporated and subsidiaries, and the related consolidated statements of
income, changes in shareholders' equity, and cash flows as of and for each of
the years in the two year period ended December 31, 1997 (appearing on pages 19
through 32 of the Computer Task Group, Incorporated Annual Report to
Shareholders referenced in this Form 10-K Annual Report). These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computer Task Group,
Incorporated and subsidiaries, and the results of their operations and their
cash flows as of and for each of the years in the two year period ended December
31, 1997, in conformity with generally accepted accounting principles.
KPMG LLP
February 4, 1998
Rochester, New York
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REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
Board of Directors and Shareholders
Computer Task Group, Incorporated
Buffalo, New York
We have audited the consolidated financial statements of Computer Task Group,
Incorporated and subsidiaries as of December 31, 1998 and for the year then
ended, and have issued our report thereon dated February 5, 1999 (February 23,
1999 as to Note 2). Such financial statements and report are included in your
1998 Annual Report to Shareholders and are incorporated herein by reference. Our
audit also included the consolidated financial statement schedule of Computer
Task Group, Incorporated and subsidiaries, listed in Item 14. This consolidated
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion based on our audit. In our opinion,
such 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 & TOUCH LLP
Buffalo, New York
February 5, 1999
(February 23, 1999 as to Note 2)
IV-3
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REPORT OF INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of
Computer Task Group, Incorporated:
Under date of February 4, 1998, we reported on the consolidated balance sheet of
Computer Task Group, Incorporated and subsidiaries, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows as of and
for each of the years in the two year period ended December 31, 1997, as
contained in the 1998 Annual Report on Form 10-K. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule insofar as it relates to the
years ended December 31, 1997 and 1996, as listed in Item 14(A) of this Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule insofar as it relates to the years ended December 31, 1997
and 1996 based on our audits.
In our opinion, such financial statement schedule, insofar as it relates to the
years ended December 31, 1997 and 1996 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.
KPMG LLP
February 4, 1998
Rochester, New York
IV-4
14
15
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Balance at Net Balance at
Description January 1 Change December 31
- ----------- ---------- ------ -----------
1998
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 951 $ 154 (A) $ 1,105
Reserve for projects $ 1,000 $ - $ 1,000
Net Deferred Tax Assets Valuation Allowance $ 927 $ (927) (B) $ 0
1997
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 975 $ (24) (A) $ 951
Reserve for projects $ - $ 1,000 (C) $ 1,000
Net Deferred Tax Assets Valuation Allowance $ 495 $ 432 (D) $ 927
1996
ACCOUNTS DEDUCTED FROM ASSETS
Allowance for Doubtful Accounts $ 862 $ 113 (A) $ 975
Net Deferred Tax Assets Valuation Allowance $ 962 $ (467) (B) $ 495
(A) Reflects additions charged to costs and expenses less accounts written
off and translation adjustments.
(B) Reflects utilization of foreign net operating losses that were
previously offset completely by the valuation allowance.
(C) Reflects additions charged to costs and expenses.
(D) Reflects a provision for additional foreign net operating losses for
which no benefit was anticipated.
IV-5
15
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/ Gale S. Fitzgerald
-----------------------------------------
Gale S. Fitzgerald, Chairman of the
Board and chief executive officer
Dated: March 29, 1999
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 of the March 29, 1999
Board and Chief
/s/ Gale S. Fitzgerald Executive Officer
-------------------------------
(Gale S. Fitzgerald)
(ii) Principal Accounting and Vice President, March 29, 1999
Financial Officer Chief Financial
Officer
/s/ James R. Boldt
--------------------------------
(James R. Boldt)
(iii) Directors
/s/ George B. Beitzel Director March 29, 1999
--------------------------------
(George B. Beitzel)
/s/ Richard L. Crandall Director March 29, 1999
--------------------------------
(Richard L. Crandall)
/s/ R. Keith Elliott Director March 29, 1999
--------------------------------
(R. Keith Elliott)
/s/ Gale S. Fitzgerald Director March 29, 1999
--------------------------------
(Gale S. Fitzgerald)
/s/ Randolph A. Marks Director March 29, 1999
--------------------------------
(Randolph A. Marks)
/s/ Barbara Z. Shattuck Director March 29, 1999
--------------------------------
(Barbara Z. Shattuck)
16
17
EXHIBIT INDEX
-------------
Page or
Exhibit Description (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. 20
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) Promissory Notes, dated May 3, 1994, and December 7, 1994, (2)
between Registrant and Thomas R. Beecher, Jr., as Trustee of
the Computer Task Group, Incorporated Stock Employee
Compensation Trust
(d) Severance Compensation Agreement dated October 31, 1994, between (2)
Registrant and Gale S. Fitzgerald.
(e) Stock Purchase Agreement, dated as of February 25, (3)
1981, 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, 1994 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
17
18
EXHIBIT INDEX (Continued)
-------------
Page or
Exhibit Description (Reference)
- ------- ----------- -----------
10. (f) Description of Disability Insurance and Health (4)
Arrangements for Executive Officers.
(g) Nondisclosure and Nonsolicitation Agreement, dated (5)
July 1, 1993, between Registrant and Gale S. Fitzgerald.
(h) 1998 Key Employee Compensation Plans. (6)
(i) Management Stock Purchase Plan. (7)
(j) CTG Non-Qualified Key Employee Deferred Compensation Plan (8)
(k) 1991 Employee Stock Option Plan, as Amended (9)
(l) 1991 Restricted Stock Plan (9)
(m) Executive Supplemental Benefit Plan 1997 Restatement (10)
(n) Executive Compensation Plans and Arrangements. 37
- -----------------------------------------------------------------------------------------------------------------
(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) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993, and incorporated herein by reference.
(6) Included in the Registrant's definitive Proxy Statement dated April 1, 1999 on page 7 under
the caption entitled "Annual Cash Incentive Compensation," and incorporated herein by reference.
(7) Filed as an Appendix to the Registrant's definitive Proxy Statement dated March 27, 1992, 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, 1995, and incorporated herein by reference.
(9) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
(10) Filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 28, 1997, and incorporated herein by reference.
E-2
18
19
EXHIBIT INDEX (Continued)
-------------
Page or
Exhibit Description (Reference)
- ------- ----------- -----------
11. Statement re: computation of per share earnings 39
12. Statement re: computation of ratios *
13. Annual Report to Shareholders 41
16. Letter re: change in certifying accountant. (11)
18. Letter re: change in accounting principles. *
21. Subsidiaries of the Registrant. 80
22. Published report regarding matters submitted to a vote *
of security holders.
23. (a) Consent of experts and counsel. 81
(b) Consent of experts and counsel. 82
24. Power of Attorney. *
27. (a) Financial Data Schedules - 1998. 83
(b) Financial Data Schedules - 1997. 84
99. Additional exhibits. *
- -------------------------------------------------------------------------------
(11) Filed as an Exhibit to the Registrants Current Report on
Form 8-K as of July 7, 1998, and incorporated herein by
reference.
E-3
19