2014 ANNUAL
REPORT
Mission
Company Profile
CTG’s mission is to provide IT
CTG develops innovative IT solutions to address the business needs and challenges
of companies in several higher-growth industries including healthcare, technology
services and solutions that
services, energy, and financial services. As a leading provider of IT and business
add real business value to
consulting services to the healthcare market, CTG offers healthcare institutions,
physician practices, payers, and related organizations a full range of offerings to
our customers while creating
help them achieve clinical, operational, and financial goals. CTG has developed for
professional opportunities for
our employees and value for
the healthcare provider and payer markets unique, proprietary anaytics solutions
that support better and lower cost healthcare. CTG also provides managed services
IT staffing for major technology companies and large corporations. Backed by
nearly 50 years’ experience, proprietary methodologies, and an ISO 9001-certified
our shareholders.
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 3,800 employees at December 31, 2014.
Vision
CTG’s vision is to be recognized as
a leading provider of value-added
IT services and solutions in our
selected markets.
Revenue
(in millions)
$424.4
$419.0
$393.3
Operating Margin
5.8%
5.9%
Net Income Per
Diluted Share
$0.96
$0.92
4.4%
$0.64
2012
2013
2014
2012
2013
2014**
2012*
2013
2014**
*Includes non-operational gains from insurance proceeds of 71/2 cents per diluted share
**Includes charges of 13 cents per diluted share related to the death of the Company’s CEO and the write-off of the net book
value of the Company’s fraud, waste, and abuse software solution
Financial Highlights
(amounts in millions, except per-share data)
2014
2013
2012
Operating Data
Revenue
Operating income
Net income
Diluted net income per share
Financial Position
Total assets
Long-term debt
Shareholders’ equity
$393.3
$419.0
$424.4
17.2
10.4
0.64
$170.8
–
111.0
24.7
15.7
0.92
$174.4
–
113.8
24.5
16.2
0.96
$166.2
–
102.8
Table of Contents
Letter to Shareholders
SEC Form 10-K
Corporate Information/
Board of Directors and Officers
1
5
IBC
Dear Fellow Shareholders
The last year presented considerable challenges to CTG resulting in a decline in revenue and earnings from
2013. Net income per diluted share in 2014 was $0.64 compared with $0.92 in 2013. Net income in 2014
included $1.2 million, net of tax, or $0.07 of net income per diluted share, of costs in the 2014 fourth quarter
associated with the death of CTG Chairman and Chief Executive Officer James R. Boldt under the terms of
his employment agreement with the Company. It also included a non-cash impairment charge in the 2014
fourth quarter of $0.9 million, net of tax, or $0.06 of net income per diluted share, to write off the net book
value of the Company’s medical fraud, waste, and abuse software solution. These charges were the primary
contributor to the narrowing of operating margin in 2014 to 4.4% from 5.9% in 2013. Excluding these
charges, net income per diluted share for 2014 would have been $0.77.
Total revenue in 2014 was $393.3 million, 6% lower than 2013 revenue of $419.0 million, reflecting an
industry-wide decline in external IT spending from healthcare providers, slightly lower revenue from our IT
staffing business, and modest growth in our European operations. These results are reflected in the change in
our revenue mix to 62% staffing/38% solutions in 2014 from 61%/39% in 2013. While it is disappointing that
our level of profitability was lower than the last two years, we were able to mitigate some of the downward
pressure on margins through disciplined cost control and the contribution from a large medical data analytics
project that was completed at the end of the year.
CTG lost a great man and a great leader with the unexpected death of Jim Boldt in October 2014. Jim
served CTG diligently since he joined the Company as chief financial officer in 1996. In 2001, Jim was named
chairman and chief executive officer. He led the Company through turbulent times following the aftermath
of Y2K and the dotcom downturn, which significantly reduced client spending on external IT support. Jim’s
leadership and business acumen brought CTG back to a position of financial strength by setting the Company
on a focused strategic course, concentrating on core competencies and expanding business in four higher
growth markets: technology services, healthcare, financial services, and energy. The primary emphasis today
is on healthcare, one of the largest and fastest growing industries in the U.S. This strategy proved successful
in establishing CTG as a leader in healthcare IT. We have also expanded our business in other key vertical
markets, most notably technology services. Diversifying CTG’s core business focus provided the necessary
balance to partially offset the impact of the changing healthcare environment that we are currently
managing through. Jim is missed by the CTG family, but his commitment to the Company and its success
continues to inspire all of us to keep moving his strategy and vision for CTG forward.
The Board retained a leading executive search firm immediately after Jim’s death, and after thoroughly
evaluating several excellent candidates, recently elected Cliff Bleustein President and Chief Executive Officer of
CTG. Cliff most recently served as Chief Medical Officer and Global Provider Solutions Leader at Dell Services. He
joined Dell Services in March 2013 as Managing Director and Global Head of Healthcare Consulting, and
was named Chief Medical Officer and Global Head of Healthcare Consulting in July 2014. Prior to his career
at Dell Services, Cliff was a director in the health industries advisory practice at PricewaterhouseCoopers,
where between 2009 and 2013 he focused on sales and delivery of PwC’s consulting services to healthcare
providers. We are confident Cliff has both the background and enthusiasm required to lead CTG in all of our
business areas, including staffing, non-healthcare solutions, and our European operations, and especially during
Total revenue in 2014
was $393.3 million,
6% lower than 2013
revenue of $419.0
million, reflecting
an industry-wide
decline in external
IT spending from
healthcare providers,
slightly lower revenue
from our IT staffing
business, and modest
growth in our
European operations.
the information technology transformation that is occurring in healthcare.
1
We are very
optimistic that
EHR optimization
and performance
improvement
opportunities will
grow as provider
organizations
focus on getting
maximum value
from significant prior
EHR investments.
Business Overview
Healthcare
Revenue from our healthcare business, which comes from healthcare provider, payer, and life sciences
organizations, declined 15% in 2014 and contributed 29% to total revenue compared with 31% in
2013. The two major contributors to lower healthcare IT spending in 2014 were uncertainty over regulatory
mandates and reductions in provider spending on electronic health records (EHR) systems implementations.
The federal government’s October 1, 2014 deadline for conversion to the ICD-10 diagnostic coding
standard, which was set in 2013 after multiple postponements, was unexpectedly extended for at least
another year in March 2014, prompting many healthcare organizations to delay ICD-10 projects that
we had factored into our revenue forecast for the year. If the ICD-10 conversion deadline is not further
delayed, we expect it will result in new consulting opportunities in 2015.
On the EHR front, cost pressures from lower Medicare reimbursements and decisions by some healthcare
organizations to not fund significant EHR investments were the catalysts for reduced spending on EHR
implementations, which began in the second half of 2013 and carried over to 2014. Many smaller hospitals
that had not already invested in an interoperable EHR system decided that the cost of implementing a
system outweighed the benefit of receiving government incentives to install one. Also, many providers
completed implementation of EHR systems in 2014 and moved their system to a post-implementation
environment. More provider organizations beginning implementations are looking to lower costs by
primarily using internal resources supplemented by highly experienced external EHR consultants rather than
engaging a full team of external EHR consultants to implement the system. CTG has and will continue to
work with provider organizations on EHR implementations in a flexible way that meets their needs.
While not at the size of full-scale EHR implementations, partial EHR implementation consulting support and
post-implementation support for EHR optimization, workflow redesign, and revenue cycle management
projects will generate revenue for CTG in 2015. We are very optimistic that EHR optimization and
performance improvement opportunities will grow as provider organizations focus on getting maximum
2014 Revenue Mix
By Market
value from significant prior EHR investments.
26%
29%
6%
8%
31%
Healthcare
Technology Services
Financial Services
Energy
General Markets
Although EHR implementation spending has declined, we are seeing emerging opportunities as providers’
needs for external IT consulting support change. We actively responded to these opportunities in 2014 by
expanding our advisory services offerings and consulting team to capitalize on growing client needs as they
respond to health reform mandates and cost reduction initiatives tied to accountable care and population
health management.
Application management support is another area where demand continues to grow as healthcare
organizations turn to external support to manage applications and help desk functions to reduce costs
and shift internal resources to higher priority initiatives. We are leveraging our considerable outsourcing
experience and expertise by expanding our team to accelerate growth in this business. These investments
are beginning to yield positive results with several new application management engagements won in
2014, including a large outsourcing engagement that began ramping up in the second half of the year.
There is increasing interest from the payer market in the area of advisory services. CTG has significant
experience in both the provider and payer markets, which provides us a competitive advantage particularly
2
as these markets continue to converge.
IT Solutions and Data Analytics
For several years, the focus of our IT Solutions business has been our traditional healthcare business and the
development of data analytics solutions primarily targeted to the healthcare market. In 2014, sales of our
medical data analytics products were also negatively impacted by lower spending in the healthcare market. In
addition to funding constraints, providers and payers are continuing to evaluate how to best use analytics
to drive improvements in performance, cost reductions, and clinical outcomes in the new era of healthcare
reform. Although we wrote off our investment in our fraud, waste, and abuse software solution in 2014, we
still see sales potential when the payer market is less burdened by the considerable costs and time required
to comply with healthcare reform mandates, including the development of health insurance products and
exchanges that meet the requirements of the Affordable Care Act.
A large data analytics project that used our clinical decision support solution contributed nicely to 2014
earnings, while further validating the value of our tools in helping to identify points for early chronic kidney
disease intervention and to make cost-effective treatment decisions that produce more favorable patient
outcomes. While sales of our data analytics offerings have not progressed at the level we initially expected,
we are seeing interest in the marketplace in medical analytics/big data solutions, and thus are continuing
to fine tune and enhance our analytics products suite to meet client needs as the adoption of pay-for-
performance business modeling progresses.
Staffing
While revenue from our staffing business decreased by 4% in 2014, demand from our staffing clients began to
rise in the second half of the year as reflected in total headcount at year-end 2014 of 3,800. Although staffing
carries much lower margins than our solutions business, it is a volume-driven business aided by our experience,
strong client relationships, and value-added managed services.
There were a number of positive developments in our staffing business in 2014. We recently renewed our
contract with IBM, a CTG customer since 1966, through 2017. Over the last year, we increased revenue
and headcount in business units divested by IBM where CTG has remained a principal supplier. We are also
expanding our relationship with one of our largest clients, a Fortune 500 Global company, by providing
professional and technical resources. Additionally, CTG was recently named a national supplier to provide
contract IT staff to The Boeing Company, the world’s largest aerospace company and one of the largest
global manufacturers in the Fortune 100. Our strategy for the staffing business is to continue our focus on
expanding revenue and profit contribution through managed services by targeting high volume corporate
users of external IT talent where we would be a preferred supplier.
Europe
Revenue from CTG’s operations in Europe increased 2% to $78.3 million, or 20% of total revenue, in 2014. Last
year was the fourth consecutive year of revenue growth in our European business. Headcount in Europe is
approximately 600 and we currently operate in three countries: Belgium, Luxembourg, and the United Kingdom.
As in the United States, we are looking to expand our mix of higher margin solutions work in Europe. We
acquired etrinity, a small Benelux healthcare IT consulting firm, in 2013 with the expectation that
many European healthcare organizations will eventually install U.S. EHR systems to lower costs and
improve care. We recently completed an advisory project for the first Epic (the largest U.S. EHR vendor)
implementation in the United Kingdom. While we are pleased with the success of this project and optimistic
we can leverage that role to gain more EHR business, we believe the widespread implementation of
CTG was recently
named a national
supplier to provide
contract IT staff
to The Boeing
Company, the world’s
largest aerospace
company and one
of the largest global
manufacturers in the
Fortune 100. Our
strategy for the
staffing business
is to continue our
focus on expanding
revenue and profit
contribution through
managed services
by targeting high
volume corporate
users of external
IT talent where we
would be a preferred
supplier.
U.S. EHRs in Europe is still one to three years away.
3
In addition to building our European healthcare business, we are looking to expand our business in the
government (European Union, national, and regional organizations) and financial services markets where
we currently have a solid foundation. We are also a leading provider of independent software testing in the
Benelux market and have a growing remote services business. We are very optimistic regarding our market
position in Europe. With our current services solidly in place, we look forward to growing our business there
through higher margin EHR implementations and other solutions work.
Looking Forward
We foresee a challenging 2015 ahead based on the lower client spending and changes in the healthcare
market that began in 2013, the recent completion of some large EHR implementation projects, and the lack
of a major data analytics project. We do anticipate the continuation of a favorable business environment
for our IT staffing business based on market conditions and our successful efforts in 2014 to position it for
growth. While its margins are less than our healthcare and data analytics offerings, staffing brings value as a
steady revenue and stable cash flow business. Our European business is also on solid ground and we believe
it will achieve improved growth and profitability in 2015.
CTG’s long-term growth focus remains in healthcare IT as it has the greatest profitability and growth
potential. Healthcare represents almost 20% of the U.S. GDP and spending on IT systems to assist in
reducing the growth in overall healthcare costs is likely to rise given the demographic of a large aging
population. With the transformational changes in healthcare delivery and payment models being driven by
U.S. healthcare reform now underway, we are making the necessary investments to expand our healthcare
offerings and resources to meet changing client needs and ensure CTG remains an industry leader in
healthcare IT. As we manage through this period of lower client spending and adapt to changes in the
healthcare business environment, CTG’s healthcare business is in a solid position. Based on CTG’s financial
strength and business diversity, we will make continued investments in this sector and fully expect to come
out of this down cycle positioned to capitalize on new opportunities in the healthcare IT consulting market.
We have continued confidence in our ability to weather this transition period in our healthcare business
that is currently affecting CTG’s overall ability to grow revenue and profits. CTG is a well-established and
financially sound company that has been in business for almost 50 years. We have a strong and diversified
business. We ended 2014 with $41 million in cash and no debt for the ninth consecutive year. We are
in a good position to fund expansion through organic growth and select acquisitions, and to improve
shareholder value through dividends and share repurchases. It is noteworthy that in 2014 CTG repurchased
nearly 3% of our shares, paid a quarterly dividend, and continued to make investments in the business
without incurring debt.
CTG remains a leader in the IT staffing and healthcare IT consulting markets and we believe that the
changes and investments being made in our healthcare and analytics offerings will enable us to resume
positive growth in the years beyond 2015. Management and the Board remain firmly focused on running the
business well, prudently taking advantage of growth opportunities, and managing finances conservatively to
favorably position CTG for long-term growth in revenue, profitability, and shareholder value.
CTG remains a leader
in the IT staffing
and healthcare IT
consulting markets
and we believe
that the changes
and investments
being made in our
healthcare and
analytics offerings
will enable us to
resume positive
growth in the years
beyond 2015.
4
Daniel J. Sullivan
Chairman
SEC Form 10-K
6
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
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 or other jurisdiction of incorporation or organization)
800 Delaware Avenue, Buffalo, New York
(Address of principal executive offices)
16-0912632
(I.R.S. Employer Identification No.)
14209
(Zip Code)
Registrant’s telephone number, including area code: (716) 882-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
Rights to Purchase Series A
Participating Preferred Stock
Name of each exchange on which registered
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
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
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 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 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:
Large accelerated filer
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)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
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 $227.1 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 20, 2015 was
18,748,625.
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, 2014, 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. Mine Safety Disclosures
Part II
Item 5. 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 Disclosures 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. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Page
1
9
14
14
14
14
15
18
19
30
31
58
58
60
61
61
61
61
61
62
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 business strategy and expectations, new business opportunities, cost control initiatives, business wins,
market demand, 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) increased bargaining power of large customers, (iv) the Company's ability to protect
confidential client data, (v) the partial or complete loss of the revenue the Company generates from International
Business Machines Corporation (IBM), (vi) the uncertainty of customers' implementations of cost reduction projects,
(vii) the effect of healthcare reform and initiatives, (viii) the mix of work between staffing and solutions, (ix) currency
exchange risks, (x) risks associated with operating in foreign jurisdictions, (xi) renegotiations, nullification, or
breaches of contracts with customers, vendors, subcontractors or other parties, (xii) the change in valuation of
recorded goodwill or capitalized software balances, (xiii) 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, (xiv) industry and economic conditions, including
fluctuations in demand for IT services, (xv) consolidation among the Company's competitors or customers, (xvi) the
need to supplement or change our IT services in response to new offerings in the industry or changes in customer
requirements for IT products and solutions, and (xvii) 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 3,800 people worldwide.
During 2014, the Company had seven 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, Computer Task Group (U.K.) Ltd., and etrinity N.V. (etrinity), each
primarily providing services in Europe. Services provided in North America are primarily performed by the parent
corporation, 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
1
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
health records (EHR) systems in integrated delivery networks and other provider organizations. CTG also
provides IT services to health insurance companies, and to the start-up and development of Health
Information Exchanges (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 2014, the healthcare
market accounted for most of CTG’s TAM services. 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 either at a client or
CTG site, or remotely.
In 2014, CTG continued to invest in and expand new IT Solutions development, primarily targeted to the
healthcare market, which supports cost reductions and productivity improvements. Previously, healthcare
solutions under development moved from the pilot stage of testing using live data into the sales process as
completed tools. In 2014, the Company continued to invest in certain of these tools to expand their
capabilities, including the Company's solution that focuses on 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 primarily support the healthcare provider
market.
•
IT and Other Staffing: CTG recruits, retains, and manages IT and other talent for its clients, which are
primarily large technology service providers and companies with multiple locations and significant need for
high-volume external IT, administrative, or warehouse 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. In certain limited
instances for a small number of clients, the Company provides administrative or warehouse employees to
clients to supplement the IT resources we place at those clients.
The primary focus of the Company’s staffing services 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 service in both our North American and European businesses,
and represents a significant portion of the IT staffing services 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 services 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 consolidated revenue for the years ended December 31,
2014, 2013 and 2012 is as follows:
IT solutions
IT staffing
Total
2014
2013
2012
38.0 %
62.0 %
39.3% 40.8%
60.7% 59.2%
100.0 % 100.0% 100.0%
2
A major strategic initiative of the Company in recent years has been to focus on its IT solutions services, as
operating margins generated by the IT solutions services are generally higher than those of the IT staffing services.
However, growth from the IT solutions business unit has been challenging in the past several years. Overall, the
Company’s revenue decreased $25.8 million or 6.1% from 2013 to 2014 due to a general reduction in spending by
many of our healthcare clients (which is included in IT solutions services) in part due to the U.S. federal government
sequestration which cut Medicare reimbursements to hospitals and health systems beginning on April 1, 2013.
Additionally, there were reductions in demand from some of our IT staffing services clients. The higher margin IT
solutions services business decreased $15.2 million or 9.2% from 2013 to 2014, while IT staffing services
decreased $10.6 million or 4.2% in the same period. The Company’s operating margin in 2014 was 4.4%. The
decrease in operating income in 2014 from 2013 was primarily due to reduced operating leverage due to lower
consolidated revenue, a change in the business mix to a higher level of IT staffing services which has lower direct
profit than the IT solutions business, competitive pricing pressure from a large IT staffing client, higher medical
costs due to increased utilization of the Company's self insured medical plan, costs of $2.0 million associated with
the death of the Company's Chairman and CEO in the 2014 fourth quarter, and the Company's decision to take an
impairment charge of approximately $1.5 million for software costs capitalized for an IT solution. The Company’s
operating margin was 5.9% in 2013, and 5.8% in 2012.
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 as a percentage of consolidated revenue for the years ended December 31,
2014, 2013 and 2012 is as follows:
2014
2013
2012
Healthcare
Technology service providers
Financial services
Energy
General markets
Total
28.6 %
26.4 %
7.9 %
6.1 %
31.0 %
31.4% 33.0%
28.0% 30.8%
6.1%
6.0%
27.6% 24.1%
100.0 % 100.0% 100.0%
6.8%
6.2%
The Company’s growth efforts are primarily focused in the healthcare market based on its leading position in
serving the provider market, and its expertise and experience serving other segments of this market (payers and life
sciences companies). In 2012, there had been higher demand for solutions offerings and support from healthcare
companies, and in general, higher demand compared with other sectors of the U.S. economy. However, in 2013
and 2014, the demand from our healthcare clients decreased. This decrease was directly related to the U.S.
federal government sequestration which cut Medicare reimbursements to hospitals and health systems by 2%
starting in April 2013. As a result, the Company’s healthcare revenue continued to decrease in 2014, decreasing
$19.3 million or 14.7% from 2013.
Revenue for the Company's technology service providers vertical market as a percentage of total revenue
decreased in 2014 as compared with 2013 due to weak demand from several of the Company's largest clients in its
IT staffing services business unit, which are included in this vertical market.
During 2014, the percentage of revenue attributable to the financial services market increased from 2013,
primarily due to strong demand in our European operations. In recent years, most of CTG’s revenue in the financial
services market was generated from its European operations, which accounted for 97.3% of the Company’s total
2014 revenue from the financial services vertical market.
Revenue for the Company's energy vertical market remained consistent as a percentage of consolidated
revenue in 2014 as compared with 2013 as demand in this vertical market declined with the overall revenue
decrease of the Company of approximately 6.1%. Generally, the decrease in the price of oil caused several of our
clients to reduce their overall spending, including requirements for IT services, during 2014.
3
For the year ended December 31, 2014, CTG provided its services to approximately 475 clients in North
America and Europe. In North America, the Company operates in the United States and Canada, with greater than
99% of 2014 North American revenue generated in the United States. In Europe, the Company operates in
Belgium, Luxembourg, and the United Kingdom. Of total 2014 consolidated revenue of $393.3 million,
approximately 80% was generated in North America and 20% in Europe. One client, International Business
Machines Corporation (IBM), accounted for greater than 10% of CTG’s consolidated revenue in 2014, 2013, and
2012.
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 per the proportional method of accounting using an
input-based approach. On a given project, actual salary and indirect labor costs incurred are measured and
compared against the total estimated costs of such items at the completion of the 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.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and
percentage-of-completion methods as a percentage of consolidated revenue for the years ended December 31,
2014, 2013 and 2012 is as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
2014
2013
2012
86.2%
11.2%
2.6%
100.0%
88.8%
8.8%
2.4%
100.0%
90.3%
7.9%
1.8%
100.0%
As of December 31, 2014 and 2013, the backlog for fixed-price and all managed-support contracts was
approximately $41.8 million and $44.1 million, respectively. Approximately 69.2% or $28.9 million of the
December 31, 2014 backlog is expected to be earned in 2015. Of the $44.1 million of backlog at December 31,
2013, approximately 73.8%, or $32.6 million was earned in 2014. 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 companies, 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.
4
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
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
3,800 employees worldwide, with approximately 3,200 in the United States and Canada and 600 in Europe. Of
these employees, approximately 3,500 are IT professionals and 300 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.
5
Financial Information About Geographic Areas
The following table sets forth certain financial information relating to the performance of the Company for the
years ended December 31, 2014, 2013, and 2012. 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 foreign revenue
Total revenue
Operating Income:
United States
Europe
Other country
Total foreign operating income
Total operating income
Total Assets:
United States
Belgium (1)
Other European countries
Other country
Total foreign assets
Total assets
2014
2013
2012
$
$
$
$
$
$
314,500 $ 341,391 $
44,692
33,652
424
78,768
393,268 $ 419,036 $
48,428
28,684
533
77,645
14,196 $
2,923
33
2,956
17,152 $
21,828 $
2,864
35
2,899
24,727 $
139,239 $ 139,576 $
15,621
15,739
197
31,557
170,796 $ 174,431 $
18,037
16,621
197
34,855
355,022
41,957
26,653
783
69,393
424,415
21,203
3,209
50
3,259
24,462
132,795
18,908
14,211
291
33,410
166,205
(1) Revenue and total assets for our Belgium operations have been disclosed separately as they exceed 10% of
the consolidated balances in certain of the years presented.
6
Executive Officers of the Company
As of December 31, 2014, the following individuals were executive officers of the Company:
Name
Brendan M. Harrington
John M. Laubacker
Filip J. L. Gydé
Age
48 Interim Chief Executive
Office
Officer
Period During
Which Served
as Executive Officer
Other Positions
and Offices
with Registrant
October 15, 2014 to date
None
Senior Vice President,
Chief Financial Officer
48 Interim Chief Financial
Officer
54 Interim Executive Vice
President of Operations
Senior Vice President
September 13, 2006 to
October 14, 2014
October 15, 2014 to date
Treasurer
October 15, 2014 to date
None
October 1, 2000 to October 14,
2014
Arthur W. Crumlish
60 Senior Vice President
September 24, 2001 to date
None
Peter P. Radetich
Ted Reynolds
60 Senior Vice President,
General Counsel
59 Senior Vice President
April 28, 1999 to date
Secretary
November 11, 2014 to date
None
Vice President, Health
Solutions
March 7, 2011 to November
10, 2014
Mr. Harrington was promoted to Interim Chief Executive Officer on October 15, 2014. Previously he was
Senior Vice President and Chief Financial Officer from September 13, 2006 to October 14, 2014, and 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. Laubacker was promoted to Interim Chief Financial Officer on October 15, 2014. He has served as the
Company’s Treasurer since 2006, responsible for management of the Company’s treasury, audit and financial
reporting functions. Prior to joining the Company in January 1996, Mr. Laubacker was a Senior Manager employed
at KPMG from 1988 to 1996.
Mr. Gydé was promoted to Interim Executive Vice President of Operations on October 15, 2014, responsible
for operating activities of the overall Company. Previously he was Senior Vice President and General Manager of
CTG Europe from October 1, 2000 through October 14, 2014. Prior to that, Mr. Gydé was Managing Director of the
Company’s operations in Belgium. Mr. Gydé has been with the Company since May 1987.
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. 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 Senior Vice President on November 11, 2014, and is currently responsible for
the Company's healthcare IT business unit, CTG Health Solutions. Previously he was Vice President for CTG
Health Solutions from March 7, 2011 through November 10, 2014. Prior to that, Mr. Reynolds served as the
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.
7
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 (Code of Conduct), committee charters and governance policies are also available without charge on
the Company’s website at http://investors.ctg.com/governance.cfm. The Company intends to disclose future
amendments to, or waivers from, certain provisions of the Code of Conduct on the Company's website or in a
current report on Form 8-K.
8
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 due to
the highly competitive market conditions that exist at this time. Additionally, we actively compete against many
other companies for business at new and existing clients. Billing rate reductions or competitive pressures may lead
to a further decline in revenue. If we are unable to make commensurate reductions in our personnel costs, our
margins and operating results in the future would be adversely affected.
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
2014, the National Technical Services Agreement (NTS Agreement) with IBM was renewed for three years until
December 31, 2017. In 2014, 2013, and 2012, IBM accounted for $90.5 million or 23.0%, $101.7 million or 24.3%,
and $113.8 million or 26.8% of the Company’s consolidated revenue, respectively. No other customer accounted
for more than 10% of the Company’s revenue in 2014, 2013 or 2012. The Company’s accounts receivable from
IBM at December 31, 2014 and 2013 amounted to $7.8 million and $11.5 million, respectively. In January 2014,
IBM announced its intention to sell off its x86 server division to Lenovo, and the initial closing of that sale occurred
on September 29, 2014. A portion of the Company's 2014 and 2013 revenue from IBM was related to the x86
server division. Lenovo has not made any assurances that the Company will retain a significant share of the
revenue derived from the x86 server division. If IBM or Lenovo were to significantly reduce the amount of IT
services they purchase from the Company, our revenue and operating results would be adversely affected.
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 86.2% of our services on a time-and-materials basis during 2014. 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
9
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 and capitalized software projects, which
are 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 $37.4 million at December 31, 2014. We also have
capitalized software projects recorded totaling $5.5 million at December 31, 2014. At least annually, we evaluate
this goodwill and capitalized software for impairment. The goodwill is evaluated based on the fair value of the
business operations or projects 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, or in the case of
capitalized software, there is an absence of historical or projected revenue for the solution. These changes could
result in an impairment of the existing goodwill balance or the capitalized software costs that could require a
material non-cash charge which would have an adverse impact on our results of operations.
The introduction of new IT products or services or changes in customer requirements for IT products
or services may render our existing IT Solutions or IT Staffing offerings obsolete or unnecessary, 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 and requirements. 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.
We could be subject to liability and damage to our reputation resulting from cyber attacks or data
breaches.
Information security risks for companies providing information technology (IT) and professional services,
especially in Healthcare-related industries, have increased over recent years. This increase in risk may be attributed
to the value of personally identifiable information or personal data used for identity theft and fraud, the increasing
sophistication and activities of attackers including organized crime, hackers, terrorists, activists, and other third
parties, and the reliance on Internet-based communications, and new technologies. The Company’s operations and
business rely on the secure processing, transmission, storage and availability of information and resources provided
by our information technology environment. This complex environment supports a variety of technologies,
industries, and delivery teams across the United States and Europe.
Although the Company has not experienced any prior material data breaches or cyber incidents, its technical
environment may become the target of cyber attacks or data breaches caused by external entities, third-party
vendors, or the Company's personnel, both intentionally and unintentionally. These cyber attacks or data breaches
could result in the disruption of the Company's internal and customer-facing business operations, and could also
result in the unauthorized disclosure, misuse, loss, and destruction of both the Company’s and its customers’
confidential and regulated information, including United States designated personally identifiable information (PII),
personal data under the European Union Data Protection Directive, or protected health information (PHI) under the
United States Health Insurance Portability and Accountability Act of 1996 (HIPAA).
The Company’s failure to protect PII, personal data, or PHI could result in reputational damage, fines and
penalties, litigation costs, external investigations, compensation costs including reimbursement and monetary
awards, and/or additional compliance costs which could have a material, adverse impact. It could also have an
adverse impact on the Company’s ability to execute contracts with customers that produce or work with this data,
and make it more difficult to recruit qualified personnel to perform its services in the future. As the cyber threat
landscape continues to evolve or the Company’s risk profile changes, it may be required to expend additional
resources to enhance existing protective measures or implement new mitigation strategies.
10
The foreign 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
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.
Government cuts in healthcare programs, such as Medicare, and delays in legislative or regulatory
healthcare mandates could cause a reduction in IT spending by our healthcare customers, which could
materially and adversely affect our revenues and results of operations.
The Company’s growth efforts are primarily focused in the healthcare market. Growth in this market depends
on continued spending by our healthcare customers on IT projects. Cuts in government healthcare programs, such
as sequestration, which cut Medicare reimbursements to hospitals and health systems in April 2013, may result in
reduced expenditures by our healthcare customers on IT projects. For example, the Company’s healthcare
revenue decreased $19.3 million or 14.7% in 2014 from 2013. If further government cuts in healthcare programs
were to occur, whether due to the failure of Congress to adopt a budget, pass appropriations bills or raise the U.S.
debt ceiling or for other reasons, there may be delays, reductions or cessation of funding to our customers, which
could cause them to purchase less IT services from us, which could materially and adversely affect our revenues
and results of operations.
In addition, delays in implementation of legislative or regulatory healthcare mandates could adversely affect
the IT spending by our healthcare customers to implement such mandates. For example, the implementation date
for ICD-10, a diagnostic coding system used for billing in the healthcare industry, was delayed in early 2014 until
October 1, 2015. This delay caused a number of our healthcare customers to defer spending allocated for 2014 for
IT projects that would have updated their billings systems. If implementation of existing or contemplated legislative
or regulatory healthcare mandates are further deferred, the resulting reduction in IT spending by our healthcare
customers could materially and adversely affect our revenues and results of operations.
Changes in government regulations and laws affecting the IT services industry, and the industries in
which our clients operate, including accounting principles and interpretations, and the taxation of domestic
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.
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
11
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.
In 2014 and previous years, the Company offered 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 expanded
healthcare coverage to those employees, or potentially pay financial penalties. Beginning in 2015, the Company is
in the process of offering compliant healthcare coverage as required. Although it is difficult to estimate the financial
impact of this healthcare coverage, the Company's intention is to pass the additional costs on to the customers
where our hourly employees who elect this coverage are engaged. 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 would be negatively impacted.
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 2014 and 2013, 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. in the markets in which we operate and the IT staffing nature of a large
portion of our business, the Company expects these rates will not significantly change in 2015 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 have 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 outside of North America 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.
Decreases in demand for IT Solutions and IT 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 the past, the U.S. economy, where the Company performs approximately 80% of its total business based upon
revenue, significantly deteriorated primarily due to subprime mortgage issues, financial market conditions, and other
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 prior years. Economic pressures
also led to customers’ reducing their spending on IT projects and external professional services. Overall economic
conditions in 2010 through 2014 stabilized in the U.S., and in 2013 began to improve in Europe. While economic
conditions improved in 2014 in the U.S., the Company experienced a decline in revenue for its electronic health
record business as the April 2013 sequestration caused a reduction in demand for our services from our healthcare
clients. Declines in spending for IT services in 2015 or future years may adversely affect our operating results 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
12
we will be able to continue to compete successfully with existing or future competitors or that future competition will
not have a material adverse affect on our results of operations and financial condition.
If we are unable to collect our receivables or unbilled services, our results of operations, financial
condition and cash flows could be adversely affected.
Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe
us for work performed. We evaluate the financial condition of our clients and typically bill and collect on reasonable
cycles. We might, however, not accurately assess the creditworthiness of our clients, or macroeconomic conditions
could also result in financial difficulties for our clients, including bankruptcy and insolvency. In certain industries,
some clients have requested longer payment terms, which has adversely affected, and may continue to adversely
affect, our cash flows. The timely collection of client balances also depends on our ability to complete our
contractual commitments as required. If we are unable to meet our commitments, or bill our clients on a timely
basis, our results of operations and cash flows could be adversely affected. We have established allowances for
losses of receivables and unbilled services where we deem the amounts to be uncollectible. The uncollectible
amounts due to the Company from clients could differ from those that we currently anticipate.
Our share price could fluctuate and be difficult to predict.
Our share price has fluctuated in the past and could continue to fluctuate in the future in response to various
factors. These factors include changes in macroeconomic or political factors unrelated to our business in the
geographies in which we operate, general or industry-specific market conditions or changes in financial markets,
our failure to meet our growth and financial objectives, including revenue growth, operating margin expansion and
earnings per share growth, our ability to generate enough cash flow to return cash to our shareholders at historical
levels or levels expected by our shareholders, announcements by us or competitors about developments in our
business or prospects, and projections or speculation about our business by the media or investment analysts.
If we repatriate our cash balances from our foreign operations, we may be subject to additional tax
liabilities.
We earn a portion of our operating income outside of the United States, and any repatriation of funds currently
held in foreign jurisdictions to the United States may result in higher effective tax rates and additional tax liabilities
for the Company. In addition, there have been proposals to change the tax laws in the United States that would
significantly impact how United States based multinational corporations are taxed on foreign earnings. Although we
cannot predict whether or in what form, or in what time frame, any proposed legislation may be passed, if enacted,
these tax laws could have a material adverse impact on our tax expense and cash flows.
Ineffective internal controls could impact the Company's business and operating results.
The Company's internal control over financial reporting may not prevent or detect misstatements because of
the inherent limitations of internal controls, including the possibility of human error, the circumvention or overriding
of controls, poorly designed or ineffective controls, or fraud. Internal controls that are deemed to be effective can
provide only reasonable assurance with respect to the preparation and fair presentation of the Company's financial
statements. If the Company fails to maintain the adequacy of its internal controls, including the failure to implement
new or improve existing controls, or fails to properly execute or properly test these controls, the Company's
business and operating results could be negatively impacted and the Company could fail to meet its financial
reporting obligations.
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, incurred but not recorded claims
related to the Company's self insured medical plan, 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.
13
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, 2014, these properties were not used as collateral as part of the Company’s existing demand
credit agreement.
All of the remaining Company locations, totaling approximately 20 sites, are leased facilities. Most of these
facilities are located in the United States, with approximately five of these locations in Europe in the countries of
Belgium, Luxembourg and the United Kingdom, where our European operations are located. These facilities
generally serve as sales and support offices and their size varies with the number of people employed at each
office, ranging from 300 to 26,000 square feet. 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.
14
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
PART II
Stock Market Information
The Company’s common stock is traded on The NASDAQ Stock Market LLC under the symbol CTG. 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, 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year Ended December 31, 2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
8.15
$ 11.84 $
$ 17.47 $
11.14
$ 17.46 $ 13.90
$ 19.02 $ 13.57
$ 19.20 $ 15.51
$ 26.11 $ 16.25
$ 24.70 $ 18.80
$ 23.08 $ 18.29
On February 20, 2015, there were 1,566 holders of record of the Company’s common shares. Although the
Company had not previously paid a dividend since 2000, it initiated a quarterly dividend of $0.05 per common share
beginning in March 2013, and increased that dividend to $0.06 per common share beginning in March 2014. At
December 31, 2012 and 2013, when the Company had a revolving line of credit in place, the Company was
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 both December 31, 2012 and 2013. There are
no measured financial covenants under the Company's new demand line of credit. For additional information
regarding such financial covenants, see Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition and Liquidity." The determination of the timing, amount and the
continuation of the payment of dividends on the Company’s common stock in the future is at the discretion of the
Board of Directors and will depend upon, among other things, the Company’s profitability, liquidity, financial
condition, and capital requirements.
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.”
15
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 2014 fourth quarter. The information in the table below does not
include shares withheld by or surrendered to the Company either to satisfy the exercise cost for the cashless
exercise of employee stock options, or to satisfy tax withholding obligations associated with employee equity
awards.
Purchases by the Company of its common stock on the open market during the fourth quarter ended
December 31, 2014 are as follows:
Period
September 27 - October 31
November 1 - November 30
December 1 - December 31
Total
* Excludes broker commissions
Total
Number
of Shares
Purchased
Average
Price
Paid per
Share*
15,000 $
35,400 $
62,859 $
113,259 $
8.78
8.90
8.64
8.74
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
15,000
35,400
62,859
113,259
735,541
700,141
637,282
16
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 2009. 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
Indexed Returns
Years Ending
December
December
December
2009
2010
2011
December December December
2013
2012
2014
Computer Task Group, Inc.
S&P 500 Index
Dow Jones U.S. Computer Services Index
$ 100.00 $ 135.83 $ 175.78 $ 227.59 $ 237.50 $ 122.49
$ 100.00 $ 115.06 $ 117.49 $ 136.30 $ 180.44 $ 205.14
$ 100.00 $ 115.21 $ 136.73 $ 150.43 $ 159.84 $ 151.36
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.
17
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, 2014 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
2014
(1)
2013
2012
(2)
2011
2010
393.3 $
17.2 $
10.4 $
0.68 $
0.64 $
0.24 $
419.0 $
24.7 $
15.7 $
1.02 $
0.92 $
0.20 $
424.4 $ 396.3 $
19.3 $
24.5 $
11.9 $
16.2 $
0.80 $
1.07 $
0.71 $
0.96 $
— $
— $
331.4
13.9
8.4
0.57
0.52
—
69.2 $
170.8 $
— $
111.0 $
67.5 $
174.4 $
— $
113.8 $
45.4 $
63.5 $
166.2 $ 147.5 $
— $
88.8 $
— $
102.8 $
33.0
130.3
—
77.9
$
$
$
$
$
$
$
$
$
$
(1) During 2014, the Company incurred $2.0 million in costs associated with the death of the Company's Chairman
and CEO under his employment agreement. The Company also recorded an impairment charge totaling $1.5
million for capitalized software costs associated with one of its IT solutions. In total, these costs reduced
operating income by $3.5 million, net income by $2.2 million, and basic and diluted net income per share by
$0.14 and $0.13, respectively.
(2) 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.
18
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 business strategy and expectations, new business opportunities, cost control initiatives, business wins,
market demand, 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) increased bargaining power of large customers, (iv) the Company's ability to protect
confidential client data, (v) the partial or complete loss of the revenue the Company generates from International
Business Machines Corporation (IBM), (vi) the uncertainty of customers' implementations of cost reduction projects,
(vii) the effect of healthcare reform and initiatives, (viii) the mix of work between staffing and solutions, (ix) currency
exchange risks, (x) risks associated with operating in foreign jurisdictions, (xi) renegotiations, nullification, or
breaches of contracts with customers, vendors, subcontractors or other parties, (xii) the change in valuation of
recorded goodwill or capitalized software balances, (xiii) 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, (xiv) industry and economic conditions, including
fluctuations in demand for IT services, (xv) consolidation among the Company's competitors or customers, (xvi) the
need to supplement or change our IT services in response to new offerings in the industry or changes in customer
requirements for IT products and solutions, and (xvii) 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. In 2014
there was a further overall decline in demand for our services as compared with 2013 as many of our healthcare
clients did not begin new projects when existing projects ended due to their capital constraints. This trend began
when the U.S. government imposed the budget sequestration in April 2013. Additionally, the requirements for our
personnel were also lower in our IT staffing business in 2014.
The Company operates in one industry segment, providing IT services to its clients. These services include IT
solutions and IT and other staffing. 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 and other staffing
services, we typically supply personnel to our customers who then, in turn, take their direction from the client’s
managers. In certain limited instances for a small number of clients, the Company provides administrative or
warehouse employees to clients to supplement the IT resources we place at those clients.
IT solutions and IT staffing revenue as a percentage of consolidated revenue for the years ended
December 31, 2014, 2013 and 2012 is as follows:
IT solutions
IT staffing
Total
2014
2013
2012
38.0%
62.0%
100.0%
39.3 %
60.7 %
100.0 %
40.8%
59.2%
100.0%
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
19
Service Providers, Financial Services, and Energy. The remainder of CTG’s revenue is derived from general
markets.
CTG’s revenue by vertical market as a percentage of consolidated revenue for the years ended
December 31, 2014, 2013 and 2012 is as follows:
Healthcare
Technology service providers
Financial services
Energy
General markets
Total
2014
2013
2012
28.6%
26.4%
7.9%
6.1%
31.0%
100.0%
31.4 %
28.0 %
6.8 %
6.2 %
27.6 %
100.0 %
33.0%
30.8%
6.1%
6.0%
24.1%
100.0%
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 per the proportional method of accounting using an
input-based approach. On a given project, actual salary and indirect labor costs incurred are measured and
compared against the total estimated costs of such items at the completion of the 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.
In 2012 and 2013, the Company performed services for a customer under a series of contracts that provided
for application customization and integration services, specifically utilizing one of the software tools the Company
had developed for internal use. 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. 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 utilized for the project.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and
percentage-of-completion methods as a percentage of consolidated revenue for the years ended December 31,
2014, 2013 and 2012 is as follows:
2014
2013
2012
Time-and-material
Progress billing
Percentage-of-completion
Total
20
86.2%
11.2%
2.6%
90.3%
7.9%
1.8%
100.0% 100.0% 100.0%
88.8%
8.8%
2.4%
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
2014 as compared with 2013
2014
2013
2012
100.0 %
79.8 %
15.8 %
4.4 %
(0.1)%
4.3 %
1.7 %
2.6 %
100.0 %
78.8 %
15.3 %
5.9 %
(0.1)%
5.8 %
2.1 %
3.7 %
100.0%
78.4%
15.8%
5.8%
0.2%
6.0%
2.2%
3.8%
The Company recorded revenue in 2014 and 2013 as follows:
Year Ended December 31,
% of total
2014
% of total
2013
Year-Over-
Year
Change
(dollars in thousands)
North America
Europe
Total
80.1% $ 314,924
78,344
19.9%
100.0% $ 393,268
81.6% $ 341,924
77,112
18.4%
100.0% $ 419,036
(7.9)%
1.6 %
(6.1)%
Reimbursable expenses billed to customers and included in revenue totaled $8.6 million and $11.8 million in
2014 and 2013, respectively.
On a consolidated basis, IT solutions revenue decreased $15.2 million or 9.2% in 2014 as compared with
2013. Also on a consolidated basis, IT staffing revenue decreased $10.6 million or 4.2% during 2014 as compared
with 2013.
In North America, the revenue decrease in 2014 as compared with 2013 was primarily due to a significant
reduction in demand from our customers in our IT solutions healthcare business and from several of our larger IT
staffing customers. The decrease in IT solutions was driven in part by the sequestration that the U.S. federal
government imposed during 2013, which, amongst other cuts, reduced Medicare reimbursements to hospitals and
healthcare systems by 2% beginning on April 1, 2013. These cuts reduced revenue for many of our healthcare
customers, causing them to reduce their expenses for much of 2014, including previously planned spending on IT
projects. Additionally, the implementation date for ICD-10, a diagnostic coding system used for billing in the
healthcare industry, was delayed in early 2014 until at least October 1, 2015 from the previous implementation date
of October 1, 2014. This delay caused a number of our healthcare clients to defer or cancel spending allocated for
2014 for IT projects that would update their billings systems. The decrease in overall demand in our IT solutions
business, and soft demand from several of our larger IT staffing customers, was partially offset by a large data
analytics IT solutions project that ended on December 31, 2014. In total, data analytics projects added
approximately $6.0 million in revenue and $0.20 per diluted share to net income during 2014, a significant portion of
which was generated by this one contract. As this project ended in 2014, revenue will be slightly negatively
affected, and diluted earnings per share will be significantly reduced in 2015 as compared with 2014 unless we are
able to replace this project with a new project(s) that generate similar revenue and earnings for the Company.
The Company’s European operations include Belgium, Luxembourg and the United Kingdom. When
considering the year-over-year change in revenue in constant currencies, the revenue from our European
operations increased 1.2%. This increase in year-over-year revenue was primarily due to a modest increase in
21
demand in the Company’s European IT solutions services. The revenue increase was supported by the modest
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 2014 as compared with 2013, the average value of the Euro increased 0.1%, while the average
value of the British Pound increased 5.3%. 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
2013 to 2014, total European revenue would have been approximately $0.2 million lower, or $78.1 million as
compared with the $78.3 million reported.
IBM is CTG’s largest customer. CTG provides services to various divisions in many locations. During the
2014 fourth quarter, the NTS Agreement with IBM was renewed for three years until December 31, 2017. As part of
the NTS Agreement, the Company also provides its services as a predominant supplier to IBM’s Integrated
Technology Services and the Systems and Technology Group business units. This agreement accounted for
approximately 88.5% of all of the services provided to IBM by the Company in 2014. In 2014, 2013, and 2012, IBM
accounted for $90.5 million or 23.0%, $101.7 million or 24.3%, and $113.8 million or 26.8% of the Company’s
consolidated revenue, respectively. In 2012, IBM sold its retail business 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.
In January 2014, IBM announced its intention to sell its x86 server division to Lenovo, and the initial closing of
that sale occurred on September 29, 2014. A portion of the Company's 2014 and 2013 revenue from IBM was
related to the x86 server division. The Company expects to continue to retain a significant share of the revenue
derived from the x86 server division despite the transition of the division from IBM to Lenovo.
The Company’s accounts receivable from IBM at December 31, 2014 and 2013 totaled $7.8 million and $11.5
million, respectively. No other customer accounted for more than 10% of the Company’s revenue in 2014, 2013 or
2012.
Direct costs, defined as costs for billable staff including billable out-of-pocket expenses, were 79.8% of
consolidated revenue in 2014 and 78.8% of consolidated revenue in 2013. The increase in direct costs as a
percentage of revenue in 2014 compared with 2013 was due to a shift in the Company's business mix to a lower
percentage of IT solutions services (primarily related to EHR implementations) which has a lower direct cost as a
percentage of revenue than our IT staffing services, and pricing pressure from a large customer in our IT staffing
business. The increase in direct costs was also due to an increase in fringe benefit costs consisting primarily of
medical expenses, resulting from higher utilization of the Company's self-insured medical plan throughout much of
2014. Finally, during the 2014 fourth quarter, the Company recorded an impairment charge totaling approximately
$1.5 million to write-off the net book value of its medical fraud, waste, and abuse (FWA) software solution. The
impairment charge for the FWA solution reflects nominal sales activity in recent years and the uncertainty of sales
for the foreseeable future for this solution given that the target market is focused on other business priorities. The
Company recorded the charge in the 2014 fourth quarter as several sales opportunities that had been considered
viable throughout 2014 ended late in the year without any sales.
In 2014 and previous years, the Company offered 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 expanded
healthcare coverage to those employees, or potentially pay financial penalties. Beginning in 2015, the Company is
in the process of offering compliant healthcare coverage as required. Although it is difficult to estimate the financial
impact of this healthcare coverage, the Company's intention is to pass the additional costs on to the customers
where our hourly employees who elect this coverage are engaged. However, in the event the Company is not able
to pass some or all of these costs to its customers, the Company’s direct costs as a percentage of revenue would
increase.
Selling, general and administrative (SG&A) expenses were 15.8% of revenue in 2014 as compared with
15.3% of revenue in 2013. The SG&A increase as a percentage of revenue in 2014 as compared with 2013 is
primarily due to additional costs of $2.0 million associated with the death in the 2014 fourth quarter of the
Company's Chairman and CEO under an employment agreement, the loss of operating leverage from lower
revenue recorded in 2014, offset by lower incentive compensation expense in 2014 and disciplined cost
management.
22
Operating income was 4.4% of revenue in 2014 as compared with 5.9% of revenue in 2013. The decrease in
operating income year-over-year was primarily due to the change in the business mix to a lower percentage of IT
solutions services, higher medical costs, the costs of $2.0 million associated with the death of the Company's
Chairman and CEO, and the software impairment charge of $1.5 million, offset by lower incentive compensation in
2014 and the high level of profit from the data analytics project that ended on December 31, 2014. Operating
income from North American operations was $14.2 million and $21.8 million in 2014 and 2013, respectively, while
European operations generated operating income of $2.9 million in both 2014 and 2013. Operating income in 2014
in the Company’s European operations would have been approximately $0.1 million higher if there had been no
change in foreign currency exchange rates year-over-year.
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 40%. The ETR in 2014 was 38.9%, while the
2013 ETR was 35.6%. The 2013 ETR was lower than the normal range primarily due to the recording of
approximately $0.7 million of tax credits related to research and development activities, and approximately $0.4
million of tax credits related to the Company’s participation in the Work Opportunity Tax Credit (WOTC) program
offered by the federal government to companies who have hired individuals who have traditionally faced barriers to
employment. The tax benefit for these two items for both 2013 and 2012 was recorded in 2013 as required under
current accounting guidelines, as the legislation extending these tax credits, the American Taxpayer Relief Act of
2012, was not passed by the U.S. federal government until January 2013. The benefit of these tax credits was
partially offset by an increase of approximately $0.1 million in the valuation allowance associated with net operating
losses incurred by certain foreign subsidiaries.
Net income for 2014 was 2.6% of revenue or $0.64 per diluted share, compared with net income of 3.7% of
revenue or $0.92 per diluted share in 2013. In total, data analytics projects added approximately $0.20 per diluted
share to net income during 2014, a significant portion of which was generated by one contract which ended on
December 31, 2014. Diluted earnings per share were calculated using 16.3 million weighted-average equivalent
shares outstanding in 2014 and 17.0 million in 2013. The decrease in shares year-over-year is due to purchases of
approximately 0.5 million shares for treasury by the Company during 2014, and a lesser dilutive effect of
outstanding equity-based compensation grants in 2014.
2013 as compared with 2012
The Company recorded revenue in 2013 and 2012 as follows:
Year Ended December 31,
% of
total
2013
% of total
2012
Year-over-
Year
Change
(dollars in thousands)
North America
Europe
Total
81.6% $ 341,924
77,112
18.4%
100.0% $ 419,036
83.8% $ 355,805
68,610
16.2%
100.0% $ 424,415
(3.9)%
12.4 %
(1.3)%
Reimbursable expenses billed to customers and included in revenue totaled $11.8 million and $13.4 million in
2013 and 2012, respectively.
In North America, the revenue decrease in 2013 as compared with 2012 was due to a reduction in demand
from our healthcare customers and from our largest IT staffing customer. On a consolidated basis, IT solutions
revenue decreased $9.2 million or 5.3% in 2013 as compared with 2012. The decrease was primarily driven by the
sequestration that the U.S. federal government imposed during 2013, which, amongst other cuts, reduced Medicare
reimbursements to hospitals and healthcare systems by 2% beginning on April 1, 2013. These cuts reduced
revenue for many of our healthcare customers, causing them to reduce their expenses for much of 2013, including
previously planned spending on IT projects. IT staffing revenue increased $3.8 million or 1.5% during 2013 as soft
demand from our largest IT staffing customer was offset by strong demand from our other IT staffing customers.
The Company’s European operations include Belgium, Luxembourg and the United Kingdom. When
considering the year-over-year change in revenue in constant currencies, 2013 revenue from our European
operations increased 9.0% compared with 2012. This strong increase in year-over-year revenue was in part due to
strength in the Company’s European IT solutions services, and in part by the January 2013 acquisition of etrinity
23
which added approximately $2.8 million in revenue during the year. The revenue increase was supported by the
strength relative to the U.S. dollar of the currencies of Belgium and Luxembourg, and slightly offset by the currency
of 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 2013 as compared with 2012, the average value of the
Euro increased 3.3%, while the average value of the British Pound decreased 1.3%. 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 2012 to 2013, total European revenue would have been approximately $2.3
million lower, or $74.8 million as compared with the $77.1 million reported.
IBM was CTG’s largest customer in 2012 and 2013. Agreements to provide 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 accounted for approximately 92.3% of all of the services provided to IBM by the Company in
2013. In 2013, 2012, and 2011, IBM accounted for $101.0 million or 24.1%, $113.5 million or 26.7%, and $116.5
million or 29.4% of the Company’s consolidated revenue, respectively. In 2012, IBM spun its retail business off into
another large company. While CTG retained the work, this reduced our revenue from IBM in 2012 by $3.2 million.
The Company’s accounts receivable from IBM at December 31, 2013 and 2012 amounted to $11.0 million and
$12.6 million, respectively. No other customer accounted for more than 10% of the Company’s revenue in 2013 or
2012.
Direct costs were 78.8% of consolidated revenue in 2013 and 78.4% of consolidated revenue in 2012. The
increase in direct costs as a percentage of revenue in 2013 compared with 2012 was due to a shift in the
Company's business mix to a higher percentage of IT staffing services, which has a higher direct cost as a
percentage of revenue than our IT solutions services.
SG&A expenses were 15.3% of revenue in 2013 as compared with 15.8% of revenue in 2012. The SG&A
decrease as a percentage of revenue in 2013 as compared with 2012 is primarily due to lower levels of incentive
compensation earned in 2013, and continued disciplined cost management.
Operating income was 5.9% of revenue in 2013 as compared with 5.8% of revenue in 2012. The increase in
operating income year-over-year was primarily due to lower SG&A costs as a percentage of revenue. Operating
income from North American operations was $21.8 million and $21.3 million in 2013 and 2012, respectively, while
European operations generated operating income of $2.9 million and $3.2 million in 2013 and 2012, respectively.
Operating income in 2013 would have been approximately $0.1 million lower if there had been no change in foreign
currency exchange rates year-over-year.
Interest and other income (expense), net was (0.1)% of revenue in 2013 and 0.2% in 2012. Net other income
in 2012 primarily resulted from the receipt of life insurance proceeds totaling approximately $1.3 million for two
former executives who passed away during 2012. This income in 2012 was partially offset by bank fees.
The 2013 ETR was 35.6%, and the 2012 ETR was 36.5%. The ETR in 2013 was lower than the normal range
primarily due to the recording of approximately $0.7 million of tax credits related to research and development
activities, and approximately $0.4 million of tax credits related to the Company's participation in the Work
Opportunity Tax Credit (WOTC) program offered by the federal government to companies who have hired
individuals who have traditionally faced barriers to employment. The tax benefit for these two items for both 2013
and 2012 was recorded in 2013 as required under the applicable accounting guidelines, as the legislation extending
these tax credits, the American Taxpayer Relief Act of 2012, was not passed by the U.S. federal government until
January 2013. The benefit of these tax credits was partially offset by an increase of approximately $0.1 million in
the valuation allowance associated with net operating losses incurred by certain foreign subsidiaries.
The 2012 ETR was lower than the normal range due to approximately $0.5 million in tax expense related to
non-taxable life insurance proceeds received during the year. In addition, in 2012 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.
Net income for 2013 was 3.7% of revenue or $0.92 per diluted share, compared with net income of 3.8% of
revenue or $0.96 per diluted share in 2012. Diluted earnings per share were calculated using 17.0 million
weighted-average equivalent shares outstanding in 2013 and 16.8 million in 2012. The increase in shares year-
over-year was due to additional actual shares outstanding during 2013 as compared with 2012 due to a higher
number of stock options exercised by optionees in 2012 and 2013. This increase was partially offset by purchases
of approximately 0.4 million and 0.3 million shares for treasury by the Company during 2013 and 2012, respectively.
24
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
As of December 31, 2014, goodwill recorded on our Consolidated Balance Sheet totaled $37.4 million, all
of which relates to our Healthcare Solutions reporting unit. In connection with our annual goodwill impairment
test, we make various assumptions in determining the estimated fair value of the Healthcare Solutions
reporting unit. We perform an annual impairment review in the fourth quarter of each year.
In accordance with current accounting guidance for “Intangibles - Goodwill and Other,” we perform
goodwill impairment testing at least annually, unless indicators of impairment exist in interim periods. In 2014,
the Company used the two-step approach to test goodwill for potential impairment. Step one compares the
estimated fair value of a reporting unit with goodwill to its carrying value. If the carrying value exceeds the
estimated fair value, step two must be performed. Step two compares the carrying value of the reporting unit to
the fair value of all of the assets and liabilities of the reporting unit (including any unrecognized intangibles) as
if the reporting unit was acquired in a business combination. If the carrying amount of a reporting unit’s
goodwill exceeds the implied fair value of its goodwill, an impairment loss is recognized in an amount equal to
the excess.
The impairment testing we perform may include estimates of future discounted cash flows, the appraised
value of similar companies, or the appraised value of similar transactions from which the goodwill arose. On
October 24, 2014, we performed our annual goodwill impairment test in conjunction with an external consultant
and estimated the fair value of our Healthcare Solutions reporting unit based on a combination of the income
and the market approach. The income approach uses a discounted cash flow (DCF) method which utilizes the
present value of cash flows to estimate fair value of the reporting unit. The future cash flows for our
Healthcare Solutions reporting unit were projected based on our estimates of future revenue, operating income
and other factors such as working capital and capital expenditures. As part of our projections, we took into
account expected industry and market conditions for the healthcare industry, as well as trends currently
impacting our Healthcare Solutions business unit. The market approach utilizes multiples of revenue and
earnings before interest expense, taxes, depreciation and amortization (EBITDA) to estimate the fair value of
the reporting unit. The market multiples used for our Healthcare Solutions reporting unit were based on
competitor industry data, along with the market multiples for the Company and other factors.
As part of our DCF analysis, we projected revenue and operating profit for 2015 through 2020, and
assumed a long-term revenue growth rate of 3.0% in 2021, the “terminal year” for our analysis. We utilized a
weighted-average cost of capital (WACC) of 15.0%, which reflected a 200 basis point increase related to
additional risk in achieving our projections. Given the ongoing importance of technology solutions in supporting
the continuing transformation within the healthcare industry, we believe our modest long-term growth rate and
the WACC are reasonable to use for our future cash flow assumptions.
Under the market approach, we estimated fair value based on comparable companies' market multiples
of revenue and EBITDA and factored in a control premium.
Under both the income and market approaches, the estimate of the fair value of the reporting unit as of
October 24, 2014 exceeded the carrying value by approximately 40%. Based upon our analysis completed
during the annual impairment testing performed in 2013 and 2012, the estimated fair value of the unit
exceeded the carrying value by approximately 65% in 2013, and over 100% in 2012.
25
Finally, we compared our estimates of fair value to the Company’s October 24, 2014 total public market
capitalization, which included factoring in the business operations that do not have goodwill, and assessed
implied control premiums. Based on the results of this analysis, we concluded that the estimated fair value
determined under our approach for the annual goodwill impairment test for our Healthcare Solutions reporting
unit was reasonable. Under both the income approach and market approach, the estimated fair value was
substantially in excess of the carrying value.
We concluded that the goodwill assigned to the Healthcare Solution reporting unit as of October 24, 2014
was not impaired and that the reporting unit was not at risk of failing step one of the goodwill impairment test
as prescribed under the current accounting guidelines. However, 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. In the event the business significantly under achieves its goals for revenue and profit growth in future
years, the carrying value for this business unit may not be supportable using a discounted cash flow projection,
and an impairment charge may exist.
In 2013 and 2012, the Company utilized the provisions under Accounting Standards Update No. 2011-08,
Intangibles-Goodwill and Other (Topic 350): Testing Goodwill for Impairment, which allows public entities to
first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative
goodwill impairment test. Under this 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. There were no factors that arose in 2013 and 2012 that led management to believe
the goodwill balance was impaired.
Income Taxes—Valuation Allowances on Deferred Tax Assets
At December 31, 2014, the Company had a total of approximately $7.4 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, 2014, the Company had deferred tax assets recorded resulting from net operating
losses in previous years totaling approximately $1.2 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, 2014, the Company had offset
a portion of these assets with a valuation allowance totaling approximately $1.1 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 2014 would have
increased or decreased net income by approximately $169,400, or approximately $0.01 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, incurred but not reported healthcare claims,
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
26
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 $6.7 million, $19.0 million and $21.2 million in 2014, 2013 and 2012,
respectively. In 2014, net income was $10.4 million, while other non-cash adjustments, primarily consisting of
depreciation expense, equity-based compensation, deferred income taxes, deferred compensation, and loss on the
disposal of property, equipment and capitalized software totaled $7.7 million. In 2013 and 2012, net income was
$15.7 million and $16.2 million, respectively, while the corresponding non-cash adjustments netted to $5.2 million
and $5.9 million, respectively. The increase in non-cash adjustments in 2014 as compared with 2013 was primarily
due to additional equity-based compensation expense of approximately $0.7 million associated with the death of the
company's Chairman and CEO and a loss on impairment of the Company's IT solutions medical fraud, waste and
abuse software solution. The decrease in non-cash adjustments in 2013 as compared with 2012 was primarily due
to a decrease in deferred compensation of approximately $0.5 million.
Accounts receivable balances increased $2.6 million in 2014 as compared with 2013, decreased $5.2 million
in 2013 as compared with 2012, and increased $2.2 million in 2012 as compared with 2011. The increase in the
accounts receivable balance in 2014 resulted from an increase in days sales outstanding (DSO). DSO is
calculated by dividing accounts receivable obtained from the consolidated balance sheet by average daily revenue
for the fourth quarter of the respective year. DSO was 66 days at December 31, 2014, whereas the DSO at
December 31, 2013 was 62 days. The increase in DSO was partially offset by a decrease in revenue in the 2014
fourth quarter of approximately 4.4% when compared with the 2013 fourth quarter. The decrease in the accounts
receivable balance in 2013 as compared with 2012 resulted from a decrease in revenue in the 2013 fourth quarter
of approximately 4.8% when compared with the 2012 fourth quarter. The decrease in revenue was offset by an
increase in DSO of one day from 61 days at December 31, 2012. The increase in the accounts receivable balance
in 2012 as compared with 2011 resulted from an increase in revenue in the 2012 fourth quarter of approximately
6.9% when compared with the 2011 fourth quarter. This increase in revenue was offset by a decrease in DSO of
one day from 62 days at December 31, 2011.
Other assets increased $1.5 million in 2014, increased $1.6 million in 2013, and decreased less than $0.1
million in 2012. The increase in 2014 as compared with 2013 and the increase in 2013 as compared with 2012
were due to the Company electing to not borrow available funds from its life insurance policies which would have
offset the increase in the cash surrender value of the policies. Accounts payable decreased $2.4 million in 2014,
decreased $2.6 million in 2013, and decreased $0.3 million in 2012. The decrease in 2014 as compared with 2013
and decrease in 2013 as compared with 2012 was primarily due to the timing of certain payments near year-end.
Accrued compensation decreased $3.2 million in 2014 primarily due to lower incentive compensation, decreased
$1.1 million in 2013 primarily due to lower incentive compensation and headcount, and increased $1.0 million in
2012 primarily due to an increase in employee headcount of about 200 employees from 2011. Income taxes
payable decreased $2.3 million in 2014 due to the timing of payments made in 2014 and lower taxable income,
decreased $0.2 million in 2013, and decreased $1.1 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.
Investing activities used $3.0 million, $6.7 million, and $2.0 million of cash in 2014, 2013 and 2012,
respectively, primarily due to additions to property, equipment and capitalized software of $3.1 million in 2014, $4.0
million in 2013, and $1.9 million in 2012. The Company has no significant commitments for the purchase of
property or equipment at December 31, 2014, and does not expect the amount to be spent in 2015 on additions to
property, equipment and capitalized software to significantly vary from the amount spent in 2014. Additionally, in
2013, the Company used approximately $2.5 million, net of cash received, to acquire etrinity, an IT services firm
providing services in Belgium and the Netherlands.
Financing activities used $7.8 million of cash in 2014, used $7.1 million of cash in 2013, and used $1.3 million
of cash in 2012. The Company recorded $3.2 million, $1.7 million, and $3.8 million during 2014, 2013, and 2012,
respectively, from the proceeds from stock option exercises and excess tax benefits from equity-based
compensation transactions. These amounts increased in 2014 primarily due to additional excess tax benefits
recorded from a higher level of stock option exercises and vestings of restricted stock grants due to the death of the
Company's Chairman and CEO. The increase in these balances in 2012 was larger as compared with 2013 due to
a significant increase in the Company’s stock price during 2012 which led to a higher level of stock option exercises.
The Company began to pay a dividend in the first quarter of 2013, and increased the payout rate in 2014 as
compared with 2013, resulting in cash outflows of $3.4 million in 2014 and $2.3 million in 2013.
27
During 2014, 2013 and 2012, the Company used $7.4 million, $7.3 million, and $4.6 million, respectively, to
purchase approximately 0.5 million, 0.4 million, and 0.3 million shares of its stock for treasury. Approximately 0.6
million, 1.1 million, and 0.5 million shares remained authorized for future purchases under the Company’s share
repurchase plan at December 31, 2014, 2013 and 2012, respectively. During October 2013, the Company's Board
of Director's authorized 1.0 million additional shares for future stock repurchases under the program. At
December 31, 2014, 2013 and 2012, the Company also experienced changes in its cash account overdrafts, which
are primarily due to the timing of payments near year-end, of $0.4 million, $0.5 million, and $(0.8) million,
respectively.
The Company's revolving credit agreement expired in April 2014 and previously allowed the Company to
borrow up to $35.0 million. During April 2014, the Company entered into a new demand line of credit with its banks
totaling $40.0 million, and did not have any amount outstanding under this credit agreement at December 31, 2014.
Although the Company did not have any borrowings outstanding under its line of credit at December 31, 2013, there
was a letter of credit issued as of that date totaling $0.6 million. The Company borrows or repays its debt as
needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll. The Company
did not borrow any funds under its credit agreements during 2014, 2013 or 2012.
Previously under its revolving credit line, the Company was required to meet certain financial covenants in
order to maintain borrowings, pay dividends, and make acquisitions. There are no measured financial covenants
under the new demand line of credit. The Company was in compliance with its previously required covenants
at December 31, 2013 and December 31, 2012.
Of the total cash and cash equivalents reported on the consolidated balance sheet at December 31, 2014 of
$40.9 million, approximately $10.7 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 net $2.5 million held by its
foreign operations to purchase etrinity. 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 generally required to meet the working capital needs of its foreign operations.
The Company believes existing internally available funds, cash potentially generated from future operations,
and borrowings available under the Company's demand line of credit totaling $40.0 million at December 31, 2014
will be sufficient to meet foreseeable working capital and capital expenditure needs, pay dividends (if any are
declared), fund stock repurchases (if any are made), 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 2014, 2013 or 2012 other than
guarantees in our European operations which support office leases and performance under government contracts.
These guarantees totaled approximately $1.6 million at December 31, 2014. The balance of the guarantees
decreased in 2014 due to a renegotiation of the lease agreement associated with the Company's Belgium office, as
well as due to a decrease in the value of the Euro as compared with the US dollar.
Quantitative and Qualitative Disclosures about Market Risk
The Company’s primary market risk exposure consists of foreign currency exchange risk associated with the
Company’s European operations. See Item 7A, “Quantitative and Qualitative Disclosure about Market Risk” in this
report.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.
2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new,
single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue
recognition model provides a five-step analysis in determining when and how revenue is recognized. The new
model will require revenue recognition to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration a company expects to receive in exchange for those goods or services. The
pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15,
2016, and early adoption is not permitted. The Company is currently assessing the impact that adopting this new
accounting guidance will have on its consolidated financial statements and footnote disclosures.
28
Contractual Obligations
The Company intends to satisfy its contractual obligations from operating cash flows, and, if necessary, from
draws on its demand credit line. A summary of the Company’s contractual obligations at December 31, 2014 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
Total
Less
than
1 year
Total
Years
2-3
Years
4-5
A $
B
C
D
E
F
G
$
— $
—
12.6
2.9
6.3
2.5
0.3
24.6 $
— $
—
5.0
2.3
0.7
0.2
—
8.2 $
— $
—
6.2
0.6
1.3
0.3
0.1
8.5 $
— $
—
1.4
—
1.3
0.5
0.1
3.3 $
More
than
5 years
—
—
—
—
3.0
1.5
0.1
4.6
A A $40.0 million demand credit line (LOC) was entered into in April 2014. The Company uses this LOC 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, 2014.
B The Company does not have any capital lease obligations outstanding at December 31, 2014.
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 2014, 2013 and 2012 was
approximately $7.0 million, $7.0 million, and $6.3 million, respectively.
D The Company’s purchase obligations in 2015, 2016 and 2017 total approximately $2.9 million, including $1.2
million for software maintenance, support and related fees, $0.6 million for telecommunications, $0.6 million for
recruiting services, $0.4 million for professional organization memberships, and $0.1 million for computer-based
training courses.
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, 16
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 2014 were $0.2 million. The Company anticipates making contributions
totaling approximately $0.1 million in 2015 to this plan for amounts earned in 2014.
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 several
retired employees and their spouses, totaling less than 10 participants.
29
Item 7A.
Quantitative and Qualitative Disclosure About Market Risk
The Company’s primary market risk exposure consists of foreign currency exchange risk associated with the
Company’s European operations.
During 2014, revenue was affected by the year-over-year foreign currency exchange rate changes of Belgium,
Luxembourg, and the United Kingdom, 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 2013 to 2014, total European
revenue would have been approximately $0.2 million lower in 2014, or $78.1 million as compared with the $78.3
million reported. Operating income in the Company’s European operations would have been approximately $0.1
million higher if there had been no change in foreign currency exchange rates year-over-year.
The Company has historically not used any market rate sensitive instruments to hedge its foreign currency
exchange risk as it conducts its foreign operations in local currencies, which generally limits 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.
30
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, 2014 and 2013, 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, 2014. 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, 2014 and 2013, and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014,
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,
2014, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO)”, and our report dated February 25, 2015
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Buffalo, New York
February 25, 2015
31
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
Non-taxable life insurance proceeds
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
Cash dividend declared per share
2014
2013
2012
$ 393,268 $ 419,036 $ 424,415
333,086
66,867
24,462
156
1,268
441
25,445
9,280
16,165
313,930
62,186
17,152
111
—
325
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6,588
10,350 $
330,327
63,982
24,727
58
—
446
24,339
8,660
15,679 $
$
$
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0.68 $
0.64 $
1.02 $
0.92 $
1.07
0.96
15,120
16,260
15,365
16,954
15,172
16,841
0.24 $
0.20 $
—
The accompanying notes are an integral part of these consolidated financial statements.
32
Consolidated Statements of Comprehensive Income
Year Ended December 31,
(amounts in thousands)
Net Income
2014
2013
2012
$
10,350 $
15,679 $
16,165
Foreign currency adjustment
Pension loss adjustment, net of taxes of $(428), $235, and $(396) in 2014,
2013, and 2012, respectively
Other comprehensive income (loss)
(2,274 )
717
370
(4,614 )
(6,888 )
1,258
1,975
(2,820)
(2,450)
Comprehensive income
$
3,462 $
17,654 $
13,715
The accompanying notes are an integral part of these consolidated financial statements.
33
Consolidated Balance Sheets
December 31,
(amounts in thousands, except share balances)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, net of allowances of $891 and $1,040 in 2014 and 2013,
respectively
Prepaid and other current assets
Income taxes receivable
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
Dividend payable
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 8,486,172 and 8,488,404 shares at cost, in 2014 and 2013,
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
2014
2013
$
40,862 $
46,227
67,843
1,817
1,684
1,079
113,285
6,793
37,409
6,364
6,157
788
67,422
1,657
—
1,113
116,419
8,241
37,638
6,487
4,750
896
$ 170,796 $ 174,431
$
8,865 $
27,371
1,973
896
4,955
—
44,060
15,480
290
59,830
9,536
31,460
2,467
748
4,086
632
48,929
11,224
436
60,589
270
125,884
118,999
270
122,531
112,277
(63,511)
(55,083)
—
(15,593)
110,966
(57,163)
(55,083)
(285)
(8,705)
113,842
$ 170,796 $ 174,431
The accompanying notes are an integral part of these consolidated financial statements.
34
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
Loss on disposals of property, equipment and capitalized software
Changes in assets and liabilities:
(Increase) decrease in accounts receivable
(Increase) decrease in prepaid and other current assets
(Increase) decrease in other assets
Decrease in accounts payable
Increase (decrease) in accrued compensation
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:
Acquisition of business, net of cash received
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
Dividends paid
Purchase of stock for treasury
Net cash used in financing activities
Effect of exchange rates on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2014
2013
2012
$
10,350 $
15,679 $
16,165
2,974
3,088
204
(103)
1,546
(2,594)
(189)
(1,537)
(2,372)
(3,230)
(2,261)
(431)
1,050
213
6,708
—
(1,410)
(1,683)
109
—
(2,984)
2,796
2,647
(350)
128
—
5,213
(154)
(1,610)
(2,607)
(1,107)
(232)
(361)
(869)
(182)
18,991
(2,488)
(2,266)
(1,686)
(269)
—
(6,709)
1,241
1,964
323
(424)
(3,422)
(7,432)
(7,750)
(1,339)
(5,365)
46,227
40,862 $
561
1,119
368
506
(2,274)
(7,343)
(7,063)
394
5,613
40,614
46,227 $
$
2,919
2,236
116
600
20
(2,239)
403
50
(293)
1,002
(1,067)
707
732
(195)
21,156
—
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—
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5
(1,980)
1,144
2,615
294
(777)
—
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(1,315)
339
18,200
22,414
40,614
The accompanying notes are an integral part of these consolidated financial statements.
35
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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
plans, the allowance for doubtful accounts receivable, assumptions underlying stock option valuation, investment
valuation, estimates of progress toward completion and direct profit or loss on contracts, legal matters, and other
contingencies. The current economic environments in the United States, Canada, and Western Europe where the
Company has operations have 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 and other 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. In certain limited instances for a small number of
clients, the Company provides administrative or warehouse employees to clients to supplement the IT resources we
place at those clients. 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 as a percentage of consolidated revenue for the years ended December 31,
2014, 2013 and 2012 is as follows:
Healthcare
Technology service providers
Financial services
Energy
General markets
Total
Revenue and Cost Recognition
2014
2013
2012
28.6%
26.4%
7.9%
6.1%
31.0%
100.0%
31.4%
28.0%
6.8%
6.2%
27.6%
100.0%
33.0%
30.8%
6.1%
6.0%
24.1%
100.0%
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 per the proportional method of accounting using an
input-based approach. On a given project, actual salary and indirect labor costs incurred are measured and
compared against the total estimated costs of such items at the completion of the 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
38
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.
The Company’s revenue from contracts accounted for under time-and-material, progress billing, and
percentage-of-completion methods as a percentage of consolidated revenue for the years ended December 31,
2014, 2013 and 2012 is as follows:
Time-and-material
Progress billing
Percentage-of-completion
Total
2014
2013
2012
86.2%
11.2%
2.6%
100.0%
88.8%
8.8%
2.4%
100.0%
90.3%
7.9%
1.8%
100.0%
The Company includes billable expenses in its accounts as both revenue and direct costs. These billable
expenses totaled $8.6 million, $11.8 million, and $13.4 million in 2014, 2013 and 2012, respectively.
Software Revenue Recognition
In 2012 and 2013, the Company performed services for a customer under a series of contracts that provided
for application customization and integration services, specifically utilizing one of the software tools the Company
had developed for internal use. 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. 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 utilized for the project.
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, 2014 and 2013, the carrying amounts of the Company’s cash of $40.9 million and $46.2
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, 2014 or 2013.
Life Insurance Policies
The Company has purchased life insurance on the lives of certain plan participants, all who were 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, 2014
and December 31, 2013, these insurance policies had a gross cash surrender value of $27.6 million and $26.2
million, respectively, loans had been taken totaling $23.1 million in both periods, and the net cash surrender value
balance of $4.5 million and $3.1 million, respectively, was included on the consolidated balance sheet in “Other
Assets” under non-current assets.
39
At December 31, 2014, the total death benefit for the remaining policies was approximately $38.8 million.
Currently, upon the death of all of the remaining plan participants, the Company would expect to receive
approximately $15.1 million after the payment of outstanding loans and other commitments, and record a gain of
approximately $11.2 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 presented on a gross basis in the consolidated
financial statements as such taxes are recorded in the Company's accounts 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. 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, on the consolidated statements of cash flows 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 65 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 passed. 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 $(31,000), $0.2 million, and $(40,000) in 2014, 2013,
and 2012, respectively.
Property, 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 December 31, 2014 and December 31, 2013, the Company had capitalized costs relating to software
projects developed for internal use. Amortization periods for these projects range from two to five years, and begin
when the software, or enhancements thereto, is available for its intended use. Amortization periods are evaluated
annually for propriety.
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,
2014.
40
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 for automobiles in our European operations. 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 had a goodwill balance of $37.4 million at December 31, 2014. This balance increased by
approximately $2.0 million during 2013 due to the acquisition of etrinity. 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 2014, 2013, and 2012, the Company completed its annual valuation
of the business to which the Company’s goodwill relates. In 2014, the Company utilized the services of an external
valuation consultant, while in 2013 and 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 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. From its reviews, the Company believes the fair value of the business continues to be
substantially in excess of the carrying value of the business. Additionally, there are no other facts or circumstances
which arose during 2014, 2013 or 2012 that led management to believe the goodwill balance was impaired.
Other Intangible Assets
The Company recorded approximately $0.4 million of other intangible assets in 2013 resulting from the
acquisition of etrinity. Previously, the Company did not have any other intangible assets recorded on its accounts.
These intangible assets include customer relationships, trademarks, and non-compete agreements, and are being
amortized over periods ranging from two to seven years. Total amortization expense recognized in both 2014 and
2013 was approximately $0.1 million.
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, as applicable, accrued interest and penalties related to unrecognized tax benefits (if any) 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. 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 2014, 2013, and 2012 statements of income on a straight-line basis based upon awards that
are ultimately expected to vest. See note 10, “Equity-Based Compensation.”
41
Net Income Per Share
Basic and diluted earnings per share (EPS) for the years ended December 31, 2014, 2013, and 2012 are as
follows:
For the year ended
(amounts in thousands, except per-share data)
December 31, 2014
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
December 31, 2013
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
December 31, 2012
Basic EPS
Dilutive effect of outstanding equity instruments
Diluted EPS
Net
Income
Weighted
Average
Shares
Earnings
per
Share
$
$
$
$
$
$
10,350
—
10,350
15,679
—
15,679
16,165
—
16,165
15,120 $
1,140
16,260 $
15,365 $
1,589
16,954 $
15,172 $
1,669
16,841 $
0.68
(0.04)
0.64
1.02
(0.10)
0.92
1.07
(0.11)
0.96
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 0.6 million, 0.1 million, and 0.1 million shares of common stock were outstanding
at December 31, 2014, 2013, and 2012, 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 comprised accumulated other comprehensive loss on the consolidated balance sheets
at December 31, 2014, 2013, and 2012 are as follows:
(amounts in thousands)
Foreign currency adjustment
Pension loss adjustment, net of tax of $1,233 in 2014, $805 in 2013, and
$1,040 in 2012
2014
2013
2012
$
$
(5,811) $
(3,537) $
(4,254)
(9,782)
(15,593) $
(5,168)
(8,705) $
(6,426)
(10,680)
During 2014 and 2013, actuarial losses were amortized to expense as follows:
(amounts in thousands)
Amortization of actuarial losses
Income tax
Net of tax
2014
2013
201 $
(51)
150 $
277
(72)
205
$
$
The amortization of actuarial losses is included in determining net periodic pension cost. See note 7,
"Deferred Compensation Benefits" for additional information.
42
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 nominal losses in
2014, 2013, and 2012 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 a number of guarantees in place in our European operations which support office leases
and performance under government projects. These guarantees totaled approximately $1.6 million and $2.7 million
at December 31, 2014 and 2013, respectively, and generally have expiration dates ranging from January 2015
through June 2019. The dollar value of the guarantees decreased at December 31, 2014 as compared with
December 31, 2013 due to a renegotiation of the office lease agreement for the Company's Belgium office as well
as a decrease in the value of the Euro as compared with the US dollar during 2014.
Acquisition
In January 2013, the Company acquired etrinity, a provider of IT services to the healthcare market in Belgium
and the Netherlands for approximately $2.8 million. Founded in 2000, etrinity's 2014, 2013 and 2012 revenue
approximated U.S. $2.1 million, $2.8 million, and $3.0 million, respectively. 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.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No.
2014-09, "Revenue from Contracts with Customers (Topic 606)," ("ASU 2014-09"). ASU 2014-09 outlines a new,
single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and
supersedes most current revenue recognition guidance, including industry-specific guidance. This new revenue
recognition model provides a five-step analysis in determining when and how revenue is recognized. The new
model will require revenue recognition to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration a company expects to receive in exchange for those goods or services. The
pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15,
2016, and early adoption is not permitted. The Company is currently assessing the impact that adopting this new
accounting guidance will have on its consolidated financial statements and footnote disclosures.
43
2.
Property, Equipment and Capitalized Software
Property, equipment and capitalized software at December 31, 2014 and 2013 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)
2014
2013
- $
378 $
30
2 - 5
5 - 10
2 - 5
1 - 5
3 - 10
4,342
6,904
3,224
5,505
2,761
4,521
27,635
(20,842)
$
6,793 $
378
4,342
7,372
3,088
5,784
2,869
4,554
28,387
(20,146)
8,241
The Company recorded additions to capitalized software of $1.7 million in both of the years ended
December 31, 2014 and December 31, 2013. As of these dates the Company had capitalized a total of $5.5 million
and $5.8 million, respectively, solely for software projects developed for internal use. Accumulated amortization for
these projects totaled $4.2 million and $3.4 million as of December 31, 2014 and 2013, respectively.
Amortization expense for these projects totaled $1.2 million, $1.2 million, and $1.7 million in 2014, 2013, and
2012, respectively.
During the 2014 fourth quarter, the Company recorded the expense for the impairment of one of its capitalized
software projects (fraud, waste and abuse software solution) after determining that it had no net realizable value.
The impairment was a result of nominal sales results for this software solution in recent years, and the uncertainty
of sales in the foreseeable future. The remaining net asset value, totaling approximately $1.5 million, was
expensed to direct costs in the fourth quarter operating results. The Company recorded the charge in the 2014
fourth quarter as several sales opportunities that had been considered viable throughout 2014 ended late in the
year without any sales.
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 December 31, 2014 and 2013, the Company’s
investment balances, which are classified as trading securities, totaled approximately $0.8 million and $0.9 million,
respectively, and were 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 2014, 2013, and 2012.
4.
Debt
The Company's revolving credit agreement expired in April 2014 and previously allowed the Company to
borrow up to $35.0 million. During April 2014, the Company entered into a new, demand line of credit with its banks
totaling $40.0 million. At both December 31, 2014 and 2013, there were no amounts outstanding under either of
these credit agreements. Although there were no borrowings outstanding, at December 31, 2013 there was a $0.6
million letter of credit issued under the revolving credit agreement. The Company borrows or repays its debt as
needed based upon its working capital obligations, including the timing of the U.S. bi-weekly payroll. The Company
did not borrow any funds under its credit agreements during 2014, 2013 or 2012.
The Company was previously required to meet certain financial covenants in order to maintain borrowings
under its revolving credit line, pay dividends, and make acquisitions. There are no measured financial covenants
under the new demand line of credit. The Company was in compliance with its previously required covenants
44
at December 31, 2013. The Company incurred commitment fees totaling approximately $0.1 million in both 2013
and 2012 relating to the revolving credit agreement.
5.
Income Taxes
The provision for income taxes for 2014, 2013, and 2012 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:
2014
2013
2012
$ 14,885
2,053
$ 16,938
$ 22,313
2,026
$ 24,339
$ 23,028
2,417
$ 25,445
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
$
$
$
$
$
4,023
1,505
831
6,359
273
(97)
53
229
6,588
$
$
6,133
1,469
1,409
9,011
(245)
(34)
(72)
(351)
8,660
$
6,778
1,393
993
9,164
55
—
61
116
9,280
$
$
5,928
578
(520)
803
134
—
—
(421)
86
6,588
38.9%
8,519
877
(563)
963
128
(172)
—
(1,117)
25
8,660
35.6%
$
$
8,906
685
(993)
796
41
50
(157)
—
(48)
9,280
36.5%
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 40%. The 2013 ETR was lower than the
normal range primarily due to the recording of approximately $0.7 million of tax credits related to research and
development activities, and approximately $0.4 million of tax credits related to the Company’s participation in the
Work Opportunity Tax Credit (WOTC) program offered by the U.S. federal government to companies who have
hired individuals who have traditionally faced barriers to employment. The tax benefit for these two items for both
2013 and 2012 was recorded in 2013 as required under current accounting guidelines, as the legislation extending
these tax credits, the American Taxpayer Relief Act of 2012, was not passed by the U.S. federal government until
January 2013. The benefit of these tax credits was partially offset by an increase of approximately $0.1 million in
the valuation allowance associated with net operating losses incurred by certain foreign subsidiaries. The 2012
ETR was lower than the normal range due to approximately $0.5 million in tax expense related to non-taxable life
insurance proceeds received during the year. In addition, in 2012 the Company recorded an additional $0.2 million
45
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 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, 2014 and 2013 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
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 non-current liabilities
Net deferred tax assets
2014
2013
$
$
$
$
8,358 $
1,240
452
56
300
767
11,173
(3,135)
8,038
(470)
(125)
(595)
7,443 $
1,079 $
6,364
—
7,443 $
8,005
1,208
409
57
324
836
10,839
(2,170)
8,669
(965)
(197)
(1,162)
7,507
1,113
6,487
(93)
7,507
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, 2014, 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.
For tax purposes, the Company has various U.S. state net operating loss carryforwards which began to expire
in 2011, and have approximately $0.1 million remaining. These net operating losses have a carryforward period of
5 to 20 years. The Netherlands net operating loss carryforward is approximately $1.4 million, and began to expire
in 2014, while in the United Kingdom and Belgium, the net operating loss carryforwards are approximately $3.6
million and $0.2 million, respectively, and have no expiration date.
46
At December 31, 2014, 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 $0.8 million, in Belgium of approximately $0.1 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 $1.2 million will be realized at any point in the future.
Accordingly, at December 31, 2014, the Company has offset most of the asset with a valuation allowance totaling
$1.1 million, resulting in a net deferred tax asset from net operating loss carryforwards of approximately $0.1
million. During 2014, the net increase in the valuation allowance was approximately $1.0 million.
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 2010.
A reconciliation of unrecognized tax benefits for 2014 and 2013 is as follows:
(amounts in thousands)
Balance at January 1, 2013
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, 2013
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, 2014
$ 173
—
—
(24)
(149)
—
—
—
—
—
$ —
No significant increase 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 (if any) in
tax expense, as applicable. At December 31, 2014, the Company had no accrual for the payment of interest and
penalties.
The Company will establish an unrecognized tax benefit 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, 2014, the Company believes it has
adequately provided for its tax-related liabilities, and that no reserve for unrecognized tax benefits is necessary.
At December 31, 2014, the undistributed earnings of foreign subsidiaries amounted to approximately $18.4
million. A deferred tax liability for the taxes related to these unremitted accumulated foreign earnings has not been
provided for as the determination of the estimated liability is not practicable and because undistributed earnings of
the Company’s foreign subsidiaries are considered to be indefinitely reinvested. 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.
In 2014, 2013, and 2012, a total of 543,000, 87,000, and 461,000 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 $2.0 million, $0.5 million, and $2.2 million
in 2014, 2013, and 2012, respectively. These tax benefits have also been recognized in the consolidated balance
sheets as a reduction of income taxes payable.
47
Net income tax payments during 2014, 2013, and 2012 totaled $5.8 million, $7.1 million, and $6.5 million,
respectively.
6.
Lease Commitments
At December 31, 2014, 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 as of December 31, 2014 are summarized as follows:
(amounts in thousands)
2015
2016
2017
2018
2019
Later years
Minimum future obligations
$
$
5,046
3,740
2,459
1,091
269
—
12,605
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 2014, 2013, and 2012 was approximately $7.0
million, $7.0 million, and $6.3 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, 2014, 2013, and 2012 for the ESBP is as follows:
Net Periodic Pension Cost—ESBP
(amounts in thousands)
Interest cost
Amortization of actuarial loss
Net periodic pension cost
2014
2013
2012
$
$
276 $
138
414 $
243 $
191
434 $
338
279
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 was approximately $90,000, $49,000, and $118,000 for the years ending
December 31, 2014, 2013 and 2012, respectively.
48
The change in benefit obligation and reconciliation of fair value of plan assets for the years ended
December 31, 2014 and 2013 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
2014
2013
2014
2013
$
$
$
$
7,499
276
(737)
1,236
—
8,274
—
—
737
(737)
—
—
—
8,274
714
7,560
$
$
$
$
8,405
243
(720)
(429)
—
7,499
$ 11,635
358
(159)
4,896
(1,798)
14,932
$ 11,913
333
(141)
(939)
469
11,635
—
—
720
(720)
—
—
—
7,499
$
8,752
359
—
(159)
—
(1,042)
7,910
7,022
$
8,143
351
—
(141)
52
347
8,752
2,883
704
6,795
$
$
—
7,022
$
$
—
2,883
3.30%
3.87%
—%
—%
3.87%
3.02%
—%
—%
1.50%
3.20%
—%
4.00%
3.20%
2.80%
—%
4.00%
For the ESBP, the accumulated benefit obligation at December 31, 2014 and 2013 was $8.3 million and $7.5
million, respectively. The amounts included in other comprehensive loss relating to the pension loss adjustment in
2014 and 2013, net of tax, were approximately $0.7 million and $(0.4) million, respectively. The discount rate used
in 2014 was 3.30%, 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 57 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. Benefits paid to participants are funded by the Company as
needed, and are expected to total approximately $0.7 million in 2015. 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
2015 or future years.
For the NDBP, the accumulated benefit obligation at December 31, 2014 and 2013 was $14.9 million and
$11.6 million, respectively. The discount rate used in 2014 was 1.50%, 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 170 basis points from the rate used in the prior year due to the declining economic
environment in Europe, and resulted in an increase in the plan’s liabilities of $4.4 million in 2014.
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
49
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 and discount rates. In 2014 and 2013, the plan investments
had a targeted minimum return to the Company of 4.0%, which is consistent with historical returns and the 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 2015.
Anticipated benefit payments for the ESBP and the NDBP expected to be paid in future years are as follows:
(amounts in thousands)
2015
2016
2017
2018
2019
2020 - 2024
Total
ESBP
NDBP
$
$
725 $
670
654
655
657
2,942
6,303 $
150
165
186
227
258
1,528
2,514
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, 2014 are $2.0 million
and $7.8 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, 2013 were $1.3 million and $3.9 million, respectively, also for unrecognized actuarial losses.
The amounts recognized in other comprehensive income (loss), net of tax, for 2014, 2013, and 2012, which
primarily consist of an actuarial gain (loss), totaled $(4.6) million (primarily due to the decrease in the discount rate
for the NDBP), $1.3 million, and $(2.8) million, respectively. Net periodic pension benefit (cost), and the amounts
recognized in other comprehensive loss, net of tax, for the ESBP and the NDBP for 2014, 2013, and 2012 totaled
$(5.1) million, $0.8 million, and $2.1 million, respectively.
The amounts in accumulated other comprehensive loss expected to be recognized as components of net
periodic benefit cost during 2015 for the ESBP and the NDBP for unrecognized actuarial losses total $0.4 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 $0.2 million in contributions to the plan in 2014 for amounts earned in 2013, $0.3 million in
contributions to the plan in 2013 for amounts earned in 2012, and $0.4 million in contributions to the plan in 2012
for amounts earned in 2011. The Company anticipates making contributions in 2015 totaling approximately $0.1
million to this plan for amounts earned in 2014. The investments in the plan are included in the total assets of the
Company, and are discussed in note 3, “Investments.” During 2014, 2013 and 2012, some 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, but
will 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 election 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 $0.4 million
in 2014, and less than $0.1 million for both 2013 and 2012. 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 units received by the participant. These shares of common stock are not entitled to any voting
rights, but will 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.
50
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, net of forfeitures, which currently consist of cash and may include the
Company’s stock, were funded and charged to operations in the amounts of $2.3 million, $2.4 million, and $2.8
million for 2014, 2013, and 2012, 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 $0.2 million in 2014, and $0.1
million in both 2013, and 2012.
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. In 2014 and previous years, the Company offered 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 expanded healthcare coverage to those employees, or potentially pay financial penalties.
Beginning in 2015, the Company is in the process of offering compliant healthcare coverage as required.
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, 2014, approximately
218,000 shares remain unissued under the ESPP. During 2014, 2013, and 2012, approximately 24,000, 19,000,
and 19,000 shares, respectively, were purchased under the ESPP at an average price of $13.35, $19.72, and
$15.29 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, 2014, 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 2014, 2013, or 2012, and there were 3.3 million shares in the SECT at each of
December 31, 2014, 2013 and 2012.
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 2014, 2013, or 2012, and there were 59,000 shares in the OST at each of December 31, 2014, 2013 and
2012.
Preferred Stock
At December 31, 2014 and 2013, the Company had 2.5 million shares of par value $0.01 preferred stock
authorized for issuance, but none outstanding.
51
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 the number of awards that are ultimately
expected to vest.
Equity-based compensation expense, the corresponding tax benefit and net equity-based compensation
expense for 2014, 2013 and 2012 are as follows:
(amounts in thousands)
Equity-based compensation expense
Tax benefit
Net equity-based compensation expense
2014
2013
2012
$
$
3,088 $
1,098
1,990 $
2,647 $
935
1,712 $
2,236
788
1,448
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 1,300,000 shares may be granted or awarded under
the 2010 plan, 628,000 of which are available for grant as of December 31, 2014.
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 determined 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 were 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, 2014.
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 was equal to or greater than the fair market value
of the Company’s common stock on the date the option was 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, 2014.
Under the Company’s 1991 Restricted Stock Plan, a total of 800,000 shares of restricted stock may be
granted to certain key employees, 95,000 of which are available for grant as of December 31, 2014.
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 2014, 2013, and 2012 was $5.91, $5.78, and $5.47, 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, 2014, 2013 and 2012:
Expected life (years)
Dividend yield
Risk-free interest rate
Expected volatility
2014
2013
2012
4.1
1.4%
1.2%
48.0%
2.7
1.0%
0.4%
44.4%
2.7
0.0%
0.4%
61.3%
52
The Company used historical volatility calculated using daily closing prices for its common stock over periods
that match the expected term of the options granted to estimate the expected volatility for the grants made in 2012,
2013 and 2014. 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 beginning to pay dividends in 2013, and
the expectation of paying dividends in the foreseeable future.
During 2012, 2013 and 2014, the Company issued restricted stock to certain 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. In the event the Company issued
stock to its independent directors, the 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 will recognize 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, 2014, total remaining stock-based compensation expense for non-vested equity-based
compensation was approximately $2.7 million, which is expected to be recognized on a weighted-average basis
over the next 15 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, 2011
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2012
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2013
Granted
Exercised
Canceled or forfeited
Expired
Outstanding at December 31, 2014
Options Exercisable at December 31, 2014
2010 Plan
Options
Weighted-
Average
Exercise
Price
265,500 $
225,596 $
(20,750) $
(9,000) $
— $
461,346 $
207,000 $
(2,875) $
(5,000) $
— $
660,471 $
107,000 $
(5,000) $
(130,625) $
— $
631,846 $
477,722 $
12.89
14.41
13.53
13.55
—
13.59
21.03
13.50
13.18
—
15.93
16.93
13.18
17.02
—
15.89
15.56
Equity Plan
Options
3,175,075 $
— $
(574,353) $
(13,175) $
(3,000) $
2,584,547 $
— $
(107,775) $
(2,000) $
(2,625) $
2,472,147 $
— $
(601,800) $
— $
(1,750) $
1,868,597 $
1,868,597 $
Weighted-
Average
Exercise
Price
4.49
—
3.58
5.42
3.56
4.68
—
4.93
5.92
3.45
4.67
—
4.23
—
4.34
4.82
4.82
For 2014, there were 5,000 shares exercised under the 2010 plan, and the intrinsic value of those exercised
shares was $18,000. There were 2,875 and 20,750 shares exercised under the 2010 plan in 2013 and 2012,
respectively. The intrinsic value of those shares was $17,000 and $55,000, respectively. For 2014, 2013, and 2012,
the intrinsic value of the options exercised under the Equity Plan was $5.8 million, $1.6 million, and $7.4 million,
respectively. At December 31, 2014, there were 135,060 options remaining outstanding under the 1991 Plan.
There were no shares exercised under the 1991 Plan during 2014, 2013, or 2012.
53
A summary of restricted stock activity under the Equity Plan and the 1991 Restricted Stock Plan is as follows:
Outstanding at December 31, 2011
Granted
Released
Canceled or forfeited
Outstanding at December 31, 2012
Granted
Released
Canceled or forfeited
Outstanding at December 31, 2013
Granted
Released
Canceled or forfeited
Outstanding at December 31, 2014
Equity Plan
Restricted
Stock
221,500 $
— $
(40,000) $
— $
181,500 $
— $
(40,000) $
— $
141,500 $
— $
— $
— $
141,500 $
Weighted-
Average
Fair Value
5.01
—
4.97
—
5.02
—
4.97
—
5.04
—
—
—
5.04
1991
Restricted
Stock Plan
262,375 $
127,500 $
(90,626) $
(7,500) $
291,749 $
98,000 $
(106,626) $
(1,600) $
281,523 $
125,200 $
(193,652) $
(39,838) $
173,233 $
Weighted-
Average
Fair Value
9.57
15.04
8.38
11.14
12.29
20.68
10.77
18.04
15.75
16.62
15.26
16.71
16.70
During 2014, there were 11,700 shares of restricted stock granted under the 2010 Plan, with a weighted-
average fair value of $16.93. There were no releases or cancellations of these shares during 2014.
Options Outstanding at December 31, 2014
A summary of stock options that were outstanding at December 31, 2014 for the 2010 Plan and the Equity
Plan is as follows:
Range of Exercise Prices:
2010 Plan
$12.16 - $13.75
$15.04 - $16.93
$20.68 - $21.41
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
314,250 $
148,096 $
169,500 $
631,846 $
292,500 $
1,007,972 $
568,125 $
1,868,597 $
13.10
15.84
21.11
15.89
3.20
4.54
6.14
4.82
9.3 $
8.2
11.1
9.5 $
—
—
—
—
4.0 $ 1,852,825
3.0
5,032,901
5.3
1,923,534
3.9 $ 8,809,260
At December 31, 2014, there were also 135,060 options remaining outstanding under the 1991 stock option
plan, with 127,000 options ranging in prices from $2.88 to $6.00, and 8,000 options with a price of $16.19, all with a
remaining average contractual life of 0.5 years, and having an intrinsic value of $0.5 million.
54
Options Exercisable at December 31, 2014
A summary of stock options that are exercisable at December 31, 2014 for the 2010 Plan and the Equity Plan
is as follows:
Range of Exercise Prices:
2010 Plan
$12.16 - $13.75
$15.04 - $16.93
$20.68 - $21.41
Equity Plan
$2.35 - $3.26
$3.48 - $4.90
$5.25 - $7.18
Number of
Options
Exercisable
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life in Years
Aggregate
Intrinsic
Value
289,750 $
62,348 $
125,624 $
477,722 $
292,500 $
1,007,972 $
568,125 $
1,868,597 $
13.16
15.22
21.26
15.56
3.20
4.54
6.14
4.82
9.7 $
7.9
12.2
10.1 $
—
—
—
—
4.0 $
3.0
5.3
3.9 $
1,852,825
5,032,901
1,923,534
8,809,260
At December 31, 2014, there were also 135,060 options exercisable under the 1991 stock option plan, with
127,000 options ranging in prices from $2.88 to $6.00, and 8,000 options with a price of $16.19, all with a remaining
average contractual life of 0.5 years, and having an intrinsic value of $0.5 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, 2014
of $9.53 per share.
11.
Significant Customer
International Business Machines Corporation (IBM) is the Company’s largest customer. During the 2014
fourth quarter, our contract with IBM was renewed for three years until December 31, 2017. In 2014, 2013, and
2012, IBM accounted for $90.5 million or 23.0%, $101.7 million or 24.3%, and $113.8 million or 26.8% of the
Company’s consolidated revenue, respectively. In 2012, IBM sold its retail business to another large company.
While CTG retained the work, this reduced our revenue from IBM in 2012 by $3.2 million. The Company’s accounts
receivable from IBM at December 31, 2014 and 2013 amounted to $7.8 million and $11.5 million, respectively. No
other customer accounted for more than 10% of revenue in 2014, 2013, or 2012.
In January 2014, IBM announced its intention to sell its x86 server division to Lenovo, and the initial closing of
that sale occurred on September 29, 2014. A portion of the Company's 2014 and 2013 revenue from IBM was
related to the x86 server division. The Company expects to continue to retain a significant share of the revenue
derived from the x86 server division despite the transition of the division from IBM to Lenovo.
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, 2014 and 2013, 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,
2014 and 2013, 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.
55
13.
Enterprise-Wide Disclosures
The Company operates in one industry segment, providing IT services to its clients. The services provided
include managed 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
2014
2013
2012
(amounts in thousands)
Revenue from External Customers:
United States
Belgium(1)
Other European countries
Other country
Total foreign revenue
Total revenue
Long-lived Assets:
United States
Europe
Total long-lived assets
Deferred Tax Assets, Net of Valuation Allowance:
United States
Europe
Total deferred tax assets, net
$ 314,500 $ 341,391 $ 355,022
41,957
26,653
783
69,393
$ 393,268 $ 419,036 $ 424,415
44,692
33,652
424
78,768
48,428
28,684
533
77,645
$
$
$
$
5,759 $
1,034
6,793 $
7,982 $
56
8,038 $
7,169 $
1,072
8,241 $
8,669 $
—
8,669 $
6,102
814
6,916
8,485
—
8,485
(1) Revenue for our Belgium operations has been disclosed separately as it exceeds 10% of consolidated revenue
for certain of the years presented
56
14.
Quarterly Financial Data (Unaudited)
(amounts in thousands, except per-share data)
2014
Revenue
Direct costs
Gross profit
Selling, general, and administrative expenses
Operating income
Interest and other expense, net
Income before income taxes
Provision for income taxes
Net income
Basic net income per share
Diluted net income per share
Cash dividend declared per share
Quarters
First
Second
Third
Fourth (1)(2)
Total
$
$
$
$
$
97,911 $ 100,331 $
76,979
20,932
15,457
5,475
(97)
5,378
2,212
3,166 $
79,133
21,198
15,728
5,470
(55)
5,415
2,182
3,233 $
0.21 $
0.19 $
0.22 $
0.20 $
96,760 $ 98,266 $ 393,268
80,095
77,723
313,930
18,171
19,037
79,338
16,535
14,466
62,186
1,636
4,571
17,152
(29 )
(33)
(214)
1,607
4,538
16,938
382
1,812
6,588
1,225 $
2,726 $
10,350
0.08 $
0.18 $
0.08 $
0.17 $
0.68
0.64
0.06 $
0.06 $
0.06 $
0.06 $
0.24
(1) Included in fourth quarter direct costs is approximately $1.5 million, or $0.9 million, net of tax, or $0.06 basic
and diluted net income per share, relating to the disposal of one of the Company's capitalized software projects.
(2) Included in fourth quarter selling, general, and administrative expenses is approximately $2.0 million, or $1.2
million, net of tax, or $0.08 basic and $0.07 diluted net income per share, of costs relating to the death of the
Company's Chairman and Chief Executive Officer under his employment agreement.
Quarters
First
Second
Third
Fourth
Total
(amounts in thousands, except per-share data)
2013
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
Cash dividend declared per share
$ 108,495 $ 107,117 $ 100,689 $ 102,735 $ 419,036
330,327
88,709
63,982
24,727
(388)
24,339
8,660
15,679
85,896
22,599
16,417
6,182
(109)
6,073
2,016
4,057 $
84,470
22,647
16,248
6,399
(106)
6,293
2,238
4,055 $
$
79,506
21,183
15,129
6,054
(91)
5,963
2,100
3,863 $
0.25 $
0.23 $
80,455
22,280
16,188
6,092
(82 )
6,010
2,306
3,704 $
0.24 $
0.22 $
0.26 $
0.24 $
0.26 $
0.24 $
1.02
0.92
0.05 $
0.05 $
0.05 $
0.05 $
0.20
57
$
$
$
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 Interim Chief Executive Officer and Interim 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 Interim
Chief Executive Officer and Interim 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 (1992) 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, 2014.
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.
58
(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,
2014, based on criteria established in Internal Control - Integrated Framework (1992) 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, 2014, based on criteria established in Internal Control - Integrated Framework
(1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)”.
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, 2014
and 2013, 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, 2014, and our report
dated February 25, 2015 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Buffalo, New York
February 25, 2015
59
(c) Changes in Internal Control Over Financial Reporting
The Company reviews, revises and improves the effectiveness of the Company’s internal controls on a
continuous basis. The Company’s management, including its Interim Chief Executive Officer and Interim 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 Company's last fiscal quarter, which ended on December 31, 2014, that
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B.
Other Information
In October 2014, the Company entered into an employment agreement (the “Employment Agreement”) with
Mr. Brendan M. Harrington, the Company’s Interim Chief Executive Officer. Pursuant to the Employment
Agreement:
• Mr. Harrington's compensation will be reviewed and adjusted annually by the Compensation Committee
as appropriate;
• either party may terminate the employment relationship upon sixty (60) days prior written notice to the
other;
• competitive activities, and other activities adverse to the Company's interests, are prohibited during the
term of the employment relationship and for a one (1) year period after termination thereof.
The Employment Agreement also provides severance compensation in the event of termination. In the event
of termination by Mr. Harrington for Good Reason (as defined in the Employment Agreement), or by the Company
other than for Cause (as defined in the Employment Agreement), or if he dies or becomes disabled, Mr. Harrington
will receive a lump sum cash payment equal to the average annual total cash compensation paid to him in the three
(3) years leading up to the actual date of termination. Mr. Harrington will also continue to receive medical and
dental benefits for a period of twelve (12) months. In the event Mr. Harrington remains unemployed following the six
(6) month anniversary of the date of termination, he will receive a second lump sum cash payment equal to fifty
percent (50%) of the initial lump sum payment received.
On November 11, 2014, the Company entered into a new change in control agreement with Mr. Harrington.
The agreement provides that upon the occurrence of a change in control, Mr. Harrington will become fully vested in
and entitled to exercise immediately all stock related awards he has been granted under any plans or agreements
of the Company. The agreement goes on to provide that upon the termination of Mr. Harrington’s employment
(a) without cause by the Company or by him with good reason within 6 months before a change in control or
between 6 months and 24 months following a change in control or (b) by him for any reason within 6 months after a
change in control, Mr. Harrington will receive a lump sum payment equal to 2.99 times his full salary and 2.99 times
his highest annual Incentive over the last three years as well as an additional lump sum to cover fringe benefits. A
change in control will occur if (1) the Company’s stockholders approve (a) the dissolution or liquidation of the
Company, (b) the merger or consolidation or other reorganization of the Company with any other entity other than a
subsidiary of the Company, or (c) the sale of all or substantially all of the Company’s business or assets or (2) any
person other than the Company or its subsidiaries or employee benefit plans becomes the beneficial owner of more
than 20% of the combined voting power of the Company’s then outstanding securities or (3) during any period not
longer than two consecutive years, individuals who at the beginning of such period constituted the Board cease to
constitute at least a majority thereof, unless the election of each new Board member was approved by a vote of at
least three-quarters of the Board members then still in office who were Board members at the beginning of such
period.
60
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 6, 2015
(Proxy Statement) to be filed with the SEC not later than 120 days after the end of the year ended December 31,
2014, 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, 2014, 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
(a)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
listed in column (a))
(c)
631,846 $
1,868,597 $
135,060 $
— $
— $
2,635,503 $
15.89
4.82
6.56
—
—
7.56
628,000
—
—
95,000
—
723,000
At December 31, 2014, 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,” "Audit Committee Review of 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.
61
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
31
32
33
34
35
36
38
63
64
62
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Computer Task Group, Incorporated:
Under date of February 25, 2015, we reported on the consolidated balance sheets of Computer Task Group,
Incorporated and subsidiaries as of December 31, 2014 and 2013, 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, 2014, as contained in the annual report on Form 10-K for the year 2014. 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 25, 2015
63
COMPUTER TASK GROUP, INCORPORATED
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Balance at
January 1 Additions Deductions
Balance at
December 31
2014
Accounts deducted from accounts receivable -
Allowance for doubtful accounts
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
2013
Accounts deducted from accounts receivable -
Allowance for doubtful accounts
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
2012
Accounts deducted from accounts receivable -
Allowance for doubtful accounts
Accounts deducted from deferred tax assets -
Deferred tax asset valuation allowance
$
$
$
$
$
$
1,040
55 A
(204) A $
2,170
1,233 B
(268) B $
862
178 A
— A $
2,269
233 B
(332) B $
965
326 A
(429) A $
1,404
1,000 B
(135) B $
891
3,135
1,040
2,170
862
2,269
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
64
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/ Brendan M. Harrington
Brendan M. Harrington
Interim Chief Executive Officer
Dated: February 25, 2015
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
Interim Chief Executive Officer
Signature
Title
Date
February 25, 2015
/s/ Brendan M. Harrington
Brendan M. Harrington
(ii)
Principal Accounting and Principal Financial Officer Interim Chief Financial Officer
February 25, 2015
/s/ John M. Laubacker
John M. Laubacker
(iii) Directors
/s/ Thomas E. Baker
Director
February 25, 2015
Thomas E. Baker
/s/ Randall L. Clark
Director
February 25, 2015
Randall L. Clark
/s/ David H. Klein
Director
February 25, 2015
David H. Klein
/s/ William D. McGuire
Director
February 25, 2015
William D. McGuire
/s/ Daniel J. Sullivan
Chairman of the Board of Directors February 25, 2015
Daniel J. Sullivan
65
EXHIBIT INDEX
Exhibit
3. (a)
(b)
4. (a)
(b)
(c)
10. (a)
Description
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
Reference
(1)
(2)
(1)
(2)
(1)
(3) +
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
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
2014 Key Employee Compensation Plans
Computer Task Group, Incorporated Non-Qualified Key Employee
Deferred Compensation Plan 2007 Restatement
Computer Task Group, Incorporated 1991 Restricted Stock Plan
Computer Task Group, Incorporated 2000 Equity Award Plan
Computer Task Group, Incorporated 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, 2009, between the
Registrant and James R. Boldt, as amended and restated
Employment Agreement, dated January 1, 2009, between the Registrant
and James R. Boldt, as amended and restated
(m) Officer Change in Control Agreement
(3) +
(3) +
(4) +
(3) +
(1) +
(5) +
(1) +
(1) +
# +
(6) +
(6) +
(6) +
#
+
(1)
(2)
(3)
(4)
(5)
(6)
Filed herewith
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 Form 8-K on February 20, 2015,
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, 2006, and incorporated herein by reference
(file No. 001-09410 filed on March 7, 2007)
Included in the Registrant’s definitive Proxy Statement dated April 2015
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 26, 2009)
66
EXHIBIT INDEX (Continued)
Description
Computer Task Group, Incorporated First Employee Stock Purchase Plan
(Ninth Amendment and Restatement)
Reference
(7) +
Computer Task Group, Incorporated 1991 Employee Stock Option Plan
Computer Task Group, Incorporated 2010 Equity Award Plan
Computer Task Group, Incorporated Non-Employee Director Deferred
Compensation Plan
Loan Agreement, dated as of May 1, 2014, among Computer Task Group,
Incorporated, Manufacturers and Traders Trust Company and KeyBank
National Association.
(8) +
(9) +
(10) +
(11) +
Employment Agreement, dated October 2014, between the Registrant
and Brendan M. Harrington
Change in Control Agreement, dated November 11, 2014, between the
Registrant and Brendan M. Harrington
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
XBRL Instance Document
XBRL Taxonomy Extension Schema Document
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
XBRL Taxonomy Extension Definition Linkbase Document
Filed herewith
Furnished herewith
Filed as Exhibit A to the Registrant's Proxy Statement on Schedule 14A
dated April 4, 2012, for its Annual Meeting of Shareholders held on May 9,
2012 (file No. 001-09410 filed on April 4, 2012)
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 28,1997)
#
#
(12)
#
#
#
#
##
#
#
#
#
#
#
Exhibit
(n)
(o)
(p)
(q)
(r)
(s)
(t)
14.
21.
23.
31. (a)
(b)
32.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
#
##
(7)
(8)
(9)
Filed as Appendix B to the Registrant's Proxy Statement on Schedule
14A, dated April 2, 2010, for its Annual Meeting of Shareholders held on
May 12, 2010 (file No. 001-09410 filed on March 31, 2010)
(10) Filed as Appendix A to the Registrant's Proxy Statement on Schedule
14A, dated April 2, 2010, for its Annual Meeting of Shareholders held on
May 12, 2010 (file No. 001-09410 filed on March 31, 2010)
(11) Filed as an Exhibit to the Registrant’s Form 8-K on May 2, 2014, and
(12)
incorporated herein by reference (file No. 001-09410)
Included at the internet address specified in the Registrant’s definitive
Proxy Statement dated April 2015 under the caption entitled “Corporate
Governance and Website Information,” and incorporated herein by
reference
67
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, 2014. 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 wholly-owned 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.)
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.)
e-trinity N.V. (a subsidiary of Computer Task Group Belgium N.V.)
Quality4Care B.V.B.A. (a subsidiary of e-trinity N.V.)
State/Country
or Jurisdiction
of Incorporation
Delaware
New York
United Kingdom
Missouri
Canada
Delaware
The Netherlands
United Kingdom
Belgium
Belgium
Luxembourg
Luxembourg
Belgium
Belgium
Consent of Independent Registered Public Accounting Firm
EXHIBIT 23
The Board of Directors
Computer Task Group, Incorporated:
We consent to the incorporation by reference in the registration statement 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, 333-183206, and 333-197925 on Form S-8 of Computer Task Group, Incorporated of
our reports dated February 25, 2015, with respect to the consolidated balance sheets of Computer Task Group,
Incorporated and subsidiaries as of December 31, 2014 and 2013, 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, 2014, and the related financial statement schedule, and the effectiveness of
internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014
annual report on Form 10-K of Computer Task Group, Incorporated.
/s/ KPMG LLP
Buffalo, New York
February 25, 2015
I, Brendan M. Harrington, 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 25, 2015
/s/ Brendan M. Harrington
Brendan M. Harrington
Interim Chief Executive Officer
I, John M. Laubacker, 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 25, 2015
/s/ John M. Laubacker
John M. Laubacker
Interim 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, 2014 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 25, 2015
Date: February 25, 2015
/s/ Brendan M. Harrington
Brendan M. Harrington
Interim Chief Executive Officer
/s/ John M. Laubacker
John M. Laubacker
Interim Chief Financial Officer
Corporate Information
Stock Market Information
The Company’s common stock is traded on
The NASDAQ Stock Market LLC under the
symbol CTG.
Annual Meeting
The annual meeting of shareholders has
been scheduled for May 6, 2015 in Buffalo,
New York for shareholders of record on
Transfer Agent and Registrar
Computershare
Our Transfer Agent is responsible for our shareholder records, issuance of stock certificates,
and distribution of our dividends, if any, and the IRS Form 1099. Your requests, as
shareholders, concerning these matters are most efficiently answered by corresponding
directly with Computershare:
Shareholder Services Number: (800) 730-4001
Investor Centre™ portal: www.computershare.com/investor
March 27, 2015.
First Class/Registered/Certified Mail:
Courier Services:
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 Certifications
The Company’s executive officers have filed all
certifications required by the Sarbanes-Oxley
Act of 2002.
Form 10-K and Company Code of Ethics,
Committee Charters, and Governance
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 filed 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:
Computer Task Group, Incorporated
Investor Relations Department
800 Delaware Avenue
Buffalo, NY 14209-2094
(716) 887-7400
Computershare Investor Services
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
211 Quality Circle, Suite 210
College Station, TX 77845
Independent Registered Public Accounting Firm
KPMG LLP
12 Fountain Plaza, Suite 601
Buffalo, NY 14202
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, business strategy
and expectations, new business opportunities, cost control initiatives, business wins, market
demand, 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) increased bargaining power of large customers, (iv) the Company’s ability to protect
confidential client data, (v) the partial or complete loss of the revenue the Company generates
from International Business Machines Corporation (IBM), (vi) the uncertainty of customers’
implementation of cost reduction projects, (vii) the effect of healthcare reform and initiatives,
(viii) the mix of work between staffing and solutions, (ix) currency exchange risks, (x) risks
associated with operating in foreign jurisdictions, (xi) renegotiations, nullification, or breaches of
contracts with customers, vendors, subcontractors or other parties, (xii) the change in valuation
of recorded goodwill or capitalized software balances, (xiii) 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,
(xiv) industry and economic conditions, including fluctuations in demand for IT services, (xv)
consolidation among the Company’s competitors or customers, (xvi) the need to supplement
or change our IT services in response to new offerings in the industry or changes in customer
requirements for IT products and solutions, and (xvii) 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).
Board of Directors and Officers
Directors
Thomas E. Baker
Retired Partner,
PricewaterhouseCoopers
Clifford Bleustein
President and
Chief Executive Officer, CTG
Randall L. Clark
Chairman, Dunn Tire LLC
David H. Klein
Former Chief Executive Officer,
Lifetime Healthcare Companies
William D. McGuire
Former President and
Chief Executive Officer,
Kaleida Health
Daniel J. Sullivan
Chairman, CTG
Former President and
Chief Executive Officer,
FedEx Ground
Officers
Clifford Bleustein
President and
Chief Executive Officer
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
Senior 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
002CSN4B1A