Health IT
2 0 1 2 A N N U A L
R E
P O R T
IT Solutions
Higher Growth Markets
Profit Margins
G R O W I N G I N A L L T H E R I G H T P L A C E S
Revenue
(in millions)
$331.4
$424.4
$396.3
Operating Margin
5.8%
Net Income Per
Diluted Share
$0.96
4.9%
4.2%
$0.88*
$0.71
$0.52
2010
2011
2012
2010
2011
2012
2010
2011
2012
* Excluding non-operational insurance proceeds of 71/2 cents per diluted share
Mission
Financial Highlights
CTG’s mission is to provide IT
services and solutions that
add real business value to
our customers while creating
professional opportunities for
our employees and value for
our shareholders.
Vision
CTG’s vision is to be recognized
as a leading provider of value-
added IT services and solutions
(amounts in millions, except per-share data)
2012
2011
2010
Operating Data
Revenue
Operating income
Net income
Diluted net income per share
Financial Position
Total assets
Long-term debt
Shareholders’ equity
Company Profile
$424.4
$396.3
24.5
16.2
0.96
$166.2
–
102.8
19.3
11.9
0.71
$147.5
–
88.8
$331.4
13.9
8.4
0.52
$130.3
–
77.9
CTG develops innovative IT solutions to address the business needs and challenges
in our selected markets.
of companies in several higher-growth industries including healthcare, energy, financial
services, and technology services. As a leading provider of IT and business consulting
solutions to the healthcare market, CTG offers hospitals, physician groups, and health
information exchanges a full range of electronic medical record services. Additionally,
CTG has developed for the healthcare provider and payer markets unique, proprietary
software solutions that support better and lower cost healthcare. CTG also provides
managed services IT staffing for major technology companies and large corporations.
Backed by over 45 years’ experience, proprietary methodologies, and an ISO 9001-
certified management system, CTG has a proven track record of delivering high-value,
industry-specific solutions. CTG operates in North America and Western Europe and
had approximately 3,900 employees at December 31, 2012.
Table of Contents
Letter to Shareholders
Electronic Medical and Health Records
1
4
Application Management Outsourcing 5
Advisory Services
Analytics Solutions
IT Services and Solutions
SEC Form 10-K
6
7
8
9
Corporate Information/
Board of Directors and Officers
IBC
D E A R F E L L O W S H A R E H O L D E R S
Last year was another excellent one for CTG and its shareholders highlighted
by signifi cant growth in the company’s profi tability and value. Net income per
diluted share for 2012 was $0.96 which includes non-operational insurance gains
of 7 1/2 cents. Excluding these gains, net income per diluted share increased by
24% to $0.88 on 7% revenue growth. Revenue from our healthcare business
increased 18% in 2012 to 33% of total revenue.
The operating margin increased 90 basis points in 2012 to 5.8% refl ecting our success in growing
CTG’s health IT (information technology) business which is our primary strategic focus. CTG
fi nished 2012 with no debt and has not had any debt at year-end since 2005. In fact, all CTG’s
major fi nancial metrics for 2012 were their best in well over a decade. Indicative of CTG’s strong
business and fi nancial results in 2012, our share price closed the year at $18.23, representing a
total annual return for our shareholders of 29.5% for last year.
Health IT Driving Revenue and Earnings Growth
Our healthcare business, which is primarily made up of more profi table IT solutions projects,
again achieved robust double-digit year-over-year revenue growth and was the primary driver of
CTG’s signifi cant increase in profi tability. Revenue growth from our healthcare business is coming
from multiple sources with the largest one again being electronic medical and health records
(EMR/EHR) projects which made up about half of healthcare revenue in 2012. The remainder
of this year’s growth in our healthcare business came from both the provider and payer markets
and included non-EMR/EHR system implementations, application management, systems and
operations consulting, and medical informatics products.
Going into 2013, while much has already been spent on EMR/EHRs, the opportunity for
signifi cant additional work in the EMR/EHR space is far from over. Many hospital systems have not
yet started their EMR/EHR projects and need to do so to avoid the upcoming penalties. In addition,
healthcare providers are investing billions of dollars in EMR/EHRs with the goal of better care at a
lower cost. To realize the full benefi ts of EMR/EHR systems and meet the next levels of Meaningful
Use requirements, providers need to redesign workfl ows and provide strong technical support to
ensure clinician adoption while also expanding interoperability so that health information is easily
exchanged across different healthcare providers. We are confi dent that we can leverage CTG’s
signifi cant experience and expertise in EMR/EHR implementation, clinical transformation, and health
information exchange to win work with existing and new clients that supports these optimization
initiatives. Another opportunity with potential in the EMR/EHR space is an expected increase in
mergers of health providers as larger hospitals and physician practices acquire smaller ones that
lack the fi nancial resources to make large investments in EMR/EHR systems, thus creating the need
for technical support to integrate disparate systems. And of course, health information exchange
between different organizations has to be built and expanded for the U.S. to achieve signifi cant
savings from the implementation of EMR/EHRs.
Several additional areas are emerging in our healthcare business as sizable near-term growth
opportunities including full outsourcing by health organizations of applications, ICD-10 support,
and data analytics products. To save costs and focus on new EMR/EHR systems, health organizations
are beginning to outsource management of applications that are not being retired. Given CTG’s
experience and reputation in application management outsourcing, we expect to signifi cantly grow
this business over the next few years.
In 2012, the federal government extended the deadline for conversion from ICD-9 to ICD-10,
the new U.S. standard for diagnostic codes and healthcare billing codes, by a year to October 1,
2014. With the new deadline in place, U.S. providers and payers will be focused this year on
preparing for the change to the ICD-10 standard and demand for ICD-10 conversion support
should accelerate later in 2013.
111
2 0 1 2 H I G H L I G H T S
• Net income per diluted share
excluding insurance proceeds
increased 24% on 7% revenue growth
• Operating margin expanded 90
basis points to 5.8%
• Higher margin solutions business
increased 18% to 41% of total revenue
• Healthcare revenue grew 18% to 33%
of revenue making it the largest
industry contributor to total revenue
• Strong balance sheet with $41 million
in cash and no debt at year-end 2012
• Repurchased 2% of average diluted
shares outstanding
• 2012 year-end share price 29.5%
higher than 2011 year-end
Sales and client interest are growing for our proprietary data analytics products that use
powerful business intelligence on large data sets to evaluate medical treatments and claims
with the goal of achieving better patient outcomes and reducing costs. We are in the process of
expanding the application of our medical treatment analysis software validated for chronic kidney
disease (CKD) to a large regional medical center and dialysis facility to implement more effective
CKD treatment protocols and track results over a larger population. We are also actively engaged
in developing additional applications for this software to cover several of the most complex and
costly diseases and drug treatments. Expanding the scope of this tool will signifi cantly enhance its
value proposition for large healthcare providers.
In 2012, we also completed implementation of our claims management system for a
regional health insurer with very favorable results. This software analyzes medical claims for billing
and payment errors in multiple areas of interest including fraud, waste and abuse (FWA) and
identifi es actionable items that will result in immediate recoveries and future savings from policy
changes and stronger enforcement of treatment and billing guidelines.
Recognition of our success in growing the company’s health IT business enhances CTG’s
reputation as an established and well known industry leader, a competitive advantage in securing
new work and recruiting experienced health IT consultants. In 2012, CTG was named for the fi fth
consecutive year to the HCI 100, the Healthcare Informatics list of the top 100 healthcare IT
fi rms, and to the Modern Healthcare list of the Largest Healthcare Management Consulting Firms.
Most notably, we were ranked tenth of the 80 companies on the 2012 Modern Healthcare list
which is limited solely to healthcare consulting fi rms.
Annual Solutions Revenue Crosses 40% Mark
The growth in 2012 of our healthcare business, which is primarily solutions work, resulted in
an 18% increase in solutions revenue to 41% of revenue for the year, up from 37% in 2011.
Solutions revenue exceeded 40% of total revenue in the last fi ve quarters and has nearly doubled
since 2009. In 2012, staffi ng revenue was 1% above last year and 59% of total revenue.
In 2012, 84% of revenue was generated by our North America operations and 16% by our
European operations compared with 83% and 17%, respectively in 2011. On a same currency
basis, European revenue increased by 10% compared with 2011, a very favorable result given the
fi nancial crisis in Europe. Most of our European business is concentrated in Belgium where we are
a leading provider of software testing services and are doing an increasing volume of work for the
European Union which is headquartered in Brussels. Based on the strength of our business in these
two areas and the likelihood of EMR/EHR systems being implemented in Western Europe, we feel
confi dent in the stability and growth potential of our business there.
An emerging area of opportunity in Western Europe is in the healthcare market as several
countries there are moving toward adopting U.S. EMR/EHR systems and some of the major
healthcare software companies have recently set up European operations. These developments
were a catalyst for CTG’s February 2013 acquisition of etrinity, a Belgium-based provider of
healthcare IT services currently operating in Belgium and the Netherlands. Based on this strategic
acquisition, CTG’s signifi cant EMR and healthcare IT experience, and the fact that we are already
a large provider of IT services in the Benelux region and the United Kingdom, we are very well
positioned to capitalize on healthcare IT opportunities in Western Europe. The impressive growth
of our healthcare IT business over the last decade has come entirely from internal growth and
we now plan to expand our strategy to include additional acquisitions of similar smaller, niche
healthcare IT fi rms in the U.S. and Europe.
While total revenue growth slowed in 2012, it was primarily due to the expected decline
in market demand in our lower margin IT staffi ng business. Demand from staffi ng clients in
2012 was affected by concerns about adding technical resources given the tepid U.S. economic
recovery and turmoil in global fi nancial markets. To maximize the profi tability of our staffi ng
business, we continue to focus on large high volume clients and a managed staffi ng services
model which has signifi cantly higher margins than traditional staffi ng and provides clients with a
higher level of service.
Board of Directors Initiates Quarterly Dividend
Refl ecting CTG’s strong balance sheet and our optimism in the company’s growth prospects, the
board of directors recently initiated a quarterly cash dividend of $0.05, equivalent to an annual
dividend of $0.20 per share. CTG joins the ranks of other high performing technology companies
that are able to further enhance shareholder value by paying a dividend. Based on CTG’s record
of earnings growth over several years, signifi cant cash fl ows, and favorable future visibility, the
board is confi dent in our ability to fund further investments in our business, continued share
repurchases, and a regular dividend.
With healthcare contributing
one-third of total 2012 revenue,
its highest level ever, we are
making excellent progress in CTG’s
transformation to a technology
services and solutions provider with
a primary focus on health IT.
2012 Revenue Mix
By Market
24%
33%
6%
6%
31%
Healthcare (fastest growing market)
Technology Services
Financial Services
Energy
General Markets
2
We are confident CTG will continue
to outperform our competitors
in the IT services and solutions
market based on the strength of
our health IT business and the
multiple growth opportunities
the healthcare market offers.
In September 2012, CTG’s board of directors named David Klein, a nationally known, highly
respected health insurance industry executive as a director of the company. David served for the
last decade as the chief executive officer of Lifetime Healthcare Companies, an over $6 billion
enterprise that includes a major health insurance plan, multiple physician practices, a home care
agency, and a benefits administration firm. CTG is very fortunate to add a senior health payer
executive of David’s caliber and experience to our board as we continue to expand our business in
the health insurance market and as the health provider and payer markets increasingly converge.
The CTG family was deeply saddened by the passing on March 31, 2012 of Randy Marks,
the co-founder of CTG and a director since the company’s formation in 1966. Randy was a
driving force behind CTG for more than four decades, working tirelessly to build the company
from the ground up, leading it to great success, and helping to guide it throughout its entire
history. His business acumen, enthusiasm, and counsel are greatly missed by management and
the board of directors.
Growing in All the Right Places
CTG has consistently outperformed our competitors in growth, financial performance, and
shareholder returns since we implemented our strategy in 2001 to focus our business on four
higher growth industries: healthcare, technology services, energy, and financial services with the
greatest emphasis on the healthcare market. In 2012, these industries contributed over 75% of
total revenue with the greatest contribution from healthcare, the fastest growing of this group.
CTG’s revenue growth rates have been well above our peers for several years. Over the last six
years, CTG’s diluted earnings per share grew at double-digit rates with the exception of 2009
when sales and earnings declined as a result of the global recession. CTG’s operating margin
has nearly tripled since 2007. CTG’s 2012 total return of almost 30% compares very favorably
to 10% for the Dow Jones U.S. Computer Services Index and 16% for the S&P 500. Over the
last three, five, and ten years, the compounded average annual return on CTG’s stock was 32%,
27%, and 18%, respectively.
Behind these outstanding results are the 3,900 people of CTG because at the end the day,
we are a people business supplying experience and expertise that helps our clients better address
business needs and challenges. Their knowledge, talent, and commitment are the foundation of
CTG’s great and continued success.
We are confident CTG will continue to outperform our competitors in the IT services and
solutions market based on the strength of our health IT business and the multiple growth
opportunities the healthcare market offers. Additionally, the sheer size of U.S. health expenditures
which currently make up 18% of the U.S. gross domestic product (source: Centers for Medicare
and Medicaid Services) further validates healthcare as the best industry to focus our growth
strategy. With health reform legislation upheld by the Supreme Court in 2012 and President
Obama’s re-election, U.S. government and healthcare industry spending for EMR/EHRs and health
reform initiatives should accelerate. The conversion from ICD-9 to ICD-10 is expected to cost the
industry billions. The cost of creating accountable care organizations designed to shift healthcare
from a fee-for-service model to a performance-based, risk-sharing model could top $100 billion.
With the pressure on revenue from new reimbursement models and the drive to lower healthcare
costs, health providers and payers will increasingly look to data analytics to more effectively
measure, track, and improve clinical outcomes and costs.
The common thread tying all of these opportunities together is the need for significant IT
support from people and organizations with a deep understanding of the healthcare industry
and the current and new technology that drives it. CTG certainly fits this need in a major way
with significant experience implementing large-scale EMR/EHR implementations, a track record
as a highly effective application management provider, and proprietary data analytics products
that have been proven to support better healthcare and lower costs. For these reasons, we
expect continued growth in our very profitable healthcare business in 2013. We remain very
upbeat about your company’s future prospects because we are growing in all the right places—
health IT, IT solutions, higher growth markets, and profit margins—to continue building CTG’s
earnings and value.
James R. Boldt
Chairman and Chief Executive Officer
3
E L E C T R O N I C M E D I C A L A N D H E A L T H R E C O R D S
As a full service, vendor-neutral consulting fi rm with experience and expertise
covering the complete healthcare life cycle, CTG is very well-qualifi ed to provide
clients end-to-end support for electronic medical/health records (EMR/EHR)
projects including assessment, selection, strategy, planning, implementation,
governance, and optimization. CTG is also widely recognized in the industry
as an EMR/EHR implementation partner that provides hands-on, cost-
effective support and as one of a small number of fi rms with the capability
and technical resources to support large scale EMR/EHR implementations.
EMR/EHR Implementation
Project Profi le
We also bring the broad perspective of working with large integrated delivery networks (IDNs),
community hospitals, and ambulatory and physician practice environments, as well as health
insurers and health information exchanges (HIEs). This diverse experience is an important
competitive differentiator as EMRs move toward more fully integrated EHR systems and HIEs
where records are securely shared electronically across an entire environment or community.
Refl ecting our success as an EMR/EHR solutions provider, CTG has led or supported many
major EMR/EHR projects in clinical and ambulatory environments over the last three years.
CTG is also an industry leader in installing Epic software, which is currently the most in-demand
EMR/EHR software package.
Project Highlights CTG is providing
critical subject matter expertise to
support the complex upgrade, migration,
and implementation initiative which is
currently in progress. Our project leadership
capability was further validated by the
client’s request that CTG provide an interim
Director of Clinical Applications during a
reorganization of its IT leadership team
to meet expanding and changing needs.
EMR/EHR Implementation
Project Profi le
Cerner Clinical and Financials
Upgrade and Migration
Client One of the nation’s largest
academic enterprise health systems
with over 500 full-time faculty members
and several nationally recognized
research institutes
CTG Role CTG is providing Cerner Clinical
Inpatient leadership and implementation
and migration support through a team
that includes a project director, Cerner
architects, multiple project managers and
Cerner and Lawson application experts.
Timeframe January 2010 – present
Project Scope CTG is responsible for the
development and management of the
Cerner project plan for the enterprise-wide
implementation and migration activities
of inpatient and ambulatory applications.
CTG is also supporting the Lawson IT
Implementation Team with design, build,
testing, and go-live support.
Epic Enterprise Electronic Health
Record Implementation
Client Midwest academic medical center
with two acute care hospitals, multiple
ambulatory facilities, nearly 5,000
employees, and over 1,000 physicians in
all major specialties and sub-specialties.
The organization serves patients regionally
in a four-state area.
CTG Role CTG is providing Epic
Enterprise Electronic Health Record (EHR)
Implementation leadership and a physician
advisor to facilitate a shared vision for
clinical and fi nancial integration of the
Epic implementation. CTG support roles
also included Epic Clinical Content
and Orders Project Manager, Clinical
Documentation Specialist, Meaningful
Use Advisor, as well as Epic application
experts to support application security,
build, testing, and training.
Timeframe August 2011 – present
Project Scope At the peak of the enterprise
implementation, CTG had 26 resources
supporting the Epic EHR initiative. CTG is
currently assisting in post-implementation
support, stabilization efforts, and optimization.
Project Highlights Successful system
go-lives for ambulatory sites (May 2012)
and inpatient hospitals (August 2012)
444
A P P L I C A T I O N M A N A G E M E N T O U T S O U R C I N G
The demand for IT support from external providers is rising as health
organizations are challenged by major EMR/EHR system implementations
and the need to concurrently address multiple, interdependent strategic
initiatives tied to health reform. A signifi cant shortage of experienced health IT
professionals is also adding to the diffi culty healthcare organizations are having
in fi nding qualifi ed resources to manage and complete large new projects while
keeping current operations running smoothly.
Application Management
Outsourcing Project Profi le
Client A large health insurer that
provides health benefi ts and services
to nearly 375,000 individuals in
multiple communities
CTG Role In addition to being the client’s
preferred technology partner, CTG provides
24/7/365 onsite Tier 2 production support
outsourcing services for the client’s legacy
applications—responding to urgent
production incidents during business and
non-business hours. Tasks range from
maintenance and enhancement efforts to
new development and support functions.
Timeframe March 2008 – present
Project Scope In a strategic business
decision, the client decided to outsource
its production support activities to allow
its own IT development resources to focus
on higher level project-related work and
on-time delivery of mission-critical work to
its clients. Business intelligence applications
and processes and all PC applications were
the fi rst tasks given to the CTG team.
Project Results The team transitioned
application support to CTG using
our Application Managed Services
methodology. CTG developed application
documentation, a services plan, an
operations manual, and new metrics to
provide the foundation for support and
assistance with knowledge transfer. As
part of the services being provided, CTG
brings continuous improvement to existing
processes being supported. The increased
effectiveness and effi ciencies CTG brought
to the assignment allowed the team to
support fi ve times the number of processes
with the same number of resources.
555
As most organizations are focusing their internal resources on high impact, strategic initiatives,
it is creating a signifi cant opportunity for CTG to provide transitional application management
support for production and legacy applications. An emerging opportunity for CTG in external
application management is that more of our provider and payer clients are considering long-term
outsourcing of applications which creates an annuity-like revenue stream.
With over 60 healthcare application management clients and support of applications from
200 healthcare software companies over the last 25 years, CTG is very well established as a
health industry leader in application management. Our successful track record is differentiated
by a best-practice approach that employs our proven Exemplar® methodologies and tools,
quantifi able service level agreements, and engagement oversight through our independent
quality management offi ce. Another competitive differentiator is our ability to provide a blended
onsite/offsite model which is more cost-effective for clients than traditional 100% onsite
approaches. We also offer 24/7/365 support through our Dallas-based National Solution Center.
A D V I S O R Y S E R V I C E S
Several factors are driving increased demand for health IT consulting
services. As more healthcare providers are looking beyond initial EMR/EHR
implementation, these organizations are recognizing the importance of fully
using and optimizing the extensive functionalities and capabilities of EMR/
EHR systems that represent multi-million dollar investments. The clock is also
ticking closer to two major health reform deadlines in 2014: Meaningful Use
Stage 2 and the conversion from ICD-9 diagnostic codes to ICD-10.
Revenue Cycle Optimization
Project Profi le
Client A private, nonprofi t hospital
physician group with over 300 multi-
specialty providers operating as part of
a leading academic medical center
CTG Role CTG performed a revenue cycle
assessment and provided remediation
and interim leadership services to enhance
productivity, improve performance,
increase revenue, and reduce costs.
Timeframe November 2010 – present
Project Scope Assessment and analysis
of all fi nancial, technical, and operational
areas that could impact fi nancial
performance to clearly identify areas for
improvement. Based on key stakeholder
interviews, revenue and expense trending,
and onsite observations of daily operations,
CTG’s in-depth review included fi nancial
performance analysis; capabilities of
every process, system, and application;
and revenue cycle workfl ow assessment.
To drive process improvements, CTG is
providing interim leadership to implement
the remediation roadmap we developed
from the assessment fi ndings.
Project Highlights CTG’s work resulted
in signifi cant revenue cycle benefi ts and
cost savings in multiple areas including
elimination of overtime, a record high
charge month, elimination of charges
backlog, development of effective tracking
tools and reconciliation process, improved
accounts receivable metrics and cash fl ow,
an optimized resource pool, and redefi ned
and managed productivity metrics.
66
Health reform is also moving reimbursement for care from a fee-for-service model to a
performance-based model, meaning that revenue cycle management will become critical to
fi nancial stability under new payment structures. This change will also bring major structural
changes in the healthcare delivery model coming under the umbrella of accountable care
organizations, patient-centered medical homes, and population health management.
To meet the growing needs of the market for consulting services in these areas, CTG’s
advisory services offer a comprehensive, integrated suite of solutions focused on EMR/EHR
and operational optimization, revenue cycle management, and health reform mandates. As
a recognized industry leader in EMR/EHR selection and implementation, CTG is especially well
qualifi ed to provide high value support for system optimization initiatives. CTG also provides
clients access to an exceptional advisory services team of seasoned healthcare IT executive
consultants with signifi cant experience and expertise in the clinical, fi nancial, operational, and
technical environments of provider and payer organizations. The C-suite experience of many
of our consultants in leading health organizations also enables us to provide interim leadership
to clients when the need arises. Overall, the strength and breadth of our offerings and the deep
cross-functional, end-to-end experience of our consulting team provides CTG with multiple
opportunities to expand our advisory services practice.
ICD-9 to ICD-10 Transition
Strategy Project Profi le
Client Major cancer research, diagnostic,
and treatment center with more than
26,000 patients and over 3,100 employees
CTG Role Developed an integrated
ICD-10 conversion assessment, strategy,
and plan covering enterprise-wide EMR
and IT infrastructure, process workfl ows ,
reporting and documentation requirements
and processes, training, and research,
data governance, and enterprise
information management
Timeframe March – August 2012
Project Scope Provided the client with a
complete ICD-10 preparedness assessment,
implementation plan, and approach
detailing how the transition from ICD-9 to
ICD-10 would affect people, processes, and
technology. The recommended approach
aligned with associated efforts to improve
clinical documentation, coded information,
and enterprise-wide data management,
along with related initiatives such as
meaningful use, research, and quality
outcome improvements.
Project Highlights Based on
our comprehensive fi ndings and
recommendations, CTG provided a
preparedness assessment and an
accelerated implementation roadmap for
the transition. Critical plan components
covered communication, EMR and clinical
documentation enhancements, role-based
training education, IT remediation, and a
budget model for the conversion.
A N A L Y T I C S S O L U T I O N S
Most health organizations are data rich and information poor. To help health
organizations realize the full value of their information assets, CTG’s customized
suite of advanced analytics tools and solutions are designed to improve medical
outcomes and lower costs through analysis of claims and treatment results.
CTG also offers data governance and business intelligence consulting services
to empower healthcare organizations to use their vast amounts of underutilized
data for process and clinical care improvements, more powerful performance
reporting, and better strategic and operational decision-making.
Medical Treatment Analytics
Project Profi le
Client A 450-member physician practice
whose members are faculty at a premier,
research-intensive public university
CTG Role As a major collaborator on
both grant preparation and project delivery,
CTG worked with the client to develop
a data analytics tool and approach that
would use patient medical records to
establish a more comprehensive, evidence-
based approach to chronic kidney disease
(CKD) management.
The cornerstone of CTG’s analytics solutions is its Accountable Care Management System
Timeframe 2012 – present
(ACMS), a groundbreaking patented medical informatics software solution that leverages the
information supplied by EMR/EHRs to identify best practices and optimal care management plans
for serious costly-to-treat diseases. ACMS is based on innovative multi-stage, multi-disease models
that use blood chemistries and other clinical data to calculate complexity scores indicative of the
severity of each patient’s medical condition. ACMS also evaluates providers, facilities, therapies,
and drugs throughout the continuum of care for patients with chronic disease to support better
and more cost-effective physician management of these illnesses.
In the last year, CTG began work on another major analytics initiative, collaborating with
Roswell Park Cancer Institute (RPCI), a national leader in cancer research and treatment, in the
formation of RPCI’s Center for Personalized Medicine. CTG is helping RPCI build the technical
architecture that will combine health data, medical informatics, and genomics science to identify
patients with a family history or markers to support cancer research and early and preventive
treatment of multiple cancers.
CTG’s analytics solution supporting the payer market is a proprietary claims management
solution that combines powerful customizable medical analytics software and consultants with
deep health payer expertise to identify meaningful medical cost reductions. This solution offers
multiple applications targeting specifi c areas of interest with a major focus on possible medical
fraud, waste, and abuse (FWA). After performing a comprehensive analysis of claims data and
trends over a multi-year timeframe, it provides actionable recommendations for immediate
recoveries and future medical cost reductions through policy changes and increased enforcement.
Project Scope The project’s objective
was to improve the coordination and
management of patient care—specifi cally
complex illnesses such as CKD—through
implementation of a patient-centered
medical home (PCMH) model supported
by the effective use of interoperable health
information technology.
Project Highlights CTG applied its data
analytics to identify signifi cant fi ndings
with statewide implications for reductions
in cost of care and improvement in clinical
services delivery. The study confi rmed that
a patient’s CKD is affected to a signifi cant
degree by variability of care at all levels, a
general lack of awareness about the state of
CKD care, and surprisingly inconsistent and
uncoordinated care across the healthcare
system. It further validated that CKD can be
understood and managed more effectively
using an integrated and interoperable
health information system. The fi ndings
are being implemented in the treatment
of CKD at the academic medical center
that the physician practice supports which
is also home to a major dialysis center.
77
I T S E R V I C E S
A N D S O L U T I O N S
CTG is a preferred supplier of vendor managed staffing services to a select
group of high volume clients, primarily major technology service providers
and large corporate users of external IT resources. Under this business model,
CTG provides a total customized staffing solution for managed services clients
that includes recruiting, hiring, deployment, administration, professional and
technical training, and ongoing management of technical resources. The
managed staffing services business model generates significantly higher
margins than traditional staffing.
Security Testing Project Profile
Based on client requirements, CTG provides IT staffing resources for a broad range of functions
including project/program management, application maintenance and enhancement, system
implementation and integration, testing/quality assurance, design, engineering, infrastructure,
technical writing, infrastructure support, help desk, and web development and maintenance.
CTG’s managed services clients also benefit from our powerful web-based recruiting database
of over 260,000 technical resources that covers every IT discipline to ensure fast, accurate, and
comprehensive talent matches.
CTG’s proven ability to deliver both high volumes and high service levels at competitive
rates on a national level favorably differentiates CTG from competitors and has produced long-
time relationships as a valued partner to several of the largest and fastest-growing users of
external IT resources.
CTG also offers services and solutions including information security, vendor risk
management, voice productivity, inventory control, and software testing that are designed to
support client needs in multiple industries. In Belgium and Luxembourg (BeLux), CTG is a leading
provider of software testing services with several large customers in the financial services markets.
We specialize in unique cost-effective solutions for accelerated testing and testing in agile
environments, while continually expanding and refining our robust offerings to maintain
our leading market position as the go-to resource for testing in the BeLux region.
Client The largest Belgian federal public
service providing fundamental services to
Belgian citizens
CTG Role This federal public service runs
multiple externally facing web applications,
all dealing with confidential and sensitive
data. CTG proposed the implementation
of a security testing practice including
a tool, HP Fortify Source Code Analyzer
(SCA) that analyzes source code and
finds potential security vulnerabilities by
detecting insecure patterns in the source
code. CTG fully integrated the product
in the tool chain of the public service
ensuring continuous security audits,
and acted as security auditor during
the project implementation.
Timeframe January – July 2012
Project Scope A proof of concept
validated the correct behavior of the HP
Fortify SCA product on representative
source code of the public service, including
a detailed vulnerabilities report. Based on
these results, CTG installed and configured
the software, fully integrated it into the
development tool chain, trained the
administrators and the end-users, and
started up a pilot project on one of the
client’s most widely used applications
(3 million + users).
Project Highlights The project team was
able to fix up to 100 critical, high priority
potential vulnerabilities. By implementing
the HP Fortify SCA product, the client was
able to ensure development teams always
write secure codes, immediately reducing
production-system vulnerabilities that
could potentially lead to security breaches.
8
S E C F O R M 1 0 - K
9
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
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)
New York
(State of incorporation)
800 Delaware Avenue, Buffalo, New York
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(716) 882-8000
16-0912632
(I.R.S. Employer Identification No.)
14209
(Zip 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
Rights to Purchase Series A
Participating Preferred Stock
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES ‘ NO È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. YES ‘ NO È
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 È NO ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and
post such files). YES È NO ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this
chapter) 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 a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
È
Accelerated filer
Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES ‘ NO È
The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates,
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 $209.1 million. Solely for the purposes of this calculation, all persons who
are or may be executive officers or directors of the registrant have been deemed to be affiliates.
The total number of shares of Common Stock of the Registrant outstanding at February 8, 2013 was 18,767,505.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the Company’s definitive proxy statement to be filed with the Securities and Exchange
Commission (SEC) within 120 days of the end of the Company’s fiscal year ended December 31, 2012, are incorporated
by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document
shall not be deemed to be filed with the SEC as part of this annual report on Form 10-K.
SEC Form 10-K Index
Section
Part I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Part II
Item 5.
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Part III
Item 10.
Item 11.
Item 12.
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Part IV
Item 15.
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
Page
1
8
12
12
12
12
13
15
16
26
27
53
53
55
56
56
56
56
56
57
As used in this annual report on Form 10-K, references to “CTG,” “the Company” or “the Registrant” refer to
Computer Task Group, Incorporated and its subsidiaries, unless the context suggests otherwise.
Forward-Looking Statements
PART I
This annual report on Form 10-K contains forward-looking statements made by the management of Computer
Task Group, Incorporated (CTG, the Company or the Registrant) that are subject to a number of risks and
uncertainties. These forward-looking statements are based on information as of the date of this report. The
Company assumes no obligation to update these statements based on information from and after the date of this
report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases
of similar impact. The forward-looking statements include, but are not limited to, statements regarding future
operations, industry trends or conditions and the business environment, and statements regarding future levels of,
or trends in, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are
made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors
could cause actual results to differ materially from those in the forward-looking statements, including the following:
(i) the availability to CTG of qualified professional staff, (ii) domestic and foreign industry competition for customers
and talent, (iii) the Company's ability to protect confidential client data (iv) the partial or complete loss of the
revenue the Company generates from International Business Machines Corporation (IBM), (v) risks associated with
operating in foreign jurisdictions, (vi) renegotiations, nullification, or breaches of contracts with customers, vendors,
subcontractors or other parties, (vii) the change in valuation of recorded goodwill balances, (viii) the impact of
current and future laws and government regulation, as well as repeal or modification of such, affecting the
information technology (IT) solutions and staffing industry, taxes and the Company's operations in particular,
(ix) industry and economic conditions, including fluctuations in demand for IT services, (x) consolidation among the
Company's competitors or customers, (xi) the need to supplement or change our IT services in response to new
offerings in the industry, and (xii) the risks described in Item 1A of this annual report on Form 10-K and from time to
time in the Company's reports filed with the Securities and Exchange Commission (SEC).
Item 1.
Business
Overview
CTG 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 IT solutions and staffing services
company with operations in North America and Europe. CTG employs approximately 3,900 people worldwide.
During 2012, the Company had six operating subsidiaries: Computer Task Group of Canada, Inc., providing
services in Canada; and Computer Task Group Belgium N.V., CTG ITS S.A., Computer Task Group IT Solutions,
S.A., Computer Task Group Luxembourg PSF, and Computer Task Group (U.K.) Ltd., each primarily providing
services in Europe. Services provided in North America are primarily performed by CTG.
Services
The Company operates in one industry segment, providing IT services to its clients. These services include IT
Solutions and IT Staffing. CTG provides these primary services to all of the markets that it serves. 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. The Company’s IT Solutions and IT Staffing services
are further described as follows:
•
IT Solutions: CTG’s services in this area include helping clients assess their business needs and
identifying the right IT solutions to meet these needs. The delivery of services includes the selection and
implementation of packaged software and the design, development, testing, and integration of new
systems, and the development and implementation of customized software and solutions designed to fit the
needs of a specific client or vertical market.
Generally, IT Solutions services include taking responsibility for the service related deliverables on a project
and may include high-end consulting services. CTG has significant experience in implementing electronic
medical records (EMR) systems in integrated delivery networks and other provider organizations. CTG’s
1
experience in supporting EMR systems and the formation of Health Information Exchanges (HIEs)
favorably positions the Company as demand for these services is expected to remain strong in future years.
Additionally, the Company continues to provide services to assist in the start-up and development of HIEs.
HIEs are consortiums of providers, payers, and government agencies at the local level that are charged
with implementing secure community-wide electronic medical records.
Also included within IT Solutions is Transitional Application Management (TAM). In 2012, the healthcare
market accounted for most of CTG’s TAM business. In a TAM engagement, the client hires CTG to manage
an existing application for an extended time period, typically ranging from one to three years, while its
internal IT staff focuses on implementation of a new application replacing the application being phased out.
Additionally, CTG’s services in this area could include outsourcing support of single or multiple applications
and help desk functions. Depending on client needs, these engagements are performed at client or CTG
sites.
In 2012, CTG continued to invest in new IT Solutions development, primarily targeted to the healthcare
market, which supports cost reductions and productivity improvements. In 2011 and 2012, several
healthcare solutions under development moved from the pilot stage of testing using live data into the sales
process as completed tools. These solutions include medical fraud, waste, and abuse detection and
reduction, medical care and disease management. The Company has developed proprietary software to
support these offerings which expands the potential market for sale and support of these solutions. These
solutions support both the healthcare provider and payer markets.
•
IT Staffing: CTG recruits, retains, and manages IT talent for its clients, which are primarily large technology
service providers and companies with multiple locations and significant need for high-volume external IT
resources. The Company also supports larger companies and organizations that need to augment their
own IT staff on a flexible basis. Our clients may require the services of our IT talent on a temporary or long-
term basis. Our IT professionals generally work with the client’s internal IT staff at client sites. Our
recruiting organization works with customers to define their staffing requirements and develop competitive
pricing to meet those requirements.
The primary focus of the Company’s staffing business is a managed services model that provides large
clients with higher value support through cost-effective supply models customized to client needs, resource
management support, vendor management programs, and a highly automated recruiting process and
system with global reach.
Independent software testing is a common practice in Western Europe and represents a significant portion
of the IT staffing business of CTG’s European operations. This comprehensive testing offering supports IT
environments across multiple industries.
A trend affecting the staffing industry in recent years is that large users of external technology support are
reducing their number of approved suppliers to fewer firms with a preference for those firms able to fulfill
high volume requirements at competitive rates and to locate resources with specialized skills on a national
level. CTG’s staffing business model fits this profile and it has consistently remained a preferred provider
with large technology service providers and users that have reduced their lists of approved IT staffing
suppliers.
IT solutions and staffing revenue as a percentage of total revenue for the years ended December 31, 2012,
2011 and 2010 is as follows:
IT solutions
IT staffing
Total
2012
2011
2010
41%
59%
37%
63%
34%
66%
100% 100% 100%
In recent years, a major strategic focus of the Company has been to increase the amount of revenue from its
IT solutions business, and the percentage of IT solutions revenue to total revenue, as operating margins generated
by the IT solutions business are generally significantly higher than those of the IT staffing business. Overall, the
Company’s revenue increased $28.1 million or 7.1% from 2011 to 2012 due to the continuing strong demand for the
Company’s IT solutions services. The higher margin IT solutions business increased $26.4 million or 17.9% from
2011 to 2012, while IT staffing services increased $1.8 million or 0.7% in the same period. The Company’s
2
operating margin in 2012 was 5.8%, which was the highest level for the Company since 1999. The Company’s
operating margin was 4.9% in 2011, and was 4.2% in 2010.
Vertical Markets
The Company promotes a majority of its services through four vertical market focus areas: Healthcare (which
includes services provided to healthcare providers, health insurers (payers), and life sciences companies),
Technology Service Providers, Financial Services, and Energy. The remainder of CTG’s revenue is derived from
general markets.
CTG’s revenue by vertical market for the years ended December 31, 2012, 2011 and 2010 is as follows:
Healthcare
Technology service providers
Financial services
Energy
General markets
Total
2012
2011
2010
33%
31%
6%
6%
30%
34%
7%
6%
27%
36%
6%
7%
24%
23%
24%
100% 100% 100%
The Company’s growth efforts are primarily focused in the healthcare market based on its leading position in
serving the provider market, its expertise and experience serving all segments of this market (providers, payers and
life sciences companies), higher demand for solutions offerings and support from healthcare companies, and the
greater relative strength of this sector due to higher demand compared with other sectors of the U.S. economy. The
Company’s healthcare revenue increased $21.6 million or 18.4% from 2011 to 2012 primarily due to a significant
increase in demand for new healthcare related solutions projects, including those related to EMR projects.
Revenue from the provider market was very strong in 2012 due to U.S. Federal government legislation which
provides funding for EMRs, and the continued improvement in the U.S. credit markets. Revenue from the payer
market was also very strong from 2011 to 2012, while revenue from the life sciences market decreased year-over-
year as life sciences companies in the U.S. continue to limit spending on discretionary IT projects due to the
challenging overall economic environment. Accordingly, as revenue from the Company’s targeted EMR market was
strong in 2012, this caused the percentage of revenue for the healthcare vertical market as compared with
consolidated revenue to increase from 27% in 2010, to 30% in 2011, and then to 33% in 2012.
Revenue for the Company's technology service providers vertical market decreased slightly in 2012 as
compared with 2011 due to sluggish demand in this vertical market. The percentage of total revenue for this
vertical market declined in 2012 as compared with 2011 due to the significant growth in the Company's healthcare
vertical market. The Company’s technology service provider customers cut back significantly in 2009 due to the
global economic recession, and CTG believes the growth the Company experienced in 2010 and 2011 in this
vertical market was much higher than normal due to customers' efforts to backfill for those positions cut in 2009.
During 2012, the percentage of revenue attributable to the financial services market fell slightly from 2011
primarily due to the weakness of the Euro. In recent years, most of CTG’s revenue in the financial services market
was generated from its European operations, totaling 96.6% of the Company’s 2012 revenue from the financial
services vertical market. Revenue in this vertical market increased in 2011 from 2010 due to growth in IT staffing
services in Europe. The 2011 growth was a reverse of a trend from 2010 as the financial services market to CTG’s
total revenue declined in that year primarily as of result of greater use of offshore support and lower overall demand
in this sector due to the global economic recession.
Revenue for the Company's energy vertical market remained consistent as a percentage of consolidated
revenue in 2012 as compared with 2011 as modest demand fueled growth in this vertical market that kept pace with
the overall revenue growth of the Company of approximately 7.1%.
At December 31, 2012, CTG provided IT services to approximately 400 clients in North America and Europe.
In North America, the Company operates in the United States and Canada, with greater than 99% of 2012 North
American revenue generated in the United States. In Europe, the Company operates in Belgium, Luxembourg, and
the United Kingdom. Of total 2012 consolidated revenue of $424.4 million, approximately 84% was generated in
3
North America and 16% in Europe, and only one client, International Business Machines Corporation (IBM),
accounted for greater than 10% of CTG’s consolidated revenue in 2012, 2011, and 2010.
Pricing and Backlog
The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services
have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably
assured. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended.
For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to
the customer. Revenue for fixed-price contracts is recognized as per the proportional method of accounting using
an input-based approach whereby salary and indirect labor costs incurred are measured and compared with the
total estimate of costs at completion for a project. Revenue is recognized based upon the percentage-of-
completion calculation of total incurred costs to total estimated costs. The Company infrequently works on fixed-
price projects that include significant amounts of material or other non-labor related costs which could distort the
percent complete within a percentage-of-completion calculation. The Company’s estimate of the total labor costs it
expects to incur over the term of the contract is based on the nature of the project and its past experience on similar
projects, and includes management judgments and estimates which affect the amount of revenue recognized on
fixed-price contracts in any accounting period.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and
percentage-of-completion methods for the years ended December 31, 2012, 2011 and 2010 is as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
2012
2011
2010
90%
8%
2%
100%
91%
7%
2%
100%
91%
6%
3%
100%
As of December 31, 2012 and 2011, the backlog for fixed-price and all managed-support contracts was
approximately $35.7 million and $34.4 million, respectively. Approximately 77.6% or $27.7 million of the
December 31, 2012 backlog is expected to be earned in 2013. Of the $34.4 million of backlog at December 31,
2011, approximately 69.1%, or $23.8 million was earned in 2012. Revenue is subject to slight seasonal variations,
with a minor slowdown 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 entry into long-term contracts.
Competition
The IT services market, for both IT solutions and IT staffing services, is highly competitive. The market is also
highly fragmented with many providers and no single competitor maintaining clear market leadership. Competition
varies by location, the type of service provided, and the customer to whom services are provided. The Company’s
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 from a customer’s internal IT 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 the 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 certification in January 2003. The Company
believes it is the only IT services company of its size to achieve worldwide certification.
Intellectual Property
The Company has registered its symbol and logo with the U.S. Patent and Trademark Office and has taken
steps to preserve its rights in other countries where it operates. We regard patents, trademarks, copyrights and
other intellectual property as important to our success, and we rely on them in the United States and foreign
4
countries to protect our investments in products and technology. Our patents expire at various times, but we believe
that the loss or expiration of any individual patent would not materially affect our business. We, like any other
company, may be subject to claims of alleged infringement of the patents, trademarks and other intellectual
property rights of third parties from time to time in the ordinary course of business. CTG has entered into
agreements with various software and hardware vendors from time to time in the normal course of business, and
has capitalized certain costs under software development projects.
Employees
CTG’s business depends on the Company’s ability to attract and retain qualified professional staff to provide
services to its customers. The Company has a structured recruiting organization that works with its clients to meet
their requirements by recruiting and providing high quality, motivated staff. The Company employs approximately
3,900 employees worldwide, with approximately 3,300 in the United States and Canada and 600 in Europe. Of
these employees, approximately 3,500 are IT professionals and 400 are individuals who work in sales, recruiting,
delivery, administrative and support positions. The Company believes that its relationship with its employees is
good. No employees are covered by a collective bargaining agreement or are represented by a labor union. CTG
is an equal opportunity employer.
Financial Information Relating to Foreign and Domestic Operations
The following table sets forth certain financial information relating to the performance of the Company for the
years ended December 31, 2012, 2011, and 2010. This information should be read in conjunction with the audited
consolidated financial statements and notes thereto included in Item 8, “Financial Statements and Supplementary
Data” included in this report.
(amounts in thousands)
Revenue from External Customers:
United States
Belgium (1)
Other European countries
Other country
Total revenue
Operating Income:
United States
Europe
Other country
Total operating income
Total Assets:
United States
Belgium (1)
Other European countries
Other country
Total assets
2012
2011
2010
$ 355,022 $ 328,422 $ 269,071
41,957
26,653
783
43,011
23,969
873
41,317
19,396
1,623
$ 424,415 $ 396,275 $ 331,407
$
21,203 $
16,508 $
12,401
3,209
50
2,729
73
1,465
64
$
24,462 $
19,310 $
13,930
$ 132,795 $ 119,912 $ 104,914
18,908
14,211
291
15,148
12,133
299
13,326
11,575
458
$ 166,205 $ 147,492 $ 130,273
(1) Revenue and total assets for Belgium have been disclosed separately as they exceed 10% of the consolidated
balances in certain of the years presented.
5
Executive Officers of the Company
As of December 31, 2012, the following individuals were executive officers of the Company:
Name
James R. Boldt
Michael J. Colson
Arthur W. Crumlish
Filip J. L. Gydé
Brendan M. Harrington
Other Positions
and Offices
with Registrant
Director
Office
Age
61 Chairman, President
and Chief Executive
Officer
Executive Vice
President
Vice President,
Strategic Staffing
Acting Chief Executive
Officer
Period During
Which Served
as Executive Officer
June 21, 2001 for President,
July 16, 2001 for Chief
Executive Officer, May 2002
for Chairman, all to date
February 2001 to June 2001
December 2000 to September
2001
June 2000 to November 2000
Vice President and
Chief Financial Officer
February 12, 1996 to October
1, 2001
50 Senior Vice President
January 3, 2005 to date
58 Senior Vice President
September 24, 2001 to date
52 Senior Vice President October 1, 2000 to date
46 Senior Vice President,
Chief Financial Officer
September 13, 2006 to date
Interim Chief Financial
Officer
October 17, 2005 to
September 12, 2006
None
None
None
None
None
Peter P. Radetich
58 Senior Vice President,
General Counsel
April 28, 1999 to date
Secretary
Ted Reynolds
57 Vice President, Health
March 7, 2011 to date
None
Solutions
Mr. Boldt was appointed President and joined CTG’s Board of Directors 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 and its Chief Financial Officer and Treasurer in February 1996.
Mr. Colson joined the Company as Senior Vice President of Solutions Development in January 2005. Prior to
that, Mr. Colson was Chief Executive Officer of Manning and Napier Information Services, a software and venture
capital firm, from September 1998 until the time he joined CTG.
Mr. Crumlish was promoted to Senior Vice President in September 2001, and is currently responsible for the
Company’s Strategic Staffing Services organization. Prior to that, Mr. Crumlish was the Financial Controller of the
Company’s Strategic Staffing Services organization. Mr. Crumlish joined the Company in 1990.
Mr. Gydé was promoted to Senior Vice President in October 2000, at which time he assumed responsibility for
all of the Company’s European operations. Prior to that, Mr. Gydé was Managing Director of the Company’s
Belgium operation. Mr. Gydé has been with the Company since May 1987.
Mr. Harrington was promoted to Senior Vice President and Chief Financial Officer on September 13, 2006.
Previously he was Interim Chief Financial Officer and Treasurer from October 17, 2005 to September 12, 2006.
Mr. Harrington joined the Company in February 1994 and served in a number of managerial financial positions in
the Company’s corporate and European operations, including as the Director of Accounting since 2003, before
being appointed Corporate Controller in May 2005.
Mr. Radetich joined the Company in June 1988 as Associate General Counsel, and was promoted to General
Counsel and Secretary in April 1999.
Mr. Reynolds was promoted to Vice President for CTG Health Solutions in March 2011 and is currently
responsible for CTG’s entire provider and payer related services. Prior to that, Mr. Reynolds served as the
6
Company’s Client Services Executive for its Epic practice. Mr. Reynolds joined CTG in 2006, and previously had
approximately 30 years of experience in healthcare and IT.
Available Company Information
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (Exchange Act), and reports pertaining to the Company filed under Section 16 of the
Exchange Act are available without charge on the Company’s website at www.ctg.com as soon as reasonably
practicable after the Company electronically files the information with, or furnishes it to, the SEC. The Company’s
code of ethics, committee charters and governance policies are also available without charge on the Company’s
website at http://investors.ctg.com/governance.cfm.
7
Item 1A.
Risk Factors
The following risk factors should be read carefully in connection with evaluating our business and the forward-
looking information contained in this Annual Report on Form 10-K. The risk factors below represent what we
believe are the known material risk factors with respect to the Company and our business. Any of the following
risks could materially adversely affect our business, our operations, the industry in which we operate, our financial
position or our future financial results.
Our business depends on the availability of a large number of highly qualified IT professionals and
our ability to recruit and retain these professionals.
We actively compete with many other IT service providers for qualified professional staff. The availability of
qualified professional staff may affect our ability to provide services and meet the needs of our customers in the
future. An inability to fulfill customer requirements at agreed upon rates due to a lack of available qualified staff may
adversely impact our revenue and operating results in the future.
Increased competition and the bargaining power of our large customers may cause our billing rates to
decline, which would have an adverse effect on our revenue and, if we are unable to control our personnel
costs accordingly, on our margins and operating results.
We have experienced reductions in the rates at which we bill some of our larger customers for services during
previous highly competitive market conditions. Additionally, we actively compete against many other companies for
business with new and existing clients. Bill rate reductions or competitive pressures may lead to a decline in
revenue or the rates we bill our customers for services. If we are unable to make commensurate reductions in our
personnel costs, our margins and operating results in the future may be adversely affected.
Liability or damage to our reputation could arise if we fail to protect client and Company data or
information systems as obligated by law or contract if our information systems are breached.
As a company operating in the IT and professional services industry, we are dependent on information
technology networks and systems to process, transmit and store electronic information, and to communicate among
our locations within the United States and around the world, as well as with our clients and vendors. Although the
Company has had no prior significant cyber incidents, and we believe the likelihood of the occurrence of such
incidents is low, the breadth and complexity of our technological infrastructure increases the potential risk of
security breaches. Such breaches could lead to shutdowns or disruptions of our systems and potential
unauthorized disclosure of confidential information such as protected health information (PHI) under the Health
Insurance Portability and Accountability Act of 1996 (HIPAA). The Company’s failure to protect PHI covered under
HIPAA could result in fines and penalties which could have a material, adverse impact on us.
We derive a significant portion of our revenue from a single customer and a significant reduction in
the amount of IT services requested by this customer would have an adverse effect on our revenue and
operating results.
IBM is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During
2011, the National Technical Services Agreement (NTS Agreement) was renewed for three years until
December 31, 2014. In 2012, 2011, and 2010, IBM accounted for $113.5 million or 26.7%, $116.5 million or 29.4%,
and $102.3 million or 30.9% of the Company’s consolidated revenue, respectively. No other customer accounted
for more than 10% of the Company’s revenue in 2012, 2011 or 2010. The Company’s accounts receivable from
IBM at December 31, 2012 and 2011 amounted to $12.6 million and $12.8 million, respectively. If IBM were to
significantly reduce the amount of IT services they purchase from the Company, our revenue and operating results
would be adversely affected.
The currency exchange, legislative, tax, regulatory and economic risks associated with international
operations could have an adverse effect on our operating results if we are unable to mitigate or hedge
these risks.
We have operations in the United States and Canada in North America, and in Belgium, Luxembourg, and the
United Kingdom in Europe. Although our foreign operations conduct their business in their local currencies, these
operations are subject to their own currency fluctuations, legislation, employment and tax law changes, and
economic climates. These factors as they relate to our foreign operations are different than those of the United
States. Although we actively manage these foreign operations with local management teams, our overall operating
8
results may be negatively affected by local economic conditions, changes in foreign currency exchange rates, or
tax, regulatory or other economic changes beyond our control.
Our customer contracts generally have a short term or are terminable on short notice and a significant
number of failures to renew contracts, early terminations or renegotiations of our existing customer
contracts could adversely affect our results of operations.
Our clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under
exclusive long-term contracts. We performed approximately 90% of our services on a time-and-materials basis
during 2012. As such, our customers generally have the right to terminate a contract with us upon written notice
without the payment of any financial penalty. Client projects may involve multiple engagements or stages, and
there is a risk that a client may choose not to retain us for additional stages of a project, or that a client will cancel or
delay additional planned engagements. These terminations, cancellations or delays could result from factors that
are beyond our control and are unrelated to our work product or the progress of the project, but could be related to
business or financial conditions of the client, changes in client strategies or the economy in general. When
contracts are terminated, we lose the anticipated future revenue and we may not be able to eliminate the
associated costs required to support those contracts in a timely manner. Consequently, our operating results in
subsequent periods may be lower than expected. Our clients can cancel or reduce the scope of their engagements
with us on short notice. If they do so, we may be unable to reassign our professionals to new engagements without
delay. The cancellation or reduction in scope of an engagement could, therefore, reduce the utilization rate of our
professionals, which would have a negative impact on our business, financial condition, and results of operations.
As a result of these and other factors, our past financial performance should not be relied on as a guarantee of
similar or better future performance. Due to these factors, we believe that our results from operations may fluctuate
from period to period in the future.
A significant portion of our total assets consists of goodwill, which is subject to a periodic impairment
analysis and a significant impairment determination in any future period could have an adverse effect on
our results of operations even without a significant loss of revenue or increase in cash expenses
attributable to such period.
We have goodwill recorded totaling approximately $35.7 million at December 31, 2012. At least annually, we
evaluate this goodwill for impairment based on the fair value of the business operations to which this goodwill
relates. This estimated fair value could change if there is a significant decrease in the enterprise value of CTG, if
we are unable to achieve operating results at the levels that have been forecasted, the market valuation of
transactions involving similar companies decreases which could occur given the economic downturn in recent years
in the countries in which the Company operates, or there is a permanent, negative change in the market demand
for the services offered by this business unit. These changes could result in an impairment of the existing goodwill
balance that could require a material non-cash charge which would have an adverse impact on our results of
operations.
Changes in government regulations and laws affecting the IT services industry, including accounting
principles and interpretations, and the taxation of domestic and foreign operations could adversely affect
our results of operations.
Changing laws, regulations and standards relating to corporate governance and public disclosure, including
the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Patient
Protection and Affordable Care Act (PPACA), and new SEC regulations, create uncertainty for companies such as
ours. These new or updated laws, regulations and standards are subject to varying interpretations which, in many
instances, is due to their lack of specificity. As a result, the application of these new standards and regulations in
practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in
continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to
disclosure and governance practices. We are committed to maintaining high standards of corporate governance
and public disclosure. As a result, our efforts to comply with evolving laws, tax regulations and other standards
have resulted in, and are likely to continue to result in, increased general and administrative expenses and a
diversion of management time and attention from revenue-generating activities to compliance activities. In
particular, our continuing efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related
regulations regarding our required assessment of our internal controls over financial reporting and our independent
auditors’ audit of internal control require the commitment of significant internal, financial and managerial resources.
9
The Financial Accounting Standards Board (FASB), the SEC, and the Public Company Accounting Oversight
Board (PCAOB) or other accounting rule making authorities may issue new accounting rules or auditing standards
that are different than those that we presently apply to our financial results. Such new accounting rules or auditing
standards could require significant changes from the way we currently report our financial condition, results of
operations or cash flows.
U.S. generally accepted accounting principles have been the subject of frequent changes in interpretations.
As a result of the enactment of the Sarbanes-Oxley Act of 2002 and the review of accounting policies by the SEC
as well as by national and international accounting standards bodies, the frequency of future accounting policy
changes may accelerate. Such future changes in financial accounting standards may have a significant effect on
our reported results of operations, including results of transactions entered into before the effective date of the
changes.
The Company currently offers limited healthcare coverage to its hourly employees, which includes nearly half
of its total employees. Under the PPACA, the Company will be required to offer healthcare coverage to those
employees, or pay penalties currently totaling at least $2,000 per person. The Company intends to pass these
additional costs on to its customers. However, in the event the Company is not able to pass some or all of these
costs to its customers, the Company’s operating results could be significantly negatively impacted when the
legislation goes into effect in 2014.
We are subject to income and other taxes in the United States (federal and state) and numerous foreign
jurisdictions. Our provisions for income and other taxes and our tax liabilities in the future could be adversely
affected by numerous factors. These factors include, but are not limited to, income before taxes being lower than
anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory
tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in various federal, state and
international tax laws, regulations, accounting principles or interpretations thereof, which could adversely impact our
financial condition, results of operations and cash flows in future periods.
During 2012 and 2011, the Company experienced higher unemployment tax rates in many of the states in
which we do business, which increased our direct costs and negatively impacted our profitability. Considering
current economic conditions in the U.S., the Company expects these rates will not significantly decrease in 2013
and future years.
Existing and potential customers may outsource or consider outsourcing their IT requirements to
foreign countries in which we may not currently have operations, which could have an adverse effect on
our ability to obtain new customers or retain existing customers.
In the past few years, more companies started using or are considering using low cost offshore outsourcing
centers to perform technology-related work and complete projects. Currently, we have partnered with clients to
perform services in Russia to mitigate and reduce this risk to our Company. However, the risk of additional
increases in the future in the outsourcing of IT solutions overseas to countries where we do not have operations
could have a material, negative impact on our future operations.
The introduction of new IT products or services may render our existing IT Solutions or IT Staffing
offerings to be obsolete, which, if we are unable to keep pace with these corresponding changes, could
have an adverse effect on our business.
Our success depends, in part, on our ability to implement and deliver IT Solutions or IT Staffing services that
anticipate and keep pace with rapid and continuing changes in technology, industry standards and client
preferences. We may not be successful in anticipating or responding to these developments on a timely basis, and
our offerings may not be successful in the marketplace. Also, services, solutions and technologies developed by
our competitors may make our solutions or staffing offerings uncompetitive or obsolete. Any one of these
circumstances could have a material adverse effect on our ability to obtain and successfully complete client
engagements.
Decreases in demand for IT solutions and staffing services in the future would cause an adverse effect
on our revenue and operating results.
The Company’s revenue and operating results are significantly affected by changes in demand for its services.
In recent years, the U.S. economy, where the Company performs greater than 80% of its total business based upon
revenue, significantly deteriorated primarily due to subprime mortgage issues, financial market conditions, and other
10
economic concerns. In 2009, these economic pressures also extended to the European markets where the
Company operates. These negative pressures on the economy led to a worldwide contraction of the credit
markets, more severe recessionary conditions, and a decline in demand for the Company’s services which
negatively affected the Company’s revenue and operating results in 2009 as compared with 2008. Economic
pressures also led to customers’ reducing their spending on IT projects and external professional services.
Economic conditions in 2010 through 2012 stabilized in the U.S., but continued to be challenging in Europe.
Declines in spending for IT services in 2013 or future years may adversely affect our operating results in the future
as they have in the past.
The IT services industry is highly competitive and fragmented, which means that our customers have
a number of choices for providers of IT services and we may not be able to compete effectively.
The market for our services is highly competitive. The market is fragmented, and no company holds a
dominant position. Consequently, our competition for client requirements and experienced personnel varies
significantly by geographic area and by the type of service provided. Some of our competitors are larger and have
greater technical, financial, and marketing resources and greater name recognition than we have in the markets we
collectively serve. In addition, clients may elect to increase their internal IT systems resources to satisfy their
custom software development and integration needs. Finally, our industry is being impacted by the growing use of
lower-cost offshore delivery capabilities (primarily India and other parts of Asia). There can be no assurance that
we will be able to continue to compete successfully with existing or future competitors or that future competition will
not have a material adverse effect on our results of operations and financial condition.
Changing economic conditions and the effect of such changes on accounting estimates could have a
material impact on our results of operations.
The Company has also made a number of estimates and assumptions relating to the reporting of its assets
and liabilities and the disclosure of contingent assets and liabilities to prepare its consolidated financial statements
pursuant to the rules and regulations of the SEC and other accounting rulemaking authorities. Such estimates
primarily relate to the valuation of goodwill, the valuation of stock options for recording equity-based compensation
expense, allowances for doubtful accounts receivable, investment valuation, valuation allowances for deferred tax
assets, legal matters, other contingencies and estimates of progress toward completion and direct profit or loss on
contracts, as applicable. As future events and their effects cannot be determined with precision, actual results
could differ from these estimates. Changes in the economic climates in which the Company operates may affect
these estimates and will be reflected in the Company’s financial statements in the event they occur. Such changes
could result in a material impact on the Company’s results of operations.
11
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The Company owns and occupies its headquarters building at 800 Delaware Avenue, and an office building at
700 Delaware Avenue, both located in Buffalo, New York. These buildings are operated by CTG of Buffalo, a
subsidiary of the Company which is part of the Company’s North American operations. The corporate headquarters
consists of approximately 48,000 square feet and is occupied by corporate administrative operations. The office
building consists of approximately 42,000 square feet and is also occupied by corporate administrative operations.
At December 31, 2012, these properties were not mortgaged as part of the Company’s existing revolving credit
agreement.
All of the remaining Company locations, totaling approximately 20 sites, are leased facilities. Most of these
facilities serve as sales and support offices and their size varies, generally in the range from 250 to 26,000 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 typically have flexible renewal options. The Company believes that its
presently owned and leased facilities are adequate to support its current and anticipated future needs.
Item 3.
Legal Proceedings
The Company and its subsidiaries are involved from time to time in various legal proceedings arising in the
ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its
subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such
lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters, if any, to
have a material adverse effect on the financial position, results of operations, or cash flows of the Company.
Item 4.
Mine Safety Disclosures
Not applicable.
12
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Stock Market Information
The Company’s common stock is traded on The NASDAQ Stock Market LLC under the symbol CTGX. The
following table sets forth the high and low sales prices for the Company’s common stock for each quarter of the
previous two years.
Stock Price
Year ended December 31, 2012
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ended December 31, 2011
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$ 19.14 $ 16.20
$ 16.66 $ 13.71
$ 15.53 $ 11.79
$ 15.45 $ 13.39
$ 14.50 $
$ 14.25 $
9.68
9.47
$ 15.00 $ 11.19
$ 13.58 $ 10.65
On February 8, 2013, there were 2,210 holders of record of the Company’s common shares. Although the
Company has not paid a dividend since 2000, it intends to initiate a quarterly dividend of $0.05 per common share
in March 2013. The Company is required to meet certain financial covenants under its current revolving credit
agreement in order to pay dividends. The Company was in compliance with these financial covenants at each of
December 31, 2010, 2011 and 2012. The determination of the timing, amount and the continuation of the payment
of dividends in the future on the Company’s common stock is at the discretion of the Board of Directors and will
depend upon, among other things, the Company’s profitability, liquidity, financial condition, capital requirements and
compliance with the aforementioned financial covenants.
For information concerning common stock issued in connection with the Company’s equity compensation
plans, see Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.”
Issuer Purchases of Equity Securities
The Company’s share repurchase program (originally announced on May 12, 2005) does not have an
expiration date, nor was it terminated during the 2012 fourth quarter. During February 2011, the Company’s Board
of Directors authorized the addition of one million shares to the repurchase program. The information in the table
below does not include shares tendered to the Company either to satisfy the exercise cost for the cashless exercise
of employee stock options, or tax withholding obligations associated with employee equity awards.
Purchases by the Company of its common stock during the fourth quarter ended December 31, 2012 are as
follows:
Period
September 29 – October 31
November 1 – November 30
December 1 – December 31
Total
* Excludes broker commissions
Total
Number
of Shares
Purchased
Average
Price
Paid per
Share*
— $
24,762 $
— $
24,762 $
—
17.55
—
17.55
Total Number of
Shares
Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum
Number of
Shares that May
Yet be Purchased
Under the Plans
or Programs
—
24,762
—
24,762
559,794
535,032
535,032
13
Company Performance Graph
The following graph displays a five-year comparison of cumulative total shareholder returns for the Company’s
common stock, the S&P 500 Index, and the Dow Jones U.S. Computer Services Index, assuming a base index of
$100 at the end of 2007. The cumulative total return for each annual period within the five years presented is
measured by dividing (1) the sum of (A) the cumulative amount of dividends for the period, assuming dividend
reinvestment, and (B) the difference between the Company’s share price at the end and the beginning of the period
by (2) the share price at the beginning of the period. The calculations were made excluding trading commissions
and taxes.
Base
Period
Dec. 07
Indexed Returns
Years Ending
Dec. 08
Dec. 09
Dec. 10
Dec. 11
Dec. 12
Computer Task Group, Inc.
S&P 500 Index
Dow Jones U.S. Computer Services Index
$ 100.00 $ 58.23 $ 144.85 $ 196.75 $ 254.61 $ 329.66
$ 100.00 $ 63.00 $ 79.67 $ 91.68 $ 93.61 $ 108.59
$ 100.00 $ 75.32 $ 121.10 $ 139.53 $ 165.58 $ 182.17
The information included under this section entitled “Company Performance Graph” is deemed not to be
“soliciting material” or “filed” with the SEC, is not subject to the liabilities of Section 18 of the Exchange Act, and
shall not be deemed incorporated by reference into any of the filings previously made or made in the future by the
Company under the Exchange Act or the Securities Act of 1933, except to the extent the Company specifically
incorporates any such information into a document that is filed.
14
Item 6.
Selected Financial Data
Consolidated Summary—Five-Year Selected Financial Information
The selected operating data and financial position information set forth below for each of the years in the five-
year period ended December 31, 2012 has been derived from the Company’s audited consolidated financial
statements. This information should be read in conjunction with the audited consolidated financial statements and
notes thereto included in Item 8, “Financial Statements and Supplementary Data” included in this report.
(amounts in millions, except per-share data)
Operating Data
Revenue
Operating Income
Net Income
Basic net income per share
Diluted net income per share
Cash dividend per share
Financial Position
Working capital
Total assets
Long-term debt
Shareholders’ equity
2012
(1)
2011
2010
2009
2008
$ 424.4 $ 396.3 $ 331.4 $ 275.6 $ 353.2
$
$
$
$
$
24.5 $
19.3 $
13.9 $
16.2 $
11.9 $
8.4 $
9.9 $
5.9 $
1.07 $
0.80 $
0.57 $
0.40 $
0.96 $
0.71 $
0.52 $
0.38 $
— $
— $
— $
— $
13.1
7.8
0.51
0.49
—
$
63.5 $
45.4 $
33.0 $
25.8 $
24.8
$ 166.2 $ 147.5 $ 130.3 $ 114.7 $ 115.8
$
— $
— $
— $
— $
—
$ 102.8 $
88.8 $
77.9 $
71.7 $
67.6
(1) During 2012, the Company received life insurance proceeds upon the death of two of its former executives. In
total, the Company received $1.3 million, which is included in net income, and equaled $0.08 basic and diluted
net income per share.
15
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This annual report on Form 10-K contains forward-looking statements made by the management of Computer
Task Group, Incorporated (CTG, the Company or the Registrant) that are subject to a number of risks and
uncertainties. These forward-looking statements are based on information as of the date of this report. The
Company assumes no obligation to update these statements based on information from and after the date of this
report. Generally, forward-looking statements include words or phrases such as “anticipates,” “believes,”
“estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,” “should,” “will” and words and phrases
of similar impact. The forward-looking statements include, but are not limited to, statements regarding future
operations, industry trends or conditions and the business environment, and statements regarding future levels of,
or trends in, revenue, operating expenses, capital expenditures, and financing. The forward-looking statements are
made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors
could cause actual results to differ materially from those in the forward-looking statements, including the following:
(i) the availability to CTG of qualified professional staff, (ii) domestic and foreign industry competition for customers
and talent, (iii) the Company's ability to protect confidential client data (iv) the partial or complete loss of the
revenue the Company generates from International Business Machines Corporation (IBM), (v) risks associated with
operating in foreign jurisdictions, (vi) renegotiations, nullification, or breaches of contracts with customers, vendors,
subcontractors or other parties, (vii) the change in valuation of recorded goodwill balances, (viii) the impact of
current and future laws and government regulation, as well as repeal or modification of such, affecting the
information technology (IT) solutions and staffing industry, taxes and the Company's operations in particular,
(ix) industry and economic conditions, including fluctuations in demand for IT services, (x) consolidation among the
Company's competitors or customers, (xi) the need to supplement or change our IT services in response to new
offerings in the industry, and (xii) the risks described in Item 1A of this annual report on Form 10-K and from time to
time in the Company's reports filed with the Securities and Exchange Commission (SEC).
Industry Trends
The market demand for the Company’s services is heavily dependent on IT spending by major corporations,
organizations and government entities in the markets and regions that we serve. The pace of technology advances
and changes in business requirements and practices of our clients all have a significant impact on the demand for
the services that we provide. Competition for new engagements and pricing pressure has been strong. During
2009 through 2011, we experienced an increase in demand for our services, primarily in the healthcare provider
solution and general IT staffing businesses. While demand in our healthcare vertical market remained strong in
2012, demand for our IT staffing services was modest which limited revenue growth for these services in 2012 as
compared with 2011. We added new electronic medical records (EMR) projects throughout 2012 ranging from one
to three years in duration, and have a total of 17 significant EMR engagements in process as of December 31,
2012. We anticipate a continuation of the strong demand for our EMR healthcare solutions services in 2013 due to
the continuation of U.S. government funding for such projects, and the greater demand for healthcare services in
the U.S. due to the aging population.
We provide two main services to our customers, which are providing IT solutions and IT staffing to our clients.
With IT solutions services, we generally take responsibility for the deliverables on a project and the services may
include high-end consulting services. When providing IT staffing services, we typically supply personnel to our
customers who then, in turn, take their direction from the client’s managers. IT solutions and IT staffing revenue as
a percentage of total revenue for the years ended December 31, 2012, 2011 and 2010 is as follows:
IT solutions
IT staffing
Total
2012
2011
2010
41%
59%
100%
37%
63%
100%
34%
66%
100%
The Company promotes a majority of its services through four vertical market focus areas: Healthcare (which
includes services provided to healthcare providers, health insurers, and life sciences companies), Technology
Service Providers, Financial Services, and Energy. The remainder of CTG’s revenue is derived from general
markets.
16
CTG’s revenue by vertical market for the years ended December 31, 2012, 2011 and 2010 is as follows:
Healthcare
Technology service providers
Financial services
Energy
General markets
Total
2012
2011
2010
33%
31%
6%
6%
24%
100%
30%
34%
7%
6%
23%
100%
27%
36%
6%
7%
24%
100%
The IT services industry is extremely competitive and characterized by continuous changes in customer
requirements and improvements in technologies. Our competition varies significantly by geographic region, as well
as by the type of service provided. Many of our competitors are larger than CTG, and have greater financial,
technical, sales and marketing resources. In addition, the Company frequently competes with a client’s own
internal IT staff. Our industry is being impacted by the growing use of lower-cost offshore delivery capabilities
(primarily India and other parts of Asia). There can be no assurance that we will be able to continue to compete
successfully with existing or future competitors or that future competition will not have a material adverse effect on
our results of operations and financial condition.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services
have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably
assured. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended.
For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to
the customer. Revenue for fixed-price contracts is recognized as per the proportional method of accounting using
an input-based approach whereby salary and indirect labor costs incurred are measured and compared with the
total estimate of costs of such items at completion for a project. Revenue is recognized based upon the
percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently
works on fixed-price projects that include significant amounts of material or other non-labor related costs which
could distort the percent completed within a percentage-of-completion calculation. The Company’s estimate of the
total labor costs it expects to incur over the term of the contract is based on the nature of the project and our past
experience on similar projects, and includes management judgments and estimates which affect the amount of
revenue recognized on fixed-price contracts in any accounting period.
In 2010, the Company entered into a series of contracts with a customer that provided for application
customization and integration services, as well as post contract support (PCS) services, specifically utilizing one of
several of the software tools the Company has internally developed. These services were provided under a
software-as-a-service model. As the contracts were closely interrelated and dependent on each other, for
accounting purposes the contracts were considered to be one arrangement. Additionally, as the project included
significant modification and customization services to transform the previously developed software tool into an
expanded tool intended to meet the customer’s requirements, the percentage-of-completion method of contract
accounting was being utilized for the project. Total revenue and costs were recognized equally until completion of
the application customization and integration services portion of the project. The remaining unrecognized portion of
the contract value was recognized on a straight-line basis over the term of the PCS period which ended on
December 31, 2011.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and
percentage-of-completion methods for the years ended December 31, 2012, 2011 and 2010 is as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
17
2012
2011
2010
90%
8%
2%
91%
7%
2%
91%
6%
3%
100%
100%
100%
Results of Operations
The table below sets forth percentage information calculated as a percentage of consolidated revenue as
reported on the Company’s consolidated statements of income as included in Item 8, “Financial Statements and
Supplementary Data” in this report.
Year Ended December 31,
(percentage of revenue)
Revenue
Direct costs
Selling, general and administrative expenses
Operating income
Interest and other income (expense), net
Income before income taxes
Provision for income taxes
Net income
2012 as compared with 2011
2012
2011
2010
100.0% 100.0 % 100.0 %
78.4%
15.8%
5.8%
0.2%
6.0%
2.2%
3.8%
78.7 %
16.4 %
4.9 %
(0.1)%
4.8 %
1.8 %
3.0 %
78.5 %
17.3 %
4.2 %
(0.1)%
4.1 %
1.6 %
2.5 %
The Company recorded revenue in 2012 and 2011 as follows:
Year Ended December 31,
% of total
2012
% of total
2011
Year Change
Year-over-
(dollars in thousands)
North America
Europe
Total
83.8% $ 355,805
83.1% $ 329,295
16.2%
68,610
100.0% $ 424,415
16.9%
66,980
100.0% $ 396,275
8.1%
2.4%
7.1%
Reimbursable expenses billed to customers and included in revenue totaled $13.4 million and $12.7 million in
2012 and 2011, respectively.
In North America, the significant revenue increase in 2012 as compared with 2011 was due to strong demand
for the Company’s IT solutions services. On a consolidated basis, IT solutions revenue increased $26.4 million or
17.9%, and was primarily driven by an increase in the Company’s EMR work for providers in the healthcare vertical
market in North America. The Company expects demand for its EMR solutions and other healthcare related
services to remain strong in 2013. IT staffing revenue increased $1.8 million or 0.7% as demand for these services
significantly slowed due to the continuing challenging economic conditions in the United States. During 2010 and
2011, the Company had strong demand for its IT staffing services as customers backfilled for positions that they
had eliminated in 2009 due to the onset of the recession in North America in late 2008.
The Company’s European operations include Belgium, Luxembourg and the United Kingdom. The increase in
year-over-year revenue in the Company’s European operations was primarily due to strength in the Company’s
European IT solutions business. When considering the year-over-year change in revenue in constant currencies,
the revenue from our European operations increased 10.9%. This revenue increase was offset by the weakness
relative to the U.S. dollar of the currencies of Belgium, Luxembourg, and the United Kingdom. In Belgium and
Luxembourg, the functional currency is the Euro, while in the United Kingdom the functional currency is the British
Pound. In 2012 as compared with 2011, the average value of the Euro decreased 7.7%, while the average value of
the British Pound decreased 1.2%. A significant portion of the Company's revenue from its European operations is
generated in Belgium and Luxembourg. Had there been no change in these exchange rates from 2011 to 2012,
total European revenue would have been approximately $5.4 million higher, or $74.0 million as compared with the
$68.6 million reported.
IBM is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During
2011, the NTS Agreement was renewed for three years until December 31, 2014. As part of the NTS Agreement,
the Company also provides its services as a predominant supplier to IBM’s Integrated Technology Services unit and
as the sole provider to the Systems and Technology Group business unit. These agreements accounted for
18
approximately 91.9% of all of the services provided to IBM by the Company in 2012. In 2012, 2011, and 2010, IBM
accounted for $113.5 million or 26.7%, $116.5 million or 29.4%, and $102.3 million or 30.9% of the Company’s
consolidated revenue, respectively. In 2012, IBM spun its retail business off to another large company. While CTG
retained the work, this reduced our revenue from IBM in 2012 by $3.2 million. We expect to continue to derive a
significant portion of our revenue from IBM in future years. However, a significant decline or the loss of the revenue
from IBM would have a significant negative effect on our operating results. The Company’s accounts receivable
from IBM at December 31, 2012 and 2011 amounted to $12.6 million and $12.8 million, respectively. No other
customer accounted for more than 10% of the Company’s revenue in 2012, 2011 or 2010.
Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 78.4% of
consolidated revenue in 2012 and 78.7% of consolidated revenue in 2011. The decrease in direct costs as a
percentage of revenue in 2012 compared with 2011 was due to a continued shift in the Company's business mix to
a higher percentage of solutions business, which incurs lower direct costs as a percentage of revenue than the
Company's staffing business.
Selling, general and administrative (SG&A) expenses were 15.8% of revenue in 2012 as compared with
16.4% of revenue in 2011. The SG&A decrease as a percentage of revenue in 2012 as compared with 2011 is
primarily due to disciplined cost management and the effect of operating leverage resulting from revenue growth.
Operating income was 5.8% of revenue in 2012 as compared with 4.9% of revenue in 2011. The increase in
operating income year-over-year was primarily due to the favorable change in business mix to more solutions
services in 2012, and lower SG&A costs as a percentage of revenue. Operating income from North American
operations was $21.3 million and $16.6 million in 2012 and 2011, respectively, while European operations
generated operating income of $3.2 million and $2.7 million in 2012 and 2011, respectively. Operating income in
2012 in the Company’s European operations would have been approximately $0.2 million higher if there had been
no change in foreign currency exchange rates year-over-year.
Interest and other income (expense), net was 0.2% of revenue in 2012 and (0.1)% of revenue in 2011. Net
other income in 2012 primarily resulted from the receipt of life insurance proceeds totaling approximately $1.3
million for two former executives that passed away during 2012. This income in 2012 was partially offset by bank
fees. In 2011, partially offsetting net interest and other expenses that resulted from bank fees and a loss on
intercompany balances settled or intended to be settled at year-end, was approximately $0.1 million resulting from a
gain on a sale of property.
The Company’s effective tax rate (ETR) is calculated based upon the full year's operating results, and various
tax related items. The Company’s normal ETR ranges from 38% to 42%. The ETR in 2012 was 36.5%, while the
2011 ETR was 37.6%. The ETR in 2012 was lower due to approximately $0.5 million in tax expense related to non-
taxable life insurance proceeds received during the year. In addition, the Company recorded an additional $0.2
million reduction of state tax expense as a result of the recording of certain favorable provision-to-return
adjustments associated with the Company's 2011 income tax returns. The ETR during 2011 was reduced as the
Company recorded $0.3 million of tax credits related to research and development activities, and $0.3 million of
federal tax credits related to the retention of certain individuals hired during 2010. The impact of these credits was
partially offset by an increase in the valuation allowance of $0.2 million associated with net operating losses
incurred by certain foreign subsidiaries.
The Company did not record a tax benefit for its research and development activities during 2012 as the
legislation extending the tax credit related to these expenses, the American Taxpayer Relief Act of 2012, was not
passed by the U.S. federal government until January 2013. As required under current accounting guidelines, the
Company expects to recognize a tax benefit of approximately $0.3 million for these 2012 credits in the 2013 first
quarter.
Net income for 2012 was 3.8% of revenue or $0.96 per diluted share, compared with net income of 3.0% of
revenue or $0.71 per diluted share in 2011. Diluted earnings per share were calculated using 16.8 million weighted-
average equivalent shares outstanding in 2012 and 16.7 million in 2011. The increase in shares year-over-year is
due to the dilutive effect of incremental shares outstanding under the Company’s equity-based compensation plans.
This increase was partially offset by purchases of approximately 0.3 million shares for treasury by the Company
during 2012.
19
2011 as compared with 2010
The Company recorded revenue in 2011 and 2010 as follows:
Year Ended December 31,
% of total
2011
% of total
2010
Year Change
Year-over-
(dollars in thousands)
North America
Europe
Total
83.1% $ 329,295
81.7% $ 270,694
16.9%
66,980
100.0% $ 396,275
18.3%
60,713
100.0% $ 331,407
21.6%
10.3%
19.6%
Reimbursable expenses billed to customers and included in revenue totaled $12.7 million and $9.1 million in
2011 and 2010, respectively.
In North America, the significant revenue increase in 2011 as compared with 2010 was due to strong demand
for both the Company’s IT solutions and IT staffing services as general economic conditions continued to improve
from those that existed during the recession in 2008/2009. IT solutions revenue increased 33.1% and IT staffing
revenue increased 12.7% in 2011 as compared with 2010. The IT solutions revenue increase totaled $36.9 million
and was primarily driven by an increase in the Company’s EMR work. The IT staffing revenue increase totaled
$28.0 million as the Company’s customers filled staffing requirements that had remained open from 2009 due to the
economic recession in the United States.
The Company’s European operations include Belgium, Luxembourg and the United Kingdom. The increase in
year-over-year revenue in the Company’s European operations was primarily due to modest strength in the
Company’s European IT staffing business, much of which is due to work with government ministries associated with
the European Union. This revenue increase was supported by the strength relative to the U.S. dollar of the
currencies of Belgium, Luxembourg, and the United Kingdom. In Belgium and Luxembourg, the functional currency
is the Euro, while in the United Kingdom the functional currency is the British Pound. In 2011 as compared with
2010, the average value of the Euro increased 4.9%, while the average value of the British Pound increased 3.8%.
Had there been no change in these exchange rates from 2010 to 2011, total European revenue would have been
approximately $3.0 million lower, or $64.0 million as compared with the $67.0 million reported.
IBM is CTG’s largest customer. CTG provides services to various IBM divisions in many locations. During the
2011 fourth quarter, the NTS Agreement was renewed for three years until December 31, 2014. As part of the NTS
Agreement, the Company also provides its services as a predominant supplier to IBM’s Integrated Technology
Services unit and as the sole provider to the Systems and Technology Group business unit. These agreements
accounted for approximately 94% of all of the services provided to IBM by the Company in 2011. In 2011, 2010,
and 2009, IBM accounted for $116.5 million or 29.4%, $102.3 million or 30.9%, and $71.2 million or 25.8% of the
Company’s consolidated revenue, respectively. The Company continued to derive a significant portion of its
revenue from IBM in 2012. However, a significant decline or the loss of the revenue from IBM in 2013 or future
years would have a significant negative effect on our operating results. The Company’s accounts receivable from
IBM at December 31, 2011 and 2010 amounted to $12.8 million and $13.1 million, respectively. No other customer
accounted for more than 10% of the Company’s revenue in 2011, 2010 or 2009.
Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 78.7% of
consolidated revenue in 2011 and 78.5% of consolidated revenue in 2010. The increase in direct costs as a
percentage of revenue in 2011 compared with 2010 was due to an increase in employee benefit costs, primarily
unemployment insurance, in 2011.
Selling, general and administrative (SG&A) expenses were 16.4% of revenue in 2011 as compared with
17.3% of revenue in 2010. The SG&A decrease as a percentage of revenue in 2011 as compared with 2010 is
primarily due to disciplined cost management and the economies of scale, especially pertaining to fixed costs,
associated with the revenue growth experienced in 2011 as compared with 2010.
Operating income was 4.9% of revenue in 2011 as compared with 4.2% of revenue in 2010. Operating
income from North American operations was $16.6 million and $12.4 million in 2011 and 2010, respectively, while
European operations generated operating income of $2.7 million and $1.5 million in 2011 and 2010, respectively.
Operating income in the Company’s European operations increased by approximately $0.2 million due to the
change in foreign currency exchange rates year-over-year.
20
Interest and other expense, net was 0.1% of revenue in both 2011 and 2010. This balance primarily consisted
of interest expense on borrowings under the Company’s revolving line of credit, bank fees, and foreign exchange
losses. The Company recorded a net exchange loss on intercompany balances totaling less than $0.1 million in
both 2011 and 2010, resulting from balances settled during the year or those intended to be settled as of
December 31, 2011. In 2011, partially offsetting the net interest and other expense balance was approximately $0.1
million resulting from a gain on a sale of property.
The Company’s ETR is calculated based upon the full year's operating results, and various tax related items.
The Company’s normal ETR ranges from 38% to 42%. The 2011 ETR was 37.6%, and the 2010 ETR was 39.2%.
The ETR during 2011 was reduced as the Company recorded $0.3 million of tax credits related to research and
development activities, and $0.3 million of federal tax credits related to the retention of certain individuals hired
during 2010. The impact of these credits was partially offset by an increase in the valuation allowance of $0.2
million associated with net operating losses incurred by certain foreign subsidiaries.
Net income for 2011 was 3.0% of revenue or $0.71 per diluted share, compared with net income of 2.5% of
revenue or $0.52 per diluted share in 2010. Diluted earnings per share were calculated using 16.7 million
weighted-average equivalent shares outstanding in 2011 and 16.1 million in 2010. The increase in shares year-
over-year was due to the dilutive effect of incremental shares outstanding under the Company’s equity-based
compensation plans. This increase was partially offset by purchases of approximately 0.3 million shares for
treasury by the Company during 2011.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted
accounting principles requires the Company’s management to make estimates, judgments and assumptions that
affect the amounts reported in the consolidated financial statements and accompanying notes. The Company’s
significant accounting policies are included in note 1 to the consolidated financial statements contained in this
annual report on Form 10-K under Item 8, “Financial Statements and Supplementary Data.” These policies, along
with the underlying assumptions and judgments made by the Company’s management in their application, have a
significant impact on the Company’s consolidated financial statements. The Company identifies its most critical
accounting policies as those that are the most pervasive and important to the portrayal of the Company’s financial
position and results of operations, and that require the most difficult, subjective and/or complex judgments by
management regarding estimates about matters that are inherently uncertain. The Company’s critical accounting
policies are those related to goodwill valuation, and the valuation allowance for deferred income taxes.
Goodwill Valuation
The Company has a goodwill balance of $35.7 million. The balance is evaluated annually as of the
Company’s October fiscal month-end (the measurement date), or more frequently if facts and circumstances
indicate impairment may exist. This evaluation, as applicable, is based on estimates and assumptions that
may be used to 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 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.
At the respective measurement dates for 2012, 2011, and 2010, the Company completed its annual
valuation of the business to which the Company’s goodwill relates. During 2012, the Company utilized the
provisions under Accounting Standards Update No. 2011-08, “Intangibles-Goodwill and Other (Topic 350):
Testing Goodwill for Impairment,” which allow public entities to first assess qualitative factors to determine
whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this new process,
an entity is no longer required to calculate the fair value of a reporting unit unless the qualitative assessment
shows that it is more likely than not that its fair value is less than its carrying amount. During 2011 and 2010,
the company utilized the assistance of an independent third party appraiser to complete its review.
The 2010 and 2011 measurement date valuations indicated that the estimated fair value of the
business was substantially in excess of its carrying value, with the estimated fair value of the unit exceeding
the carrying value by 116% in 2011, and 31% in 2010. From its internal qualitative assessment completed in
2012, the Company believes the fair value of the business has increased from 2011, and continues to be
substantially in excess of the carrying value of the business. Additionally, there are no other facts or
21
circumstances that arose during 2012, 2011 or 2010 which led management to believe the goodwill balance
was impaired.
Income Taxes—Valuation Allowances on Deferred Tax Assets
At December 31, 2012, the Company had a total of approximately $7.6 million of current and non-
current deferred tax assets, net of deferred tax liabilities, recorded on its consolidated balance sheet. The
deferred tax assets, net, primarily consist of deferred compensation, loss carryforwards and state taxes. The
changes in deferred tax assets and liabilities from period to period are determined based upon the changes in
differences between the basis of assets and liabilities for financial reporting purposes and the basis of assets
and liabilities for tax purposes, as measured by the enacted tax rates when these differences are estimated to
reverse. The Company has made certain assumptions regarding the timing of the reversal of these assets
and liabilities, and whether taxable income in future periods will be sufficient to recognize all or a part of any
gross deferred tax asset of the Company.
At December 31, 2012, the Company had deferred tax assets recorded resulting from net operating
losses in previous years totaling approximately $1.1 million. The Company has analyzed each jurisdiction’s
tax position, including forecasting potential taxable income in future periods and the expiration of the net
operating loss carryforwards as applicable, and determined that it is unclear whether all of these deferred tax
assets will be realized at any point in the future. Accordingly, at December 31, 2012, the Company had offset
a portion of these assets with a valuation allowance totaling $1.0 million, resulting in a net deferred tax asset
from net operating loss carryforwards of approximately $0.1 million.
The Company’s deferred tax assets and their potential realizability are evaluated each quarter to
determine if any changes should be made to the valuation allowance. Any change in the valuation allowance
in the future could result in a change in the Company’s ETR. A 1% change in the ETR in 2012 would have
increased or decreased net income by approximately $255,000, or approximately $0.02 per diluted share.
Other Estimates
The Company has also made a number of estimates and assumptions relating to the reporting of its
assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial
statements pursuant to the rules and regulations of the SEC, the FASB, and other regulatory authorities. Such
estimates primarily relate to the valuation of stock options for recording equity-based compensation expense,
allowances for doubtful accounts receivable, investment valuation, legal matters, and estimates of progress
toward completion and direct profit or loss on contracts, as applicable. As future events and their effect on the
Company's operating results cannot be determined with precision, actual results could differ from these
estimates. Changes in the economic climates in which the Company operates may affect these estimates and
will be reflected in the Company’s financial statements in the event they occur.
Financial Condition and Liquidity
Cash provided by operating activities was $21.2 million, $8.6 million and $9.2 million in 2012, 2011 and 2010,
respectively. In 2012, net income was $16.2 million, while other non-cash adjustments, primarily consisting of
depreciation expense, equity-based compensation, deferred income taxes, and deferred compensation totaled $5.9
million. In 2011 and 2010, net income was $11.9 million and $8.4 million, respectively, while the corresponding non-
cash adjustments netted to $1.9 million and $2.6 million, respectively. The increase in non-cash adjustments in
2012 as compared with 2011 was primarily due to an increase in depreciation and amortization expense of $0.6
million, equity-based compensation of $0.6 million, deferred taxes of $1.0 million, and deferred compensation of
$1.6 million. The decrease in non-cash adjustments in 2011 as compared with 2010 was primarily due to an
increase in depreciation and amortization expense of $0.6 million and equity-based compensation expense of $0.3
million, offset by a decrease in deferred taxes of $0.7 million and deferred compensation of $0.7 million. The
increases in 2012 and 2011 for depreciation and amortization expense was due to the completion of all existing
capitalized software projects and the corresponding initiation of depreciation expense on those projects. The
change in 2012 from 2011 for deferred compensation primarily relates to a change in the discount rate for the
Netherlands defined-benefit plan.
Accounts receivable balances increased $2.2 million in 2012 as compared with 2011, $10.6 million in 2011 as
compared with 2010, and $13.2 million in 2010 as compared with 2009. The increase in the accounts receivable
balance in 2012 resulted from an increase in revenue in the 2012 fourth quarter of approximately 6.9% when
compared with the 2011 fourth quarter. The increase in revenue was offset by a decrease in days sales outstanding
(DSO). DSO is calculated by dividing accounts receivable obtained from the consolidated balance sheet by
22
average daily revenue for the fourth quarter of the respective year. DSO was 61 days at December 31, 2012 ,
whereas the DSO at December 31, 2011 was 62 days. The increase in the accounts receivable balance in 2011 as
compared with 2010 resulted from an increase in revenue in the 2011 fourth quarter of approximately 16% when
compared with the 2010 fourth quarter. DSO also increased to 62 days at December 31, 2011 from 60 days at
December 31, 2010. The increase in the accounts receivable balance in 2010 resulted from an increase in revenue
in the 2010 fourth quarter of approximately 29% when compared with the 2009 fourth quarter.
Other assets decreased less than $0.1 million in 2012, approximately $1.1 million in 2011, and approximately
$1.3 million in 2010. The decrease in 2011 from 2010 was primarily due to a decrease in the actuarially determined
asset recorded for the Netherlands defined benefit plan, while the decrease in 2010 from 2009 was due to the
timing of the Company’s borrowings against the cash surrender value of insurance policies it owns. Accounts
payable decreased $0.3 million in 2012, increased $1.3 million in 2011, and decreased $0.6 million in 2010. The
increase in accounts payable in 2011 is primarily due to a general increase in the size of the Company and the
timing of payments near year-end. The decrease in accounts payable in 2010 is primarily due to the timing of
certain payments near year-end. Accrued compensation increased $1.0 million in 2012 primarily due to an increase
in employee headcount of about 200 from 2011, $1.5 million in 2011 primarily due to an increase in employee
headcount of about 300 from 2010, and increased $10.0 million in 2010 primarily due to a significant increase in
headcount of greater than 500 employees year-over-year and the accrual of year-end incentives due to higher
profitability in 2010 as compared with 2009. Income taxes payable decreased $1.0 million in 2012 due to the timing
of payments made in 2012 and certain provision-to-return adjustments made when filing the Company's 2011 tax
returns. Income taxes payable increased $1.2 million in 2011 and $0.5 million in 2010 due to higher taxable income
in 2011 and 2010, and the timing and amount of estimated tax payments near year-end.
Investing activities used $2.0 million, $1.7 million, and $2.0 million of cash in 2012, 2011 and 2010,
respectively, primarily due to additions to property, equipment and capitalized software of $1.9 million in 2012, $1.9
million in 2011, and $2.0 million in 2010. The Company has no significant commitments for the purchase of
property or equipment at December 31, 2012, and does not expect the amount to be spent in 2013 on additions to
property, equipment and capitalized software to significantly vary from the amount spent in 2012.
Financing activities used $1.3 million of cash in 2012, provided $1.0 million of cash in 2011, and used $2.1
million of cash in 2010. The Company received $3.8 million, $3.8 million, and $1.0 million during 2012, 2011, and
2010, respectively, from the proceeds from stock option exercises and excess tax benefits from equity-based
compensation transactions. These increases in 2012 and 2011 were larger as compared with 2010 due to a
significant increase in the Company’s stock price during 2011 and 2012 which led to a higher level of stock option
exercises.
During 2012, 2011 and 2010, the Company used $4.6 million, $3.6 million, and $3.0 million, respectively, to
purchase approximately 0.3 million, 0.3 million, 0.4 million shares of its stock for treasury. During February 2011,
the Company’s Board of Director’s authorized 1.0 million additional shares for future stock repurchases under this
program. Approximately 0.5 million, 0.9 million, and 0.2 million shares remain authorized for future purchases
under the Company’s share repurchase plan at December 31, 2012, 2011 and 2010, respectively. At December 31,
2012, 2011, and 2010, the Company also experienced changes in its cash account overdrafts, which are primarily
due to timing of cash payments at year-end, of $(0.8) million, $0.5 million, and $(0.3) million, respectively.
The Company did not have any borrowings outstanding under its revolving line of credit (LOC) at
December 31, 2012, 2011 or 2010. The term of the LOC was renewed during 2010 and now extends to April 2014.
The LOC totals $35.0 million and can be used for borrowings or letter of credit commitments. Letters of credit at
December 31, 2012, 2011, and 2010 totaled $0.5 million, $0.4 million, and $0.4 million, respectively. The Company
borrows or repays the LOC as needed based upon its working capital obligations, including the timing of the U.S. bi-
weekly payroll. The Company did not borrow any amounts under the line of credit during 2012. The average
outstanding balances under the Company’s LOC for 2011 and 2010 were approximately $0.4 million and $1.3
million, respectively.
The Company is required to meet certain financial covenants in order to maintain borrowings under its
revolving credit line, pay dividends, and make acquisitions. The covenants are measured quarterly, and at
December 31, 2012 include a leverage ratio which must be no more than 2.75 to 1, a calculation of minimum
tangible net worth which must be no less than $51.2 million, and total expenditures for property, equipment and
capitalized software cannot exceed $5.0 million annually. The Company was in compliance with these covenants at
December 31, 2012 as its leverage ratio was 0.0, its minimum tangible net worth was $66.7 million, and 2012
expenditures for property, equipment and capitalized software were $1.9 million. The Company was also in
23
compliance with its required covenants at December 31, 2011 and December 31, 2010. When considering current
market conditions and the Company’s current operating results, the Company believes it will be able to meet its
covenants, as applicable, in 2013 and future years.
Of the total cash and cash equivalents reported on the consolidated balance sheet at December 31, 2012 of
$40.6 million, approximately $14.7 million is held by the Company’s foreign operations and is considered to be
indefinitely reinvested in those operations. During January 2013, the Company used a portion of its cash held by its
foreign operations to purchase etrinity, a company with operations in Belgium and the Netherlands. The Company
has not repatriated any of its cash and cash equivalents from its foreign operations in the past five years, and has
no intention of doing so in the foreseeable future as the funds are required to meet the working capital needs of its
foreign operations.
The Company believes existing internally available funds, cash potentially generated from operations, and
borrowings available under the Company’s LOC totaling approximately $34.5 million at December 31, 2012, will be
sufficient to meet foreseeable working capital and capital expenditure needs, fund stock repurchases, and to allow
for future internal growth and expansion.
Off-Balance Sheet Arrangements
The Company did not have off-balance sheet arrangements or transactions in 2012, 2011 or 2010 other than
guarantees in our European operations that support office leases and the performance under government
contracts. These guarantees totaled approximately $2.5 million at December 31, 2012.
Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposures consist of interest rate risk associated with variable rate
borrowings and foreign currency exchange risk associated with the Company’s European operations. See Item 7A,
“Quantitative and Qualitative Disclosure about Market Risk” in this report.
Contractual Obligations
The Company intends to satisfy its contractual obligations from operating cash flows, and, if necessary, from
draws on its revolving credit line. A summary of the Company’s contractual obligations at December 31, 2012 is as
follows:
(in millions)
Long-term debt
Capital lease obligations
Operating lease obligations
Purchase obligations
Deferred compensation benefits (U.S.)
Deferred compensation benefits Europe
Other long-term liabilities
Less
than
1 year
Total
Years
2-3
Years
4-5
More
than
5 years
A $
— $
— $
— $
— $
B
C
D
E
F
G
—
13.9
2.0
8.4
3.8
0.4
—
4.7
1.6
1.0
0.1
—
—
6.2
0.4
1.5
0.3
0.1
—
2.2
—
1.3
0.4
0.1
—
—
0.8
—
4.6
3.0
0.2
8.6
Total
$
28.5 $
7.4 $
8.5 $
4.0 $
A A $35.0 million revolving credit agreement (Agreement) that expires in April 2014. The Company uses this
Agreement to fund its working capital obligations as needed, primarily funding the U.S. bi-weekly payroll. There
were no borrowings outstanding under the Agreement at December 31, 2012. The Company does currently
have one outstanding letter of credit under the Agreement totaling approximately $0.5 million that collateralizes
an employee benefit program.
B The Company does not have any capital lease obligations outstanding at December 31, 2012.
C Operating lease obligations relate to the rental of office space, office equipment, and automobiles leased in the
Company’s European operations. Total rental expense under operating leases in 2012, 2011, and 2010 was
approximately $6.3 million, $6.8 million, and $6.4 million, respectively.
24
D The Company’s purchase obligations in 2013, 2014 and 2015 total approximately $2.0 million, including $0.8
million for software maintenance, support and related fees, $0.3 million for telecommunications, $0.3 million for
computer-based training courses, $0.2 million for professional organization memberships, $0.2 million for
facilities, and $0.2 million for recruiting services.
E The Company is committed for deferred compensation benefits in the U.S. under two plans. The Executive
Supplemental Benefit Plan (ESBP) provides certain former key executives with deferred compensation benefits.
The ESBP was amended as of November 30, 1994 to freeze benefits for participants at that time. Currently, 15
individuals are receiving benefits under this plan. The ESBP is deemed to be unfunded as the Company has
not specifically identified Company assets to be used to discharge the deferred compensation benefit liabilities.
The Company also has a non-qualified defined-contribution deferred compensation plan for certain key
executives. Contributions to this plan in 2012 were $0.4 million. The Company anticipates making contributions
totaling approximately $0.3 million in 2013 to this plan for amounts earned in 2012.
F The Company retained a contributory defined-benefit plan for its previous employees located in the Netherlands
when the Company disposed of its subsidiary, CTG Nederland B.V. This plan was curtailed on January 1, 2003
for additional contributions. The Company does not anticipate making additional contributions to fund the plan
in future years.
G The Company has other long-term liabilities including payments for a postretirement benefit plan for six retired
employees and their spouses, totaling nine participants.
25
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
The Company’s primary market risk exposures consist of interest rate risk associated with variable rate
borrowings and foreign currency exchange risk associated with the Company’s European operations.
In December 2010, the Company entered into an amendment of its credit agreement which extended the
expiration date of the agreement to April 2014. This credit agreement allows the Company to borrow up to $35.0
million. At both December 31, 2012 and 2011, there were no amounts outstanding under the credit agreement.
However, at December 31, 2012 and 2011, there was $0.5 million and $0.4 million, respectively, outstanding under
letters of credit under the credit agreement.
The Company did not borrow any amounts under the line of credit during 2012. The maximum amounts
outstanding under the Company’s credit agreements during 2011 and 2010 were $5.8 million, and $7.8 million,
respectively. Average bank borrowings outstanding for the years 2011 and 2010 were $0.4 million and $1.3 million,
respectively, and carried weighted-average interest rates of 2.3% and 2.1%, respectively. A one percent change in
the weighted-average interest rate during 2011 would have increased or decreased interest expense by $4,000.
The Company incurred commitment fees totaling approximately $0.1 million in each of 2012, 2011 and 2010 relative
to the agreement.
During 2012, revenue was affected by the year-over-year foreign currency exchange rate changes of Belgium,
Luxembourg, and the United Kingdom, which are the countries in which the Company’s European subsidiaries
operate. In Belgium and Luxembourg, the functional currency is the Euro, while in the United Kingdom the
functional currency is the British Pound. Had there been no change in these exchange rates from 2011 to 2012,
total European revenue would have been approximately $5.4 million higher in 2012, or $74.0 million as compared
with the $68.6 million reported. Operating income in the Company’s European operations would have been
approximately $0.2 million higher if there had been no change in foreign currency exchange rates year-over-year.
The Company recorded a net exchange loss on intercompany balances totaling approximately $0.1 million in
2011, resulting from balances settled during the year, or those intended to be settled as of December 31, 2011. No
such amounts were recorded during 2012. The Company has historically not used any market risk sensitive
instruments to hedge its foreign currency exchange risk. The Company believes the market risk related to
intercompany balances in future periods will not have a material effect on its results of operations.
26
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Computer Task Group, Incorporated:
We have audited the accompanying consolidated balance sheets of Computer Task Group, Incorporated and
subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income,
comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2012. 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 the standards of the Public Company Accounting Oversight
Board (United States). 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 as of December 31, 2012 and 2011,
and the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2012, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Computer Task Group, Incorporated’s internal control over financial reporting as of December 31,
2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 22, 2013
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Buffalo, New York
February 22, 2013
27
Consolidated Statements of Income
Year Ended December 31,
(amounts in thousands, except per-share data)
Revenue
Direct costs
Selling, general and administrative expenses
Operating income
Interest and other income
Interest and other expense
Income before income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
2012
2011
2010
$ 424,415 $ 396,275 $ 331,407
333,086
311,984
260,172
66,867
24,462
1,424
441
25,445
9,280
64,981
19,310
231
418
19,123
7,185
16,165 $
11,938 $
57,305
13,930
102
263
13,769
5,397
8,372
1.07 $
0.96 $
0.80 $
0.71 $
0.57
0.52
15,172
16,841
14,968
16,731
14,697
16,073
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
28
Consolidated Statements of Comprehensive Income
Year Ended December 31,
(amounts in thousands)
Net Income
Foreign currency adjustment
Pension loss adjustment, net of taxes of $(396), $295, and $247 in 2012,
2011, and 2010, respectively
Comprehensive income
2012
2011
2010
$
16,165 $
11,938 $
8,372
370
(326)
(1,093)
(2,820)
(1,743)
(542)
$
13,715 $
9,869 $
6,737
The accompanying notes are an integral part of these consolidated financial statements.
29
Consolidated Balance Sheets
December 31,
(amounts in thousands, except share balances)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $862 and $965 in 2012 and 2011,
respectively
Prepaid and other current assets
Deferred income taxes
Total current assets
Property, equipment and capitalized software, net
Goodwill
Deferred income taxes
Other assets
Investments
Total assets
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable
Accrued compensation
Advance billings on contracts
Other current liabilities
Income taxes payable
Total current liabilities
Deferred compensation benefits
Other long-term liabilities
Total liabilities
Shareholders’ Equity:
Common stock, par value $0.01 per share, 150,000,000 shares authorized;
27,017,824 shares issued
Capital in excess of par value
Retained earnings
Less: Treasury stock of 8,276,014 and 8,540,864 shares at cost, in 2012 and 2011,
respectively
Stock Trusts of 3,363,351 shares at cost in both periods
Other
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
2012
2011
$ 40,614
$ 22,414
70,459
1,450
1,145
113,668
6,916
35,678
6,435
2,871
637
$ 166,205
67,801
1,876
1,221
93,312
7,969
35,678
7,062
2,921
550
$ 147,492
$
$ 10,170
32,162
2,481
4,747
641
50,201
12,847
376
63,424
9,532
30,971
1,756
3,972
1,695
47,926
10,231
530
58,687
270
119,183
99,644
270
115,895
83,479
(50,302 )
(55,083 )
(251 )
(10,680 )
102,781
$ 166,205
(47,320 )
(55,083 )
(206 )
(8,230 )
88,805
$ 147,492
The accompanying notes are an integral part of these consolidated financial statements.
30
Consolidated Statements of Cash Flows
Year Ended December 31,
(amounts in thousands)
Cash flow from operating activities:
Net income
Adjustments:
Depreciation and amortization expense
Equity-based compensation expense
Deferred income taxes
Deferred compensation
(Gain) loss on sales of property and equipment
Changes in assets and liabilities:
Increase in accounts receivable
(Increase) decrease in prepaid and other current assets
Decrease in other assets
Increase (decrease) in accounts payable
Increase in accrued compensation
Increase (decrease) in income taxes payable
Increase (decrease) in advance billings on contracts
Increase (decrease) in other current liabilities
Increase (decrease) in other long-term liabilities
Net cash provided by operating activities
Cash flow from investing activities:
Additions to property and equipment
Additions to capitalized software
Deferred compensation plan investments, net
Proceeds from sales of property and equipment
Net cash used in investing activities
Cash flow from financing activities:
Proceeds from stock option plan exercises
Excess tax benefits from equity-based compensation
Proceeds from Employee Stock Purchase Plan
Change in cash overdraft, net
Purchase of stock for treasury
Net cash provided by (used in) financing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2012
2011
2010
$
16,165 $
11,938 $
8,372
2,919
2,236
116
600
20
2,271
1,654
(883)
(1,036)
(136)
1,711
1,349
(154)
(343)
(9)
(2,239)
(10,561)
(13,210)
403
50
(293)
1,002
(1,067)
707
732
(195)
93
1,091
1,250
1,530
1,176
(568)
733
53
(51)
1,318
(581)
9,962
526
850
(493)
(82)
21,156
8,605
9,165
(1,872)
—
(113)
5
(1,584)
(364)
97
176
(1,000)
(1,016)
24
41
(1,980)
(1,675)
(1,951)
1,144
2,615
294
(777)
(4,591)
(1,315)
339
18,200
22,414
2,007
1,801
274
539
(3,601)
1,020
(373)
7,577
14,837
781
242
178
(321)
(2,993)
(2,113)
(687)
4,414
10,423
$
40,614 $
22,414 $
14,837
The accompanying notes are an integral part of these consolidated financial statements.
31
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T
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of Computer Task Group, Incorporated, and its
subsidiaries (the Company or CTG), located primarily in North America and Europe. There are no unconsolidated
entities, or off-balance sheet arrangements other than certain guarantees supporting office leases or the
performance under government contracts in the Company's European operations. All inter-company accounts and
transactions have been eliminated. Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles.
Such estimates primarily relate to the valuation of goodwill, valuation allowances for deferred tax assets, actuarial
assumptions including discount rates and expected rates of return, as applicable, for the Company’s defined benefit
and postretirement benefit plans, the allowance for doubtful accounts receivable, assumptions underlying stock
option valuation, investment valuation, legal matters, other contingencies and estimates of progress toward
completion and direct profit or loss on contracts. The current economic environment has increased the degree of
uncertainty inherent in these estimates and assumptions. Actual results could differ from those estimates.
The Company operates in one industry segment, providing IT services to its clients. These services include IT
Solutions and IT Staffing. CTG provides these primary services to all of the markets that it serves. 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. The Company promotes a significant portion of its
services through four vertical market focus areas: Healthcare (which includes services provided to healthcare
providers, health insurers, and life sciences companies), Technology Service Providers, Financial Services, and
Energy. The Company focuses on these four vertical areas as it believes that these areas are either higher growth
markets than the general IT services market and the general economy, or are areas that provide greater potential
for the Company’s growth due to the size of the vertical market. The remainder of CTG’s revenue is derived from
general markets.
CTG’s revenue by vertical market for the years ended December 31, 2012, 2011 and 2010 is as follows:
Healthcare
Technology service providers
Financial services
Energy
General markets
Total
Revenue and Cost Recognition
2012
2011
2010
33%
31%
6%
6%
24%
100%
30%
34%
7%
6%
23%
100%
27%
36%
6%
7%
24%
100%
The Company recognizes revenue when persuasive evidence of an arrangement exists, when the services
have been rendered, when the price is determinable, and when collectibility of the amounts due is reasonably
assured. For time-and-material contracts, revenue is recognized as hours are incurred and costs are expended.
For contracts with periodic billing schedules, primarily monthly, revenue is recognized as services are rendered to
the customer. Revenue for fixed-price contracts is recognized as per the proportional method of accounting using
an input-based approach whereby salary and indirect labor costs incurred are measured and compared with the
total estimate of costs of such items at completion for a project. Revenue is recognized based upon the
percentage-of-completion calculation of total incurred costs to total estimated costs. The Company infrequently
works on fixed-price projects that include significant amounts of material or other non-labor related costs which
could distort the percent complete within a percentage-of-completion calculation. The Company’s estimate of the
total labor costs it expects to incur over the term of the contract is based on the nature of the project and our past
experience on similar projects, and includes management judgments and estimates which affect the amount of
revenue recognized on fixed-price contracts in any accounting period.
34
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and
percentage-of-completion methods for the years ended December 31, 2012, 2011 and 2010 is as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
2012
2011
2010
90%
8%
2%
91%
7%
2%
91%
6%
3%
100%
100%
100%
The Company includes billable expenses in its accounts as both revenue and direct costs. These billable
expenses totaled $13.4 million, $12.7 million, and $9.1 million in 2012, 2011 and 2010, respectively.
Software Revenue Recognition
In 2010, the Company entered into a series of contracts with a customer that provided for application
customization and integration services, as well as post contract support (PCS) services, specifically utilizing one of
several of the software tools the Company has internally developed. These services were provided under a
software-as-a-service model. As the contracts were closely interrelated and dependent on each other, for
accounting purposes the contracts were considered to be one arrangement. Additionally, as the project included
significant modification and customization services to transform the previously developed software tool into an
expanded tool intended to meet the customer’s requirements, the percentage-of-completion method of contract
accounting was being utilized for the project. Total revenue and costs were recognized equally until completion of
the application customization and integration services portion of the project. The remaining unrecognized portion of
the contract value was recognized on a straight-line basis over the term of the PCS period which ended on
December 31, 2011.
Fair Value
Fair value is defined as the exchange price that would be received for an asset or paid for a liability in the
principal or most advantageous market for the asset or liability, in an orderly transaction between market
participants. The Company utilizes a fair value hierarchy for its assets and liabilities, as applicable, based upon
three levels of input, which are:
Level 1—quoted prices in active markets for identical assets or liabilities (observable)
Level 2—inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for
similar assets or liabilities, quoted prices in inactive markets, or other inputs that are observable or can be
supported by observable market data for essentially the full term of the asset or liability (observable)
Level 3—unobservable inputs that are supported by little or no market activity, but are significant to
determining the fair value of the asset or liability (unobservable)
At December 31, 2012 and 2011, the carrying amounts of the Company’s cash of $40.6 million and $22.4
million, respectively, approximated fair value.
The Company is also allowed to elect an irrevocable option to measure, on a contract by contract basis,
specific financial instruments and certain other items that are currently not being measured at fair value. The
Company did not elect to apply the fair value provisions of this standard for any specific contracts during the years
ended December 31, 2012 or 2011.
Life Insurance Policies
The Company has purchased life insurance on the lives of certain plan participants who are former employees
in the non-qualified defined benefit Executive Supplemental Benefit Plan. Those policies have generated cash
surrender value, and the Company has taken loans against the policies. At December 31, 2012 and December 31,
2011, these insurance policies have a gross cash surrender value of $24.8 million and $27.4 million, respectively,
loans have been taken totaling $23.1 million and $25.6 million, respectively, and the net cash surrender value
balance of $1.7 million and $1.8 million, respectively, is included on the consolidated balance sheet in “Other
Assets” under non-current assets.
35
During 2012, the Company received life insurance proceeds totaling approximately $1.3 million for two former
plan participants that passed away during the year. At December 31, 2012, the total death benefit for the remaining
policies is approximately $37.1 million. Currently, upon the death of all of the remaining plan participants, the
company would expect to receive approximately $13.5 million after the payment of outstanding loans, and record a
gain of approximately $12.2 million.
Taxes Collected from Customers
In instances where the Company collects taxes from its customers for remittance to governmental authorities,
primarily in its European operations, revenue and expenses are not grossed up as such taxes are recorded and
presented on a net basis.
Cash and Cash Equivalents, and Cash Overdrafts
For purposes of the statement of cash flows, cash and cash equivalents are defined as cash on hand,
demand deposits, and short-term, highly liquid investments with a maturity of three months or less. The Company
had no cash equivalents at December 31, 2012 and 2011. Additionally, as the Company does not fund its bank
accounts for the checks it has written until the checks are presented to the bank for payment, the change in cash
overdraft, net, represents the increase or decrease in outstanding checks year-over-year.
Trade Accounts Receivable
Trade accounts receivable balances are expected to be received on average approximately 60 days from the
date of invoice. Generally, the Company does not work on any projects where amounts due are expected to be
received greater than one year from the date of the invoice. Accordingly, the recorded book value for the
Company’s accounts receivable equals fair value. Outstanding trade accounts receivable are generally considered
past due when they remain unpaid after the contractual due date has past. An allowance for doubtful accounts
receivable (allowance) is established using management’s judgment. Specific identification of balances that are
significantly past due and where customer payments have not been recently received are generally added to the
allowance unless the Company has direct knowledge that the customer intends to make payment. Additionally, any
balances which relate to a customer that has declared bankruptcy or ceased its business operations are added to
the allowance at the amount not expected to be received.
Bad debt expense, net of recoveries, was approximately $(40,000), $0.7 million, and $(0.2) million in 2012,
2011, and 2010, respectively.
Property and Equipment and Capitalized Software Costs
Property and equipment are generally stated at historical cost less accumulated depreciation. Depreciation is
computed using the straight-line method based on estimated useful lives of one year to 30 years, and begins after
an asset has been put into service. Leasehold improvements are generally depreciated over the shorter of the term
of the lease or the useful life of the improvement. The cost of property or equipment sold or otherwise disposed of,
along with related accumulated depreciation, is eliminated from the accounts, and the resulting gain or loss, if any,
is reflected in current earnings. Maintenance and repairs are charged to expense when incurred, while significant
improvements to existing assets are capitalized.
As of both December 31, 2012 and December 31, 2011, the Company has capitalized a total of approximately
$5.1 million for software projects developed for internal use. Amortization periods range from two to five years, and
are evaluated annually for propriety. Amortization expense for these projects totaled $1.7 million, $1.1 million, and
$0.3 million in 2012, 2011, and 2010, respectively.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When such circumstances exist, the recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to
be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell. The
Company does not have any long-lived assets that are impaired or that it intends to dispose of at December 31,
2012.
36
Leases
The Company is obligated under a number of short and long-term operating leases primarily for the rental of
office space, office equipment, and automobiles based in Europe. In instances where the Company has negotiated
leases that contain rent holidays or escalation clauses, the expense for those leases is recognized monthly on a
straight-line basis over the term of the lease.
Goodwill
The Company has a goodwill balance of $35.7 million. The balance is evaluated annually as of the
Company’s October fiscal month-end (the measurement date), or more frequently if facts and circumstances
indicate impairment may exist. This evaluation, as applicable, is based on estimates and assumptions that may be
used to 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 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.
At the respective measurement dates for 2012, 2011, and 2010, the Company completed its annual valuation
of the business to which the Company’s goodwill relates. During 2012, the Company utilized the provisions under
Accounting Standards Update No. 2011-08, “Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for
Impairment,” which allow public entities to first assess qualitative factors to determine whether it is necessary to
perform the two-step quantitative goodwill impairment test. Under this new process, an entity no longer would be
required to calculate the fair value of a reporting unit unless the qualitative assessment shows that it is more likely
than not that its fair value is less than its carrying amount. During 2011 and 2010, the company utilized the
assistance of an independent third party appraiser to complete its review.
The 2010 and 2011 valuations indicated that the estimated fair value of the business was substantially in
excess of its carrying value, with the estimated fair value of the unit exceeding the carrying value by 116% in 2011,
and 31% in 2010. From its internal review completed in 2012, the Company believes the fair value of the business
has increased from 2011, and therefore continues to be substantially in excess of the carrying value of the
business. Additionally, there are no other facts or circumstances which arose during 2012, 2011 or 2010 that led
management to believe the goodwill balance was impaired.
Income Taxes
The Company provides for deferred income taxes for the temporary differences between the financial
reporting basis and the tax basis of the Company’s assets and liabilities. In assessing the realizability of deferred
tax assets, management considers within each tax jurisdiction, whether it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax-planning strategies in making this assessment. The Company
recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense.
Equity-Based Compensation
The Company records the fair value of equity-based compensation expense for all equity-based
compensation awards granted subsequent to January 1, 2006, and for the unvested portion of previously granted
awards outstanding as of that date. The calculated fair value cost of its equity-based compensation awards is
recognized in the Company’s income statement over the period in which an employee or director is required to
provide the services for the award. Compensation cost is not recognized for employees or directors that do not
render the requisite services. The Company recognized the expense for equity-based compensation in its 2012,
2011, and 2010 statements of income on a straight-line basis based upon awards that are ultimately expected to
vest. See note 10, “Equity-Based Compensation.”
37
Net Income Per Share
Basic and diluted earnings per share (EPS) for the years ended December 31, 2012, 2011, and 2010 are as
follows:
For the year ended
(amounts in thousands, except per-share data)
December 31, 2012
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
December 31, 2011
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
December 31, 2010
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
Net
Income
Weighted
Average
Shares
Earnings
per
Share
$
$
$
$
$
$
16,165
—
16,165
11,938
—
11,938
8,372
—
8,372
15,172 $
1,669
16,841 $
14,968 $
1,763
16,731 $
14,697 $
1,376
16,073 $
1.07
(0.11)
0.96
0.80
(0.09)
0.71
0.57
(0.05)
0.52
Weighted-average shares represent the average number of issued shares less treasury shares and shares
held in the Stock Trusts, and for the basic EPS calculations, unvested restricted stock.
Certain options representing 0.1 million, 0.3 million, and 0.3 million shares of common stock were outstanding
at December 31, 2012, 2011, and 2010, respectively, but were not included in the computation of diluted earnings
per share as their effect on the computation would have been anti-dilutive.
Accumulated Other Comprehensive Loss
The components that comprise accumulated other comprehensive loss on the consolidated balance sheets at
December 31, 2012, 2011, and 2010 are as follows:
(amounts in thousands)
Foreign currency adjustment
Pension loss adjustment, net of tax of $1,040 in 2012, $1,436 in 2011, and
$1,141 in 2010
2012
2011
2010
$
(4,254) $
(4,624) $
(4,298)
(6,426)
$ (10,680) $
(3,606)
(8,230) $
(1,863)
(6,161)
Foreign Currency
The functional currency of the Company’s foreign subsidiaries is the applicable local currency. The translation
of the applicable foreign currencies into U.S. dollars is performed for assets and liabilities using current exchange
rates in effect at the balance sheet date, for equity accounts using historical exchange rates, and for revenue and
expense activity using the applicable month’s average exchange rates. The Company recorded no gains (losses)
in 2012, $(0.1) million in 2011, and less than $0.1 million in 2010 from foreign currency transactions for balances
settled during the year or intended to be settled as of each respective year-end.
Guarantees
The Company has several guarantees in place in our European operations which support office leases and
performance under government projects. These guarantees total approximately $2.5 million and $2.1 million at
December 31, 2012 and 2011, respectively, and generally have expiration dates ranging from January 2013 through
June 2019.
38
Acquisition
In January 2013, the Company acquired etrinity, a provider of IT services to the healthcare market in Belgium
and the Netherlands. Founded in 2000, etrinity's 2012 revenue approximated U.S. $3 million. The firm's IT
services are targeted to the healthcare provider market and include clinical systems integration and implementation,
application management, technology support for medical imaging, training, and technical resources.
2.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software at December 31, 2012 and 2011 are summarized as follows:
December 31,
(amounts in thousands)
Land
Buildings
Equipment
Furniture
Capitalized software
Other software
Leasehold improvements
Accumulated depreciation and amortization
Useful Life
(years)
2012
2011
0 $
378 $
30
2-5
5-10
2-5
1-5
3-10
4,376
7,244
3,217
5,088
2,626
3,976
378
4,419
6,876
3,035
5,088
2,674
3,031
26,905
25,501
(19,989)
(17,532)
$
6,916 $
7,969
The Company did not record any additions to capitalized software during the year ended December 31, 2012,
and recorded $0.4 million during the year ended December 31, 2011. As of both dates the Company had
capitalized a total of $5.1 million solely for software projects developed for internal use. Accumulated amortization
for these projects totaled $3.2 million and $1.5 million as of December 31, 2012 and 2011, respectively.
3.
Investments
The Company’s investments consist of mutual funds which are part of the Computer Task Group, Incorporated
Non-qualified Key Employee Deferred Compensation Plan. At both December 31, 2012 and 2011, the Company’s
investment balances, which are classified as trading securities, totaled approximately $0.6 million, and are
measured at fair value. As there is an active trading market for these funds, fair value was determined using Level
1 inputs (see note 1 “Summary of Significant Accounting Policies—Fair Value”). Unrealized gains and losses on
these securities are recorded in earnings and were nominal in 2012, 2011, and 2010.
4.
Debt
The Company's revolving credit agreement (Agreement) allows the Company to borrow up to $35.0 million, is
unsecured, has a term of three years, and expires in April 2014. The Agreement has interest rates ranging from 0
to 50 basis points over the prime rate and 175 to 225 basis points over LIBOR. At both December 31, 2012 and
2011, there were no amounts outstanding under this Agreement. However, there were $0.5 million and $0.4 million
assigned to letters of credit under this Agreement at December 31, 2012 and 2011, respectively.
There were no amounts outstanding under the Agreement during 2012. The maximum amounts outstanding
under the Agreement during 2011 and 2010 were $5.8 million, and $7.8 million, respectively. Average bank
borrowings outstanding for the years 2011 and 2010 were $0.4 million and $1.3 million, respectively, and carried
weighted-average interest rates of 2.3% and 2.1%, respectively. The Company incurred commitment fees totaling
approximately $0.1 million in each of 2012, 2011 and 2010 relative to the Agreement. Interest paid totaled less than
$0.1 million in both 2011 and 2010.
The Company is required to meet certain financial covenants in order to maintain borrowings under the
Agreement, pay dividends, and make acquisitions. The covenants are measured quarterly, and at December 31,
39
2012 include a leverage ratio which must be no more than 2.75 to 1, a calculation of minimum tangible net worth
which must be no less than $51.2 million, and total expenditures for property, equipment and capitalized software
cannot exceed $5.0 million annually. The Company was in compliance with these covenants at December 31, 2012
as its leverage ratio was 0.0, its minimum tangible net worth was $66.7 million, and 2012 expenditures for property,
equipment and capitalized software were $1.9 million. The Company was also in compliance with its required
covenants at December 31, 2011 and December 31, 2010.
5.
Income Taxes
The provision for income taxes for 2012, 2011, and 2010 consists of the following:
(amounts in thousands)
Domestic and foreign components of income before income taxes are
as follows:
Domestic
Foreign
Total income before income taxes
The provision (benefit) for income taxes consists of:
Current tax:
U.S. federal
Foreign
U.S. state and local
Total current tax
Deferred tax:
U.S. federal
Foreign
U.S. state and local
Total deferred tax
Total tax
The effective and statutory income tax rate can be reconciled as
follows:
Tax at statutory rate of 35% / 34%
State tax, net of federal benefit
Non-taxable income
Non-deductible expenses
Change in estimate primarily related to foreign taxes
Change in estimate primarily related to state taxes and tax reserves
Change in estimate primarily related to U.S. federal taxes
Tax credits
Other, net
Total tax
Effective income tax rate
2012
2011
2010
$ 23,028
$ 17,070
$ 12,921
2,417
2,053
848
$ 25,445
$ 19,123
$ 13,769
$
6,778
$
5,419
$
3,633
1,393
993
9,164
55
—
61
116
1,508
1,135
8,062
(834)
—
(43)
(877)
1,199
718
5,550
(193)
—
40
(153)
$
9,280
$
7,185
$
5,397
$
8,906
$
6,502
$
4,682
685
(993)
796
41
50
(157)
—
(48)
728
(495)
745
234
66
—
(609)
14
469
(572)
694
327
(24)
—
(140)
(39)
$
9,280
$
7,185
$
5,397
36.5%
37.6%
39.2%
The Company’s effective tax rate (ETR) is calculated based upon the full year's operating results, and various
tax related items. The Company’s normal ETR ranges from 38% to 42%. The ETR in 2012 was lower due to
approximately $0.5 million in tax expense related to non-taxable life insurance proceeds received during the year.
In addition, the Company recorded an additional $0.2 million reduction of state tax expense as a result of the
recording of certain favorable provision-to-return adjustments associated with the Company's 2011 income tax
returns. The ETR during 2011 was reduced as the Company recorded $0.3 million of federal tax credits related to
research and development activities, and $0.3 million of federal tax credits related to the retention of certain
40
individuals hired during 2010. The impact of these credits was partially offset by an increase in the valuation
allowance of $0.2 million associated with net operating losses incurred by certain foreign subsidiaries.
The Company did not record a tax benefit for its research and development activities during 2012 as the
legislation extending the tax credit related to these expenses, the American Taxpayer Relief Act of 2012, was not
passed by the U.S. federal government until January 2013. As required under current accounting guidelines, the
Company expects to recognize a tax benefit of approximately $0.3 million for these 2012 credits in the 2013 first
quarter.
The expected relationship between foreign income before taxes and the foreign provision for income taxes
differs from the actual relationship above as a result of certain foreign losses incurred for which no tax benefit has
been recognized. Management has determined that it is unclear whether operations in those jurisdictions will
produce taxable income in future years sufficient to realize the benefit of the losses in those jurisdictions. In
addition, certain costs deducted for financial statement purposes are not deductible for tax purposes in some
foreign jurisdictions, such as various employee benefit costs, resulting in a substantial increase to foreign taxable
income.
The Company’s deferred tax assets and liabilities at December 31, 2012 and 2011 consist of the following:
December 31,
(amounts in thousands)
Assets
Deferred compensation
Loss carryforwards
Accruals deductible for tax purposes when paid
Depreciation
Allowance for doubtful accounts
Amortization
State taxes
Gross deferred tax assets
Deferred tax asset valuation allowance
Gross deferred tax assets less valuation allowance
Liabilities
Depreciation
Other
Gross deferred tax liabilities
Net deferred tax assets
Net deferred tax assets and liabilities are recorded as follows:
Net current assets
Net non-current assets
Net deferred tax assets
2012
2011
$
8,065 $
1,094
457
57
289
—
792
10,754
(2,269)
8,485
(820)
(85)
(905)
6,671
1,120
412
358
316
84
811
9,772
(1,404)
8,368
(77)
(8)
(85)
$
$
$
7,580 $
8,283
1,145 $
6,435
7,580 $
1,221
7,062
8,283
In assessing the realizability of deferred tax assets, management considers, within each taxing jurisdiction,
whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Factors that may affect the Company’s ability to achieve sufficient
forecasted taxable income in future periods may include, but are not limited to, the following: increased competition,
a decline in sales or margins, a loss of market share, the availability of qualified professional staff, and a decrease
in demand for IT services. Based upon the levels of historical taxable income and projections for future taxable
income over the years in which the deferred tax assets are deductible, at December 31, 2012, management
believes that it is more likely than not that the Company will realize the benefits, net of the established valuation
allowance, of these deferred tax assets in the future.
41
For tax purposes, the Company has various U.S. state net operating loss carryforwards which began to expire
in 2011, and have approximately $2.1 million remaining. These net operating losses have a carryforward period of
5 to 20 years. The Netherlands net operating loss carryforward began to expire in 2011 and has $1.5 million
remaining, while in the United Kingdom the net operating loss carryforward is approximately $2.8 million, and has
no expiration date.
At December 31, 2012, the Company has a deferred tax asset before the valuation allowance in the United
States resulting from net operating losses in various states of approximately $0.1 million, in the United Kingdom of
approximately $0.6 million, and in the Netherlands of approximately $0.4 million. Management has analyzed each
jurisdiction’s tax position, including forecasting potential taxable income in future years, and the expiration of the net
operating loss carryforwards as applicable, and determined that it is unclear whether all of the deferred tax asset
totaling $1.1 million will be realized at any point in the future. Accordingly, at December 31, 2012, the Company has
offset most of the asset with a valuation allowance totaling $1.0 million, resulting in a net deferred tax asset from net
operating loss carryforwards of approximately $0.1 million. During 2012, the net increase in the valuation allowance
was $0.9 million, primarily relating to an increase in the valuation reserve associated with certain deferred tax
assets related to the Netherlands defined-benefit pension plan.
The Company files income tax returns in the U.S. federal jurisdiction, and various states and foreign
jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S.
income tax examinations by tax authorities for years prior to 2008.
A reconciliation of unrecognized tax benefits for 2012 and 2011 is as follows:
(amounts in thousands)
Balance at January 1, 2011
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for lapse of statute of limitations
Settlements
Balance at December 31, 2011
Additions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for lapse of statute of limitations
Settlements
Balance at December 31, 2012
$
57
50
16
—
—
123
50
—
—
—
$ 173
The balance at December 31, 2012 of $173,000 represents gross unrecognized tax benefits that if recognized
would impact the Company’s effective tax rate. No significant increase or decrease in the total amount of
unrecognized tax benefits is expected within the next twelve months.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in tax expense.
At December 31, 2012, the Company had approximately $9,000 (less the associated tax benefit) accrued for the
payment of interest and penalties, as applicable.
The Company has established its unrecognized tax benefits based upon the anticipated outcome of tax
positions taken for financial statement purposes compared with positions taken on the Company’s tax returns. The
Company records the benefit for unrecognized tax benefits only when it is more likely than not that the position will
be sustained upon examination by the taxing authorities. The Company reviews its unrecognized tax benefits on a
quarterly basis. Such reviews include consideration of factors such as the cause of the action, the degree of
probability of an unfavorable outcome, the Company’s ability to estimate the liability, and the timing of the liability
and how it will impact the Company’s other tax attributes. At December 31, 2012, the Company believes it has
adequately provided for its tax-related liabilities.
Undistributed earnings of the Company’s foreign subsidiaries at December 31, 2012 are considered to be
indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes has been provided
thereon. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject
to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the
various foreign countries.
42
In 2012, 2011, and 2010, a total of 461,000, 465,000, and 101,000 shares of common stock, respectively,
were issued through the exercise of non-qualified stock options or through the disqualifying disposition of incentive
stock options. The tax benefit to the Company from these transactions, which was credited to capital in excess of
par value rather than recognized as a reduction of income tax expense, was $2.2 million, $1.6 million, and $0.2
million in 2012, 2011, and 2010, respectively. These tax benefits have also been recognized in the consolidated
balance sheets as a reduction of income taxes payable.
Net income tax payments during 2012, 2011, and 2010 totaled $6.5 million, $4.6 million, and $4.8 million,
respectively.
6.
Lease Commitments
At December 31, 2012, the Company was obligated under a number of long-term operating leases, some of
which contain renewal options with escalation clauses commensurate with local market fluctuations, however,
generally limiting the increase to no more than 5.0% of the existing lease payment.
Minimum future obligations under such leases are summarized as follows:
Year Ending December 31,
(amounts in thousands)
2013
2014
2015
2016
2017
Later years
Minimum future obligations
$
4,756
3,642
2,546
1,512
647
783
$
13,886
The operating lease obligations relate to the rental of office space, office equipment, and automobiles leased
in Europe. Total rental expense under such operating leases for 2012, 2011, and 2010 was approximately $6.3
million, $6.8 million, and $6.4 million, respectively.
7.
Deferred Compensation Benefits
The Company maintains a non-qualified defined-benefit Executive Supplemental Benefit Plan (ESBP) that
provides certain former key executives with deferred compensation benefits, based on years of service and base
compensation, payable during retirement. The plan was amended as of November 30, 1994, to freeze benefits for
the participants in the plan at that time.
Net periodic pension cost for the years ended December 31, 2012, 2011, and 2010 for the ESBP is as follows:
Net Periodic Pension Cost—ESBP
(amounts in thousands)
Interest cost
Amortization of actuarial loss
Net periodic pension cost
2012
2011
2010
$
$
338 $
408 $
279
208
617 $
616 $
451
166
617
The Company also retained a contributory defined-benefit plan for its previous employees located in the
Netherlands (NDBP) when the Company disposed of its subsidiary, CTG Nederland, B.V. Benefits paid are a
function of a percentage of career average pay. This plan was curtailed for additional contributions in January
2003. Net periodic pension (cost) benefit was approximately $(118,000), $(77,000), and $5,000 for the years
ending December 31, 2012, 2011 and 2010, respectively.
43
The change in benefit obligation and reconciliation of fair value of plan assets for the years ended
December 31, 2012 and 2011 for the ESBP and NDBP are as follows:
Changes in Benefit Obligation
(amounts in thousands)
Benefit obligation at beginning of period
Interest cost
Benefits paid
Actuarial loss (gain)
Effect of exchange rate changes
Benefit obligation at end of period
Reconciliation of Fair Value of Plan Assets
Fair value of plan assets at beginning of period
Actual return on plan assets
Employer contributions
Benefits paid
Administrative costs
Effect of exchange rate changes
Fair value of plan assets at end of period
Accrued benefit cost
Accrued benefit cost is included in the consolidated balance
sheet as follows:
Current liabilities
Non-current liabilities
Discount rates:
Benefit obligation
Net periodic pension cost
Salary increase rate
Expected return on plan assets
ESBP
NDBP
2012
2011
2012
2011
$
9,508
$
9,024
$
7,925
$
6,580
338
(727)
(714)
—
408
(793)
869
—
360
(113)
3,475
266
8,405
9,508
11,913
323
(106)
1,391
(263)
7,925
—
—
727
(727)
—
—
—
—
—
793
(793)
—
—
—
7,811
7,831
336
—
(113)
(57)
166
314
42
(106)
(81)
(189)
8,143
7,811
$
8,405
$
9,508
$
3,770
$
114
$
$
729
7,676
$
$
759
8,749
$
$
— $
3,770
$
—
114
3.02%
3.71%
—%
—%
3.71%
4.73%
—%
—%
2.80%
4.60%
—%
4.00%
4.60%
4.70%
—%
4.00%
For the ESBP, the accumulated benefit obligation at December 31, 2012 and 2011 was $8.4 million and $9.5
million, respectively. The amounts included in other comprehensive loss relating to the pension loss adjustment in
2012 and 2011, net of tax, were approximately $0.6 million and $0.4 million, respectively. The discount rate used in
2012 was 3.02%, which is reflective of a series of bonds that are included in the Moody’s Aa long-term corporate
bond yield whose cash flow approximates the payments to participants under the ESBP for the remainder of the
plan. This rate was a decrease of 69 basis points from the rate used in the prior year and resulted in an increase in
the plan’s liabilities of approximately $0.4 million. However, the accumulated benefit obligation decreased year-
over-year as two participants in the plan passed away during 2012. Benefits paid to participants are funded by the
Company as needed, and are expected to total approximately $0.7 million in 2013. The plan is deemed unfunded
as the Company has not specifically identified Company assets to be used to discharge the deferred compensation
benefit liabilities. The Company has purchased insurance on the lives of certain plan participants in amounts
considered sufficient to reimburse the Company for the costs associated with the plan for those participants. The
Company does not anticipate making contributions to the plan other than for current year benefit payments as
required in 2013 or future years.
For the NDBP, the accumulated benefit obligation at December 31, 2012 and 2011 was $11.9 million and $7.9
million, respectively. The discount rate used in 2012 was 2.80%, which is reflective of a series of corporate bonds
whose cash flow approximates the payments to participants under the NDBP for the remainder of the plan. This
rate was a decrease of 180 basis points from the rate used in the prior year, and resulted in an increase in the
plan’s liabilities of $3.7 million in 2012.
44
The assets for the NDBP are held by Aegon, a financial services firm located in the Netherlands. The assets
for the plan are included in a general portfolio of government bonds, a portion of which is allocated to the NDBP
based upon the estimated pension liability associated with the plan. The fair market value of the plan’s assets
equals the amount allocated to the NDBP in any given year. The fair value of the assets is determined using a
Level 3 methodology (see note 1 “Summary of Significant Accounting Policies—Fair Value”). The calculation of fair
value includes determining the present value of the future expected payments under the plan, including using
assumptions such as expected market rates of return, equity and interest rate volatility, credit risk, correlations of
market returns, and discount rates. In 2012 and 2011, the plan investments had a targeted minimum return to the
Company of 4.0%, which is consistent with historical returns and the guaranteed 4.0% return guaranteed to the
participants of the plan. The Company, in conjunction with Aegon, intends to maintain the current investment
strategy of investing plan assets solely in government bonds in 2013.
Anticipated benefit payments for the ESBP and the NDBP expected to be paid in future years are as follows:
Year Ending December 31,
(amounts in thousands)
2013
2014
2015
2016
2017
2018-2022
Total
ESBP
NDBP
$
697 $
739
725
659
640
2,943
$
6,403 $
137
155
159
177
200
1,460
2,288
For the ESBP and the NDBP, the amounts included in accumulated other comprehensive loss, net of tax, that
have not yet been recognized as components of net periodic benefit cost as of December 31, 2012 are $1.7 million
and $4.8 million, respectively, for unrecognized actuarial losses. The amounts included in accumulated other
comprehensive loss, net of tax, that had not yet been recognized as components of net periodic benefit cost as of
December 31, 2011 were $2.3 million and $1.2 million, respectively, also for unrecognized actuarial losses.
The amounts recognized in other comprehensive loss, net of tax, for 2012, 2011, and 2010, which primarily
consist of an actuarial loss, totaled $2.8 million, $1.7 million, and $0.5 million, respectively. Net periodic pension
cost (benefit), and the amounts recognized in other comprehensive loss, net of tax, for the ESBP and the NDBP for
2012, 2011, and 2010 totaled $(2.1) million, $(1.1) million, and $0.1 million, respectively.
The amounts in accumulated other comprehensive loss expected to be recognized as components of net
periodic benefit cost during 2013 for the ESBP and the NDBP for unrecognized actuarial losses total $0.3 million.
The Company also maintains the Key Employee Non-Qualified Deferred Compensation Plan for certain key
executives. Company contributions to this plan, if any, are based on annually defined financial performance
objectives. There were $0.4 million in contributions to the plan in 2012 for amounts earned in 2011, $0.3 million in
contributions to the plan in 2011 for amounts earned in 2010, and $0.1 million in contributions to the plan in 2010 for
amounts earned in 2009. The Company anticipates making contributions in 2013 totaling approximately $0.3
million to this plan for amounts earned in 2012. The investments in the plan are included in the total assets of the
Company, and are discussed in note 3, “Investments.” During 2012 and 2011, several participants in the plan
exchanged a portion of their investments for stock units which represent shares of the Company’s common stock.
In exchange for the funds received, the Company issued shares out of treasury stock equivalent to the number of
share units received by the participants. These shares of common stock are not entitled to any voting rights and
the holders will not receive dividends, if any are paid. The shares are being held by the Company, and will be
released to the participants as prescribed by their payment elections under the plan.
The Company maintains the Non-Employee Director Deferred Compensation Plan for its non-employee
directors. Cash contributions were made to the plan for certain of these directors totaling approximately $0.1 million
for each of 2012, 2011 and 2010. At the time the contributions were made, one of the non-employee directors
elected to exchange his cash contributions to the plan for the purchase of stock units which represent shares of the
Company’s common stock. Consistent with the Key Employee Non-Qualified Deferred Compensation Plan, in
exchange for funds received, the Company issued stock out of treasury stock equivalent to the number of share
45
units received by the participant. These shares of common stock are not entitled to any voting rights and the holder
will not receive dividends, if any are paid. The shares are being held by the Company, and will be released to the
non-employee director as prescribed by their payment election under the plan, as either shares of stock or the cash
equivalent.
8.
Employee Benefits
401(k) Profit-Sharing Retirement Plan
The Company maintains a contributory 401(k) profit-sharing retirement plan covering substantially all U.S.
employees. At its discretion, the Company may match up to 50% of the first 6% of eligible wages contributed by the
participants. Company contributions, which currently consist of cash and may include the Company’s stock, were
funded and charged to operations in the amounts of $2.8 million, $2.6 million, and $2.2 million for 2012, 2011, and
2010, respectively.
Other Retirement Plans
The Company maintains various other defined contribution retirement plans covering substantially all of the
remaining European employees. Company contributions charged to operations were $0.1 million in each of 2012,
2011, and 2010.
Employee Health Insurance
The Company provides various health insurance plans for its employees, including a self-insured plan for its
salaried employees in the U.S. The Company currently provides only limited health insurance coverage for its
hourly employees in the U.S. Under recently issued legislation, the Company will be required to offer healthcare
coverage to those employees in 2014, or pay penalties currently totaling at least $2,000 per person.
9.
Shareholders’ Equity
Employee Stock Purchase Plan
Under the Company’s First Employee Stock Purchase Plan (ESPP), employees may apply up to 10% of their
compensation to purchase the Company’s common stock. Shares are purchased at the closing market price on the
business day preceding the date of purchase. At the Company's annual meeting in May 2012, the Company's
shareholders approved the addition of 250,000 shares for this plan. As of December 31, 2012, approximately
261,000 shares remain unissued under the ESPP. During 2012, 2011, and 2010, approximately 19,000, 22,000,
and 22,000 shares, respectively, were purchased under the ESPP at an average price of $15.29, $12.49, and $7.98
per share, respectively.
Stock Trusts
The Company maintains a Stock Employee Compensation Trust (SECT) to provide funding for existing
employee stock plans and benefit programs. Shares of the Company’s common stock are purchased by and
released from the SECT by the trustee of the SECT at the request of the compensation committee of the Board of
Directors. As of December 31, 2012, all shares remaining in the SECT were unallocated and, therefore, are not
considered outstanding for purposes of calculating earnings per share. There were no shares purchased or
released by the SECT during 2012, 2011, or 2010, and there were 3.3 million shares in the SECT at each of
December 31, 2012, 2011 and 2010.
The Company created an Omnibus Stock Trust (OST) to provide funding for various employee benefit
programs. Shares of the Company’s common stock are released from the OST by the trustee at the request of the
compensation committee of the Board of Directors. There were no shares purchased or released by the OST
during 2012, 2011, or 2010, and there were 59,000 shares in the OST at each of December 31, 2012, 2011 and
2010.
Preferred Stock
At December 31, 2012 and 2011, the Company had 2,500,000 shares of par value $0.01 preferred stock
authorized for issuance, but none outstanding.
46
10.
Equity-Based Compensation
The Company issues stock options and restricted stock in exchange for employee and director services. In
accordance with current accounting standards, the calculated cost of its equity-based compensation awards is
recognized in the Company’s consolidated statements of income over the period in which an employee or director is
required to provide the services for the award. Compensation cost will not be recognized for employees or directors
that do not render the requisite services. The Company recognizes the expense for equity-based compensation in
its consolidated income statements on a straight-line basis based upon awards that are ultimately expected to vest.
Equity-based compensation expense, tax benefit and net equity-based compensation cost for 2012, 2011 and
2010 are as follows:
(amounts in thousands)
Equity-based compensation
Tax benefit
Net equity-based compensation expense
2012
2011
2010
$
$
2,236 $
1,654 $
1,349
788
566
1,448 $
1,088 $
462
887
On May 12, 2010, the shareholders approved the Company’s 2010 Equity Award Plan (2010 Plan). Under the
provisions of the 2010 Plan, stock options, restricted stock, stock appreciation rights, and other awards may be
granted or awarded to employees and directors of the company, as well as non-employees. The compensation
committee of the Board of Directors determines the nature, amount, pricing and vesting of the grants or awards. All
options and awards remain in effect until the earliest of the expiration, exercise, or surrender date. Options
generally become exercisable in four equal installments, typically beginning one year from the date of grant, and
expire no more than 15 years from the date of grant. A total of 900,000 shares may be granted or awarded under
the 2010 plan, 414,000 of which are available for grant as of December 31, 2012.
On April 26, 2000, the shareholders approved the Company’s 2000 Equity Award Plan (Equity Plan). Under
the provisions of the Equity Plan, stock options, restricted stock, stock appreciation rights, and other awards could
previously be granted or awarded to employees and directors of the Company. The compensation committee of the
Board of Directors determines the nature, amount, pricing, and vesting of the grants or awards. All options and
awards remain in effect until the earlier of the expiration, exercise, or surrender date. Options generally become
exercisable in three or four equal annual installments, typically beginning one year from the date of grant, and
expire no more than 15 years from the date of grant. In certain limited instances, options granted at fair market
value are expected to vest nine and one-half years from the date of grant. There are no shares or options available
for grant under this plan as of December 31, 2012.
On April 24, 1991, the shareholders approved the Company’s 1991 Employee Stock Option Plan (1991 Plan).
Under the provisions of the 1991 Plan, options could previously be granted to employees and directors of the
Company. The exercise price for options granted under this plan were equal to or greater than the fair market value
of the Company’s common stock on the date the option is granted. All options remain in effect until the earlier of
the expiration, exercise, or surrender date. There are no shares or options available for grant under this plan as of
December 31, 2012.
Under the Company’s 1991 Restricted Stock Plan, a total of 800,000 shares of restricted stock may be
granted to certain key employees, and 277,000 shares are available for grant as of December 31, 2012.
The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of stock options
granted on the date of grant. The per-option weighted-average fair value on the date of grant of stock options
granted in 2012, 2011, and 2010 was $5.47, $4.57, and $3.09, respectively.
The fair value of the options at the date of grant was estimated using the following weighted-average
assumptions for the years ended December 31, 2012, 2011 and 2010:
47
Expected life (years)
Dividend yield
Risk-free interest rate
Expected volatility
2012
2011
2010
2.7
0.0%
0.4%
61.3%
2.8
0.0%
1.0%
55.6%
3.1
0.0%
1.5%
65.3%
The Company used historical volatility calculated using daily closing prices for its common stock over periods
that match the expected term of the option granted to estimate the expected volatility for the grants made in 2010,
2011 and 2012. The risk-free interest rate assumption was based upon U.S. Treasury yields appropriate for the
expected term of the Company’s stock options based upon the date of grant. The expected term of the stock
options granted was based upon the options expected vesting schedule and historical exercise patterns. The
expected dividend yield was based upon the Company’s recent history of paying dividends, and the expectation of
paying dividends in the foreseeable future.
During 2010, 2011 and 2012, the Company issued restricted stock to certain employees, and in 2010, to its
independent directors. For the employees, the stock vests over a period of four years, with 25% of the stock issued
vesting one year from the date of grant, and another 25% vesting each year thereafter until the stock is fully vested.
The Company is recognizing compensation expense for these shares ratably over the expected term of the
restricted stock, or four years. For the independent directors, the issued stock vests at retirement. As the directors
are eligible for retirement from the Company’s Board of Directors at any point in time, the Company recognized the
expense associated with these shares on the date of grant. The shares of restricted stock issued are considered
outstanding, can be voted, and are eligible to receive dividends, if any are paid. However, the restricted shares do
not include a non-forfeitable right for the holder to receive dividends and none will be paid in the event the awards
do not vest. Accordingly, only vested shares of outstanding restricted stock are included in the calculation of basic
earnings per share.
As of December 31, 2012, total remaining stock-based compensation expense for non-vested equity-based
compensation is approximately $3.9 million, which is expected to be recognized on a weighted-average basis over
the next 16 months. Historically, the Company has issued shares out of treasury stock or the SECT to fulfill the
share requirements from stock option exercises and restricted stock grants.
A summary of stock option activity under the 2010 Plan and Equity Plan is as follows:
Outstanding at December 31, 2009
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2010
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2011
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2012
Options Exercisable at December 31, 2012
2010 Plan
Options
Weighted-
Average
Exercise
Price
Equity
Plan
Options
Weighted-
Average
Exercise
Price
— $
— $
— $
— $
— $
— $
— 3,710,817 $
—
—
—
—
366,150 $
(154,955) $
(19,287) $
(7,250) $
— 3,895,475 $
275,500 $
12.86
— $
— $
—
(660,338) $
(10,000) $
12.16
(55,687) $
— $
265,500 $
225,596 $
(20,750) $
(5,250) $
— $
465,096 $
215,923 $
—
12.89
14.41
13.53
13.81
—
13.59
13.46
(4,375) $
3,175,075 $
— $
(574,353) $
(13,175) $
(3,000) $
2,584,547 $
2,406,076 $
4.14
7.18
4.27
4.62
3.74
4.42
—
4.01
5.57
3.50
4.49
—
3.58
5.42
3.56
4.68
4.56
48
For 2012, there were 20,750 shares exercised under the 2010 plan, and the intrinsic value of those exercised
shares was $55,000. For both 2011 and 2010, there were no shares exercised under the 2010 plan. For 2012,
2011, and 2010, the intrinsic value of the options exercised under the Equity Plan was $7.4 million, $6.0 million, and
$0.7 million, respectively. At December 31, 2012, there are 153,000 options remaining outstanding under the 1991
Plan, and the intrinsic value of the options exercised under the 1991 Plan for 2012, 2011, and 2010 was $0.0
million, $0.3 million, and $0.1 million, respectively.
A summary of restricted stock activity under the Equity Plan and the 1991 Restricted Stock Plan is as follows:
Outstanding at December 31, 2009
Granted
Released
Canceled or forfeited
Outstanding at December 31, 2010
Granted
Released
Canceled or forfeited
Outstanding at December 31, 2011
Granted
Released
Canceled or forfeited
Outstanding at December 31, 2012
Equity Plan
Restricted
Stock
Weighted-
Average
Fair Value
1991
Restricted
Stock Plan
Weighted-
Average
Fair Value
229,125 $
— $
(7,625) $
— $
221,500 $
— $
— $
— $
221,500 $
— $
(40,000) $
— $
181,500 $
5.00
—
4.65
—
5.01
—
—
—
5.01
—
4.97
—
5.02
151,375 $
77,000 $
(45,875) $
— $
182,500 $
160,000 $
(62,125) $
(18,000) $
262,375 $
127,500 $
(90,626) $
(7,500) $
291,749 $
4.82
7.18
4.79
—
5.83
12.19
5.54
8.88
9.57
15.04
8.38
11.14
12.29
Options Outstanding at December 31, 2012
A summary of stock options that are outstanding at December 31, 2012 for the 2010 Plan and the Equity Plan
is as follows:
Range of Exercise Prices:
2010 Plan
$12.16 – $13.75
$15.04 – $15.90
Equity Plan
$2.35 – $3.26
$3.48 – $4.90
$5.25 – $7.18
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
349,000 $
116,096 $
465,096 $
526,625 $
1,316,147 $
741,775 $
2,584,547 $
13.08
15.14
13.59
3.14
4.47
6.15
4.68
11.8 $ 1,798,695
9.8
359,084
11.3 $ 2,157,779
5.2 $ 7,948,056
5.0
7.2
18,105,505
8,959,119
5.7 $ 35,012,680
At December 31, 2012, there are also 153,000 options remaining outstanding under the 1991 stock option
plan, with 127,000 options ranging in prices from $2.88 to $6.00, and 26,000 options ranging in prices from $16.19
to $26.06, all with a remaining average contractual life of 2.4 years, and having an intrinsic value of $1.6 million.
49
Options Exercisable at December 31, 2012
A summary of stock options that are exercisable at December 31, 2012 for the 2010 Plan and the Equity Plan
is as follows:
Range of Exercise Prices:
2010 Plan
$12.16 – $13.75
$15.04 – $15.90
Equity Plan
$2.35 – $3.26
$3.48 – $4.90
$5.25 – $7.18
Number of
Options
Outstanding
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
209,375 $
6,548 $
215,923 $
526,625 $
1,251,024 $
628,427 $
2,406,076 $
13.38
15.90
13.46
3.14
4.45
5.97
4.56
13.0 $
14.7
13.0 $
1,015,056
15,257
1,030,313
7,948,056
5.2 $
17,237,415
5.0
6.9
7,706,623
5.5 $ 32,892,094
At December 31, 2012, there are also 153,000 options remaining exercisable under the 1991 stock option
plan, with 127,000 options ranging in prices from $2.88 to $6.00, and 26,000 options ranging in prices from $16.19
to $26.06, all with a remaining average contractual life of 2.4 years, and having an intrinsic value of $1.6 million.
The aggregate intrinsic values as calculated in the above charts detailing options that are outstanding and
those that are exercisable, respectively, are based upon the Company’s closing stock price on December 31, 2012
of $18.23 per share.
11.
Significant Customer
International Business Machines Corporation (IBM) is the Company’s largest customer. In 2012, 2011, and
2010, IBM accounted for $113.5 million or 26.7%, $116.5 million or 29.4%, and $102.3 million or 30.9% of the
Company’s consolidated revenue, respectively. The Company’s accounts receivable from IBM at December 31,
2012 and 2011 amounted to $12.6 million and $12.8 million, respectively. No other customer accounted for more
than 10.0% of revenue in 2012, 2011, or 2010.
12.
Contingencies
The Company and its subsidiaries are involved from time to time in various legal proceedings and tax audits
arising in the ordinary course of business. At December 31, 2012 and 2011, the Company was in discussion with
various governmental agencies relative to tax matters, including income, sales and use, and property and franchise
taxes. The outcome of these audits and legal proceedings, as applicable, involving the Company and its
subsidiaries cannot be predicted with certainty, and the amount of any liability that could arise with respect to such
audits cannot be accurately predicted. However, as none of these matters are individually or in the aggregate
significant, and as management has recorded an estimate of its potential liability for these audits at December 31,
2012 and 2011, and the Company does not have any open legal proceedings, the Company does not expect the
conclusion of these matters to have a material adverse effect on the financial position, results of operations, or cash
flows of the Company.
50
13.
Enterprise-Wide Disclosures
The Company operates in one industry segment, providing IT services to its clients. The services provided
include strategic and flexible staffing and the planning, design, implementation, and maintenance of comprehensive
IT solutions. All of the Company’s revenue is generated from these services. CTG’s reportable information is
based on geographical areas. The accounting policies of the individual geographical areas are the same as those
described in note 1, “Summary of Significant Accounting Policies.”
Financial Information About Geographic Areas
(amounts in thousands)
Revenue from External Customers:
United States
Belgium(1)
Other European countries
Other country
Total revenue
Long-lived Assets:
United States
Europe
Total long-lived assets
Deferred Tax Assets, Net of Valuation Allowance:
United States
Europe
Other country
2012
2011
2010
$ 355,022 $ 328,422 $ 269,071
41,957
26,653
783
43,011
23,969
873
41,317
19,396
1,623
$ 424,415 $ 396,275 $ 331,407
$
$
$
6,102 $
7,119 $
7,730
814
850
634
6,916 $
7,969 $
8,364
8,485 $
8,368 $
7,261
—
—
—
—
—
—
Total deferred tax assets, net
$
8,485 $
8,368 $
7,261
(1) Revenue for Belgium has been disclosed separately as it exceeds 10% of consolidated revenue for certain of
the years presented
51
14.
Quarterly Financial Data (Unaudited)
(amounts in thousands, except per-share data)
2012
Revenue
Direct costs
Gross profit
Selling, general, and administrative expenses
Operating income
Interest and other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Basic net income per share
Diluted net income per share
Quarters
First
Second (1)
Third
Fourth (1)
Total
$ 103,367 $ 106,705 $ 106,418 $ 107,925 $ 424,415
333,086
91,329
66,867
24,462
84,478
23,447
17,050
6,397
81,515
21,852
16,253
5,599
83,810
22,895
16,752
6,143
83,283
23,135
16,812
6,323
(50)
5,549
2,189
3,360 $
0.22 $
0.20 $
384
6,527
2,404
(68)
6,255
2,442
717
7,114
2,245
983
25,445
9,280
4,123 $
3,813 $
4,869 $ 16,165
0.27 $
0.25 $
0.25 $
0.23 $
0.32 $
0.29 $
1.07
0.96
$
$
$
(1) Included in interest and other income is $0.4 million or $0.03 basic and diluted net income per share, and $0.8
million or $0.05 basic and diluted net income per share in the second and fourth quarters, respectively, for life
insurance proceeds received for former Company executives that passed away during the respective quarters.
Quarters
First
Second
Third
Fourth
Total
(amounts in thousands, except per-share data)
2011
Revenue
Direct costs
Gross profit
Selling, general, and administrative expenses
Operating income
Interest and other income (expense), net
Income before income taxes
Provision for income taxes
Net income
Basic net income per share
Diluted net income per share
$ 95,909 $ 98,327 $ 101,119 $ 100,920 $ 396,275
311,984
78,126
80,152
77,594
76,112
19,797
15,198
4,599
(37)
4,562
1,734
2,828 $
0.19 $
0.17 $
$
$
$
20,733
16,056
4,677
(48)
4,629
1,799
20,967
16,391
4,576
50
4,626
1,635
22,794
17,336
5,458
(152)
5,306
2,017
84,291
64,981
19,310
(187)
19,123
7,185
2,830 $
2,991 $
3,289 $ 11,938
0.19 $
0.17 $
0.20 $
0.18 $
0.22 $
0.20 $
0.80
0.71
52
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s management has evaluated, under the supervision and with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operations of the
Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of
the period covered by this annual report. Based on that evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of
the end of the period covered by this annual report.
(a) Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal
control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only
reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Further, because of changes in conditions, effectiveness of internal control over financial reporting
may deteriorate.
Management of the Company conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that evaluation, the Company’s management did not
identify any control deficiencies it considered to be material weaknesses under the rules specified by the Public
Company Accounting Oversight Board’s Auditing Standard No. 5, and therefore concluded that its internal control
over financial reporting was effective as of December 31, 2012.
Our independent registered public accounting firm has issued an attestation report on the Company’s
effectiveness of internal control over financial reporting. Their report appears in Item 9A (b), Attestation Report of
the Registered Public Accounting Firm.
53
(b) Attestation Report of the Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Computer Task Group, Incorporated:
We have audited Computer Task Group, Incorporated’s internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Computer Task Group,
Incorporated’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Control Over Financial Reporting (Item 9A(a)). Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
In our opinion, Computer Task Group, Incorporated maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2012, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Computer Task Group, Incorporated as of December 31, 2012
and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and our report
dated February 22, 2013 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Buffalo, New York
February 22, 2013
54
(c) Changes in Internal Control Over Financial Reporting
The Company continues to review, revise and improve the effectiveness of the Company’s internal controls on
a continuous basis. The Company’s management, including its Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the Company’s internal control over financial reporting as of the end of the period
covered by this annual report. There were no changes in the Company’s internal control over financial reporting
that occurred during the period covered by this annual report, which ended on December 31, 2012, that materially
affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B.
Other Information
None
55
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
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” and “Nominating and Corporate Governance
Committee and Director Nomination Process” subsections, and “Corporate Governance and Website Information” in
the Company’s Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on May 8, 2013
(Proxy Statement) to be filed with the SEC not later than 120 days after the end of the year ended December 31,
2012, except insofar as information with respect to executive officers is presented in Part I, Item 1 of this report
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 “The Board of Directors and Committees” and “Compensation Discussion and Analysis” (including all
compensation tables) presented in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Except as set forth below, 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 Proxy Statement.
The following table sets forth, as of December 31, 2012, certain information related to the Company’s
compensation plans under which shares of its common stock are authorized for issuance:
Equity compensation plans approved by security
holders:
2010 Equity Award Plan
2000 Equity Award Plan
1991 Employee Stock Option Plan
1991 Restricted Stock Plan
Equity compensation plans not approved by
security holders:
None
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
Number of securities
remaining available
for future issuance
under equity
compensation plans
465,096 $
2,584,547 $
153,130 $
— $
— $
3,202,773 $
13.59
4.68
8.56
—
—
6.16
414,154
—
—
276,750
—
690,904
At December 31, 2012, the Company did not have any outstanding rights or warrants. All outstanding awards
are either stock options or restricted stock.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required in response to this item is incorporated herein by reference to the information under
the caption “Certain Relationships and Related Person Transactions,” "The Board of Directors and Committees,"
and “Director Independence and Executive Sessions” presented in the Proxy Statement.
Item 14.
Principal Accounting Fees and Services
The information required in response to this item is incorporated herein by reference to the information under
the caption “Appointment of Auditors and Fees” presented in the Proxy Statement.
56
Item 15.
Exhibits, Financial Statement Schedules
PART IV
(A)
Index to Consolidated Financial Statements and Financial Statement Schedule
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in Shareholders’ Equity
Notes to Consolidated Financial Statements
(2)
Index to Consolidated Financial Statement Schedule
Report of Independent Registered Public Accounting Firm on Financial Statement Schedule
Financial statement schedule:
Schedule II—Valuation and Qualifying Accounts
(B) Exhibits
The Exhibits to this annual report on Form 10-K are listed on the attached Exhibit Index
27
28
29
30
31
32
34
58
59
57
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Computer Task Group, Incorporated:
Under date of February 22, 2013, we reported on the consolidated balance sheets of Computer Task Group,
Incorporated and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of
income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-
year period ended December 31, 2012, which are included in the Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related 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 based on
our audits.
In our opinion, such 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 22, 2013
58
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Balance at
January 1
Additions
Deductions
Balance at
December 31
2012
Accounts deducted from accounts receivable -
Allowance for doubtful accounts
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
2011
Accounts deducted from accounts receivable -
Allowance for doubtful accounts
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
Accounts deducted from other assets -
Reserves
2010
Accounts deducted from accounts receivable -
Allowance for doubtful accounts
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
Accounts deducted from other assets -
Reserves
$
$
$
$
$
$
$
$
965
326 A
(429) A $
1,404
1,000 B
(135) B $
860
729 C
(624) C $
2,693
585 D
(1,874) D $
575
—
(575) E $
964
2,649
575
13
260
—
(117)
(216)
$
$
— $
575
862
2,269
965
1,404
—
860
2,693
A These balances primarily reflect additions to the allowance charged to expense resulting from the normal
course of business, less deductions for recovery of accounts that were previously reserved, and additions and
deductions for foreign currency translation
B These balances primarily reflect additions for an increase in the valuation reserve associated with certain
deferred tax assets related to the Netherlands defined-benefit plan
C These balances primarily reflect additions to the allowance for a customer bankruptcy in the Company's 2011
fourth quarter, less deductions for accounts written off that were previously reserved, and additions and
deductions for foreign currency translation
D These balances primarily reflect additions for current year activity, deductions for the expiration of certain
unused net operating losses, and additions and deductions for foreign currency translation
E This balance reflects a deduction for amounts written off that were previously reserved
59
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.
SIGNATURES
COMPUTER TASK GROUP, INCORPORATED
By
/s/ James R. Boldt
James R. Boldt,
Chairman and Chief Executive Officer
Dated: February 22, 2013
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.
(i)
Principal Executive Officer
Signature
Title
Chairman and Chief
Executive Officer
Date
February 22, 2013
/s/ James R. Boldt
James R. Boldt
(ii)
Principal Accounting and Principal Financial Officer Chief Financial Officer
February 22, 2013
/s/ Brendan M. Harrington
Brendan M. Harrington
(iii)
Directors
/s/ Thomas E Baker
Director
February 22, 2013
Thomas E. Baker
/s/ James R. Boldt
Director
February 22, 2013
James R. Boldt
/s/ Randall L. Clark
Director
February 22, 2013
Randall L. Clark
/s/ David H. Klein
Director
February 22, 2013
David H. Klein
/s/ William D. McGuire
Director
February 22, 2013
William D. McGuire
/s/ John M. Palms
Director
February 22, 2013
John M. Palms
/s/ Daniel J. Sullivan
Director
February 22, 2013
Daniel J. Sullivan
60
EXHIBIT INDEX
Exhibit
Description
Reference
3.
4.
10.
(a)
(b)
(a)
(b)
(c)
(a)
(b)
(c)
+
(1)
(2)
Restated Certificate of Incorporation of Registrant
Restated By-laws of Registrant
Restated Certificate of Incorporation of Registrant
Restated By-laws of Registrant
Specimen Common Stock Certificate
Stock Employee Compensation Trust Agreement, dated May 3, 1994,
between Registrant and Thomas R. Beecher, Jr., as trustee
Demand Grid Note, dated October 29, 1997, between Registrant and
Computer Task Group, Incorporated Stock Employee Compensation Trust
Pledge Agreement, between the Registrant and Thomas R. Beecher, Jr.,
as Trustee of the Computer Task Group, Incorporated Stock Employee
Compensation Trust
Management contract or compensatory plan or arrangement
Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2007, and incorporated herein by reference
(file No. 001-09410 filed on March 10, 2008)
Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2006, and incorporated herein by reference
(file No. 001-09410 filed on March 7, 2007)
(1)
(2)
(1)
(2)
(2) +
(2) +
(2) +
61
Exhibit
10.
EXHIBIT INDEX (Continued)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
(m)
(n)
(o)
#
(3)
(4)
(5)
(6)
Description
2012 Key Employee Compensation Plans
Computer Task Group, Incorporated Non-Qualified Key Employee
Deferred Compensation Plan
1991 Restricted Stock Plan
Computer Task Group, Incorporated 2000 Equity Award Plan
Executive Supplemental Benefit Plan 1997 Restatement
First Amendment to the Computer Task Group, Incorporated Executive
Supplemental Benefit Plan 1997 Restatement
Compensation Arrangements for the Named Executive Officers
Change in Control Agreement, dated January 1, 2010, between the
Registrant and James R. Boldt, as amended and restated
Employment Agreement, dated January 1, 2010, between the Registrant
and James R. Boldt, as amended and restated
Officer Change in Control Agreement
First Employee Stock Purchase Plan (Eighth Amendment and
Restatement)
Loan Agreement By and Among Manufacturers and Traders Trust
Company and Computer Task Group, Incorporated
Reference
(3) +
(2) +
(1) +
(4) +
(1) +
(1) +
# +
(5) +
(5) +
(5) +
(1) +
(6)
Filed herewith
Included in the Registrant’s definitive Proxy Statement dated April 2013
under the caption entitled “Baseline Compensation – Performance-Based
Incentives - Annual Cash Incentive Compensation,” and incorporated
herein by reference
Filed as an Exhibit to the Registrant’s Form 8-K on November 18, 2008,
and incorporated herein by reference (file No. 001-09410)
Filed as an Exhibit to the Registrant’s Annual Report on Form 10-K for the
year ended December 31, 2008, and incorporated herein by reference
(file No. 001-09410 filed on February 25, 2009)
Filed as an Exhibit to the Registrant’s Form 8-K on April 21, 2005, and
incorporated herein by reference (file No. 001-09410)
62
Reference
(7)
(8)
(9)
(10)
#
(11)
#
#
#
#
#
EXHIBIT INDEX (Continued)
Exhibit
10.
(p)
Description
Third Amendment to the Loan Agreement, dated February 4, 2008,
among Computer Task Group, Incorporated, Manufacturers and Traders
Trust Company and Key Bank National Association
14.
21.
23.
31.
32.
101.
(q)
(r)
(s)
(t)
(a)
(b)
#
(7)
(8)
(9)
(10)
(11)
1991 Employee Stock Option Plan
Fourth amendment to the Loan Agreement, dated December 23, 2010,
among Computer Task Group, Incorporated, Manufacturers and Traders
Trust Company, and Key Bank National Association
2010 Equity Award Plan
Fifth amendment to the Loan Agreement, dated February 13, 2013,
among Computer Task Group, Incorporated, Manufacturers and Traders
Trust Company and Key Bank National Association
Code of Ethics
Subsidiaries of the Registrant
Consent of Experts and Counsel
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Interactive data files pursuant to Rule 405 of Regulation S-T: the
Consolidated Statements of Income and Comprehensive Income for the
years ending December 31, 2012, 2011 and 2010, the Consolidated
Balance Sheets as of December 31, 2012 and December 31, 2011, the
Consolidated Statements of Cash Flows for the years ending December
31, 2012, 2011 and 2010, the Consolidated Statements of Changes in
Shareholders’ Equity for the years ended December 31, 2012, 2011, and
2010, and the Notes to the Consolidated Financial Statements
Filed herewith
Filed as an Exhibit to the Registrant’s Form 8-K on February 8, 2008, and
incorporated herein by reference (file No. 001-09410)
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
(file No. 001-09410 filed on March 7, 2007)
Filed as an Exhibit to the Registrant’s Form 8-K on December 28, 2010,
and incorporated herein by reference (file No. 001-09410)
Filed as an Exhibit to the Registrant’s Registration Statement No.
333-167462 on Form S-8 filed on June 11, 2010, and incorporated herein
by reference
Included at the internet address specified in the Registrant’s definitive
Proxy Statement dated April 2013 under the caption entitled “Corporate
Governance and Website Information,” and incorporated herein by
reference
63
EXHIBIT 21
COMPUTER TASK GROUP, INCORPORATED
SUBSIDIARIES OF COMPUTER TASK GROUP, INCORPORATED
The following is a list of all of the subsidiaries of the Registrant as of December 31, 2012. All financial
statements of such subsidiaries are included in the consolidated financial statements of the Registrant, and all of
the voting securities of each subsidiary are
by the Registrant:
Subsidiary
Computer Task Group of Delaware, Inc.
CTG of Buffalo, Inc.
Computer Task Group (Holdings) Ltd.
Computer Task Group of Kansas, Inc. (a subsidiary
of Computer Task Group (Holdings) Ltd.)
Computer Task Group of Canada, Inc.
Computer Task Group International, Inc.
Computer Task Group Europe B.V. (a subsidiary
of Computer Task Group International, Inc.)
Computer Task Group (U.K.) Ltd. (a subsidiary
of Computer Task Group Europe B.V.)
Computer Task Group Belgium N.V. (a subsidiary
of Computer Task Group Europe B.V.)
CTG ITS S.A. (a subsidiary
of Computer Task Group IT Solutions, S.A.)
Rendeck
of Computer Task Group Europe B.V.)
Software B.V. (a subsidiary
Computer Task Group of Luxembourg PSF (a subsidiary
of Computer Task Group, Incorporated)
Computer Task Group IT Solutions, S.A. (a subsidiary
of Computer Task Group Luxembourg PSF.)
State/Country
or Jurisdiction
of Incorporation
Delaware
New York
United Kingdom
Missouri
Canada
Delaware
The Netherlands
United Kingdom
Belgium
Belgium
The Netherlands
Luxembourg
Luxembourg
EXHIBIT 23
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Computer Task Group, Incorporated:
We consent to the incorporation by reference in the Registration Statements No. 333-43263 on Form S-3 and No.
033-61493, 333-12237, 333-39936, 333-51162, 333-66766, 333-91148, 333-118314, 333-143080, 333-152827,
333-167461, 333-167462, and 333-183206 on Form S-8 of Computer Task Group, Incorporated of our reports
dated February 22, 2013, with respect to the consolidated balance sheets of Computer Task Group, Incorporated
and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income,
comprehensive income, changes in shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2012, the related financial statement schedule, and the effectiveness of internal control
over financial reporting as of December 31, 2012, which reports appear in the December 31, 2012 annual report on
Form 10-K of Computer Task Group, Incorporated.
/s/ KPMG LLP
Buffalo, New York
February 22, 2013
I, James R. Boldt, certify that:
CERTIFICATION
EXHIBIT 31 (a)
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;
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;
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;
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)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a.
b.
c.
d.
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;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
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
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 registrant’s 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; and
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.
b.
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
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: February 22, 2013
/S/ JAMES R. BOLDT
James R. Boldt
Chairman and Chief Executive Officer
I, Brendan M. Harrington, certify that:
CERTIFICATION
EXHIBIT 31 (b)
1.
2.
3.
4.
I have reviewed this report on Form 10-K of Computer Task Group, Incorporated;
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;
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;
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)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a.
b.
c.
d.
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;
designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
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
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 registrant’s 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; and
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.
b.
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
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: February 22, 2013
/S/ BRENDAN M. HARRINGTON
Brendan M. Harrington
Chief Financial Officer
EXHIBIT 32
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
CERTIFICATION
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of
Title 18, United States Code), each of the undersigned officers of Computer Task Group, Incorporated, a New York
corporation (the “Company”), does hereby certify with respect to the Annual Report of the Company on Form 10-K
for the year ended December 31, 2012 as filed with the Securities and Exchange Commission (the “Form 10-K”)
that:
(1) the Form 10-K fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934; and
(2) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition
and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Computer Task Group,
Incorporated and will be retained by Computer Task Group, Incorporated and furnished to the Securities and
Exchange Commission or its staff upon request.
Date: February 22, 2013
Date: February 22, 2013
/S/ JAMES R. BOLDT
James R. Boldt
Chairman and Chief Executive Officer
/S/ BRENDAN M. HARRINGTON
Brendan M. Harrington
Chief Financial Officer
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C O R P O R A T E
I N F O R M A T I O N
Stock Market Information
Transfer Agent and Registrar
The Company’s common stock is traded on
Computershare
The NASDAQ Stock Market LLC under the
Our Transfer Agent is responsible for our shareholder records, issuance of stock certifi cates,
symbol CTGX.
Annual Meeting
The annual meeting of shareholders has been
scheduled for May 8, 2013 in Buffalo, New York
for shareholders of record on March 22, 2013.
Corporate Headquarters
CTG
800 Delaware Avenue
Buffalo, NY 14209-2094
(716) 882-8000
(800) 992-5350
CTG Europe Headquarters
CTG Europe BV
c/o Woluwelaan 140A
1831 Diegem, Belgium
+32 (0)2 720 51 70
Company Certifi cations
The Company has fi led all certifi cations
provided by its Chief Executive Offi cer and
Chief Financial Offi cer as required by the
Sarbanes-Oxley Act of 2002.
and distribution of our dividends, if any, and the IRS Form 1099. Your requests, as
shareholders, concerning these matters are most effi ciently answered by corresponding
directly with Computershare:
Computershare Investor Services
P.O. Box 43078
Providence, RI 02940-3078
(800) 730-4001
www.computershare.com/investor
Independent Registered Public Accounting Firm
KPMG LLP
12 Fountain Plaza, Suite 601
Buffalo, NY 14202
Forward-looking Information
This annual report on Form 10-K contains forward-looking statements made by the
management of Computer Task Group, Incorporated (“CTG,” “the Company” or “the
Registrant”) that are subject to a number of risks and uncertainties. These forward-looking
statements are based on information as of the date of this report. The Company assumes no
obligation to update these statements based on information from and after the date of this
report. Generally, forward-looking statements include words or phrases such as “anticipates,”
“believes,” “estimates,” “expects,” “intends,” “plans,” “projects,” “could,” “may,” “might,”
“should,” “will” and words and phrases of similar impact. The forward-looking statements
Form 10-K and Company Code of Ethics,
include, but are not limited to, statements regarding future operations, industry trends or
Committee Charters, and Governance
conditions and the business environment, and statements regarding future levels of, or trends
Policies Available
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 fi led with the Securities and
Exchange Commission, may be obtained without
charge either through its website at www.ctg.com/
investors or upon written or verbal request to:
in, revenue, operating expenses, capital expenditures, and fi nancing. The forward-looking
statements are made pursuant to safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Numerous factors could cause actual results to differ materially from
those in the forward-looking statements, including the following: (i) the availability to CTG
of qualifi ed professional staff, (ii) domestic and foreign industry competition for customers
and talent, (iii) the Company’s ability to protect confi dential client data, (iv) the partial
or complete loss of the revenue the Company generates from International Business
Machines Corporation (IBM), (v) risks associated with operating in foreign jurisdictions, (vi)
renegotiations, nullifi cation, or breaches of contracts with customers, vendors, subcontractors
or other parties, (vii) the change in valuation of recorded goodwill balances, (viii) the impact
Computer Task Group, Incorporated
of current and future laws and government regulation, as well as repeal or modifi cation of
Investor Relations Department
such, affecting the information technology (IT) solutions and staffi ng industry, taxes and
800 Delaware Avenue
Buffalo, NY 14209-2094
(716) 887-7400
the Company’s operations in particular, (ix) industry and economic conditions, including
fl uctuations in demand for IT services, (x) consolidation among the Company’s competitors
or customers, (xi) the need to supplement or change our IT services in response to new
offerings in the industry, and (xii) the risks described in Item 1A of this annual report on Form
10-K and from time to time in the Company’s reports fi led with the Securities and Exchange
Commission (SEC).
B O A R D
O F
D I R E C T O R S
A N D
O F
F
I C E R S
Directors
Thomas E. Baker
Retired Partner,
PricewaterhouseCoopers
James R. Boldt
Chairman and Chief Executive
Officer of CTG
Randall L. Clark
Chairman of Dunn Tire LLC
David H. Klein
Former Chief Executive Officer of
Lifetime Healthcare Companies
William D. McGuire
Former President and Chief
Executive Officer of Kaleida Health
Dr. John M. Palms
Former Chairman of the Board
of Assurant, Inc.
Daniel J. Sullivan
Former President and Chief
Executive Officer of FedEx Ground
Officers
James R. Boldt
Chairman and
Chief Executive Officer
Michael J. Colson
Senior Vice President,
Solutions
Arthur W. Crumlish
Senior Vice President
and General Manager,
Strategic Staffing Services
Filip J.L. Gydé
Senior Vice President
and General Manager,
CTG Europe
Brendan M. Harrington
Senior Vice President
and Chief Financial Officer
John M. Laubacker
Treasurer
Peter P. Radetich
Senior Vice President,
Secretary, and
General Counsel
Ted Reynolds
Vice President,
Health Solutions
Elizabeth Martin Savino
Vice President,
Human Resources
800 Delaware Avenue
Buffalo, New York 14209-2094
716.882.8000 | 800.992.5350
www.ctg.com
002CSN8750